Ordinary people are the biggest losers in the Ponzi, MLMs, chit fund and money circulation schemes like Saradha, Speak Asia and QNet. Yet, under 'pressure' from powerful MNCs operating as direct selling companies, the Modi government is reportedly proposing to dilute the PCMCS Act. Will it impose stringent conditions on them or merely help them to escape scrutiny?
It is reliably learnt that Department of Banking and Financial Services under the Ministry of Finance is moving a Cabinet Note on 7 October 2014 to bring exceptions to Prize Chits & Money Circulations Schemes (Banning) (PCMCS) Act, 1978.
By using this amendment, several multi-level marketing (MLM) companies, like Amway, QNet may get a free run in this country and become completely legal, when they were operating in a grey area so far. The lobbyists of these companies in Delhi have been extremely active in New Delhi to get the Narendra Modi government support by diluting the Act. The irony is that while the Finance Ministry is quietly working at diluting the Prize Chits Act, the very same government and its capital market regulator has been going after the Saradha scamsters with renewed vigour and the chairman of MPS Greenery has been arrested following action by the capital market regulator. Ponzi schemes have been bursting on the national scene with great regularity and in most cases, there is political collusion. A major scam is also being investigated in Orissa after tens of thousands of people were duped of their life savings.
So why is the dilution of the PCMCS act such a priority for the new government? Why is it being discussed so quietly, without a public engagement and seeking of feedback from stakeholders? Those who have persistently fought to protect people or highlighted activities of these MLM companies are surprised that the government has time to discuss dilution of this act, when at least six nationalised banks are headless for months and many do not even have executive directors.
EAS Sarma, former secretary to the Government of India (GoI) has written to Cabinet Secretary Ajit Seth and the Banking Secretary Mr Sandhu in response to reports that the Ministry of Finance has circulated a Cabinet note with respect to proposed amendments to the PCMCS Act, 1978.
He says, “There are issues that impinge on several court cases and any dilution of the Act will prejudice the Centre's and States' cases before the Courts. Such a dilution will allow the delinquent MLM companies and their promoters to escape scot-free to the detriment of the public interest”.
The Cabinet note cited by Mr Sarma comes in the wake of regular chit fund scams, like Saradha, breaking all over the country and the government's as yet ineffective efforts to bring these chit funds under control.
By aping the model of MNCs, many indigenous companies are promoting illegal money circulation schemes in every nook and corner, thus ruining the fiscal system of this country. Rough estimates till now has revealed that financial consumers have lost a whopping Rs3 lakh crore by ‘investing’ or ‘buying products’ from these MNCs and local indigenous companies.
Even, the Intelligence Bureau (IB) in October 2012, written to the government about the illegal financial activities of chit fund companies. The IB reported "fresh" illegal financial activities of chit fund companies and multi-level marketing schemes that were cheating lower middle class and poor people, especially from rural and semi urban areas. Of the four firms named, two companies - Rose Valley Estate Construction Ltd, Kolkata and MPS Greenery Developers Ltd, Jhargram are in West Bengal, says a report from Hindustan Times.
The provisions of the PCMCS (Banning) Act, 1978 deals with such activities. Section 2(c) of the Act defines ‘Money Circulation Scheme’ as a scheme by whatever name called for making of quick or easy money on any event or contingency relative or applicable to enrolment of new members into the scheme; for receipt of any money or valuable thing as consideration for a promise to pay money on any event or contingency relative or applicable to enrolment of new members into the scheme. This section further clarifies that it is immaterial whether the commission derived from entrance fee of new members, renewal of periodical subscriptions, conducting of seminars and sale of products or not.
Section 3 of the Act bans (i) Promotion or conduct of these schemes, (ii) enrol of members into such scheme, (iii) Participate or otherwise involvement in these schemes and (iv) remit or receive of the money relating to these schemes.
Mr Sarma, says, “I wish to underline the fact that ‘economic liberalisation’ should not mean welcoming firms that add no value to the economy. Most MLMs, the world over, belong to that category. Many of them are high and mighty, as they are MNCs supported by their parent countries. Their parent governments lobby on their behalf as they profiteer at the cost of the public in the developing world. These companies have, time and again, tried to sneak into the country, through the questionable FIPB route. The smaller MLMs and Chit Funds, hand-in-glove with the regulatory authorities, function merrily without registering under the Companies Act and swindle people. Several of these companies have financial links with terrorist groups, drug traffickers and so on. There is no place in India today where some family or the other is not shedding tears for having got robbed by one of these Ponzi companies! Do you want this unfortunate situation to continue and become worse?”
“If this report is true and if the Act is diluted in anyway, it will not only prejudice the ongoing court cases against MLM companies like Amway but also help more and more unethical Ponzi companies to derive strength and rob millions of unwary households of their meagre savings. There will be a mushrooming of Saradha-like companies having their sway over unsuspecting public and destroying their lives. Instead of curbing the MLMs, then the Central Government will have the unenviable distinction of being an abettor of the MLMs' anti-social activity,” the former Secretary said in his letter.
What is urgently needed today is not any dilution of the PCMCS Act but making it more stringent so that any company that tries to carry on activities that add no value to the economy but syphon off the savings of the small households are brought under rigorous regulatory oversight. The need of the hour is to secure coordination among regulators like SEBI, Registrar of Companies, Enforcement Directorate, Serious Fraud Investigation Office (SFIO), the State police and so on. Similarly, there is need for coordination among Central Ministries such as Finance, Corporate Affairs, Consumer Affairs and the State governments.
Moneylife has been writing and exposing thousands of MLMs, including
Speak Asia,
QNet (earlier version Gold Quest and Quest Net),
StockGuru India,
NMart,
Minerals for All, and so on. Even
Moneylife Foundation, the voice of over 31,000 financial consumers across the country, sent a Memorandum to the then Prime Minister Manmohan Singh urging him to either to ban out rightly or put in place a regulator in-charge to monitor such MLM companies and their schemes.
Can anyone post a link of full and final judgement regarding Amway ?
Thanks !
http://seekingalpha.com/article/2559565-...
also, a good account (and fun read) is E. Robert Smith's book: "Downline... an intolerable potential to deceive." It should be noted that from a standpoint of economic analysis MLM simply is a pyramid scheme dressed up with sales program that is designed to give it legitimate appearance, but in the end, saturation will depress the retail margins to zero, leading to expose the pyramid scheme. This is one reason that mature MLM companies are fighting hard against on-line sales right now, for the discounts undermine retails sales, and they'd be left with only the pyramid sales, which is all there was anyway.
By "online sales," you mean selling on eBay, personal web sites, etc., correct?
I don't agree with your saturation claim. 10s of millions of people turn 18 each year. If saturation were the issue, older MLMs like Avon (over 100 years) and Amway (55 years) would have saturated LONG ago. The real problem is these MLM scams DON'T saturate, they are "the gift that keeps on giving."
And re online selling, right, the companies are going after unauthorized online sales by their distributors on online websites, in an attempt to protect their MSRP.
As far as I know, discounts will still be allowed on the HLF site, as they are on the Amway site. What the HLF sites do is prevent people from shopping around for the best prices by visiting multiple online personal sites.
Saturation has little to do with lack of retailing. Lack of retailing indicates overpriced products, not saturation.
Start with a small amount of seed money.(Capital).
Go to small tier-2-3-4 town in India.Put false ad and recruit local educated presantable unemployed boys/girls.
Recruit these kids at a nice hotel ,provide dinner meals ,motivating speech,future dreams blah blah.
Some will be convinced some will withdraw.
Start to convince/sell offers to folks locally by these bakra employees.
Offer high value/interest on deposits.
Collect hefty amounts...pay off the biginner investor handsomly.
Success story spreads...more people jump into bandwagon.
Collect more and more.
Once target achieved jump ship.
Local employees will be screwed.
This has been going on for years and years in new forms.
This scam is succesfull and unbeatable. You just need credibility in the begining.this is MLM.
I consider Eureka Forbes/Kent Waterfilter selling as legitimate direct selling.
Amway is a scam.
Sorry....i consider even LIC ,Sahara etc as scam.(Not term insurance).
I agree. MLM has, in the words of former FTC Commissioner Dixon, that MLM has "an intolerable capacity to deceive." MLM should be made illegal, and only allow Direct Selling/one level.
what ever the rules or body is formed unless the implementor of the rules should be honest and integrity and now its lacking in india because of politician looting these officials also loot in their capacity and rule makers become the rule brakers first of all there should be honesty sincerity and accountability which lacking until then indian cannot improve is my opioion