Amway India is in trouble again. The global direct-selling company, which Wikipedia refers to as a multi-level marketing (MLM) company, had Rs757.77 crore of its Indian assets attached on 18th April by the enforcement directorate (ED) which investigates economic crime and money laundering. ED has attached Rs411.83 crore worth of movable and immovable property, including plant & machinery in various places, and Rs346 crore of bank balances and fixed deposits from 36 accounts.
The ED has accused Amway of running an MLM scheme masquerading (ED Attaches Amway India's Assets Worth Rs757.77 Crore for Running Pyramid Fraud) as a direct-selling operation with little attention to the actual sales of its exorbitantly priced products. The entire focus is on luring people with the hope of becoming rich by enrolling as members and earning commissions on inducing others to join Amway, says the ED. A key charge is that Amway, which entered India in 1996-97 with a share capital of just Rs21.39 crore, has remitted a massive Rs2,859.10 crore as dividend, royalty and other payments to its investors and its parent entities.
The question is: What is new this time? Those of us, who have followed Amway’s activities since it entered India over two decades ago, know that this is exactly what it does. Also, this is not the first time that Amway has been in serious trouble in India. Is the government more serious about the crackdown this time? Or will this be just another blip in Amway’s chequered history?
After all, the action against Amway was far more serious in 2013 and 2014. Its chairman and CEO in India, William Scott Pinckney, was arrested by the Kerala police in 2013 (Amway India chief, two others arrested under PCMCS Act. What about other MLMs?) and by the Andhra Pradesh police in 2014 (Amway India CEO arrested again). The difference between then and now is that the earlier action was under a rather weak Prize Chit and Money Circulation (Banning) Act 1978 (PCMCA) which was considered toothless by the police across India.
In December 2021, India notified the more stringent Consumer Protection Rules, 2021, which required direct-selling companies to comply with them in 90 days. These rules prohibit companies from operating MLMs, or money-circulation schemes, in the garb of direct selling. This means that the sale of products cannot be linked to commission income earned by referring prospective customers. The direct-selling agents have to have a verified identity, physical address and a fair and equitable, documented agreement with the company. The direct-selling company would also have to take responsibility for redressing customer grievances against its agents. The new rules also ask all state governments to take responsibility for monitoring and supervising the activities of direct sellers.
Interestingly, from 2014 onwards, the direct-selling industry had lobbied hard to dilute the PCMCA (Amending Prize Chits Act) to legitimise larger ‘direct-selling’ companies that have ‘products’ to sell, as against the thousands of Ponzi operations flourishing across India. This was after the crackdown on Amway and Malaysia-based QNet (which keeps resurfacing in new avatars) in India and when the National Democratic Alliance (NDA) government had just taken charge. Fortunately, this did not happen and the 2021 rules seem to have opened the doors for stricter enforcement action.
The ED statement about Amway suggests that the direct-seller MLM did not bother to comply with the new rules. After all, the charges against Amway in 2014 were the same that the ED has levelled against the company this week. Amway had promised drastic change in its function even in 2014. Amway’s global spokesperson, Richard Holwill, had told Moneylife (Amway India CEO arrested again) that being an Amway distributor, “can, at best, be a source of additional income or pocket money for most people.” But distributors, he said, ‘tend to go overboard’ in hyping up returns. That is clearly because their income is aligned with recruiting new distributors and not the sale of products. And, yet, Amway had claimed to us that it had stopped charging joining fees and its operating model does not ‘necessarily require enrolment of distributors’. Don’t the ED’s statements this week indicate that Amway remained a chain-marketing operation?
Armed with the new rules, the ED has cracked down on two MLMs. In March this year, it filed prosecution against Ebiz.com Pvt Ltd for allegedly running an MLM and attached assets worth Rs36 crore (ED attaches assets worth Rs 31 cr of ebiz.com). The scheme paid hefty commissions on new enrolments rather than their education courses, said the investigation agency.
MLM’s and Ponzi schemes continue to be the biggest money-trap for gullible savers and play on their greed and ignorance, all over the world. They usually enjoy strong support from politicians and a section of opinion-makers. Hopefully, the action against Amway will be just the start of a serious crackdown against MLMs and Ponzis; but it will be a humungous task.
Robert L FitzPatrick, founder of the International Association to Expose, Study and Prevent Pyramid Schemes (pyramidschemealert.org) calls MLMs a ‘swindle, not sales’ that offer the promise of ‘unlimited income’, ‘infinite expansion’ and ‘endless chains’. He says the business grows by creating a cult-like environment that pretends to have an economic basis. Large chunks of the crypto-currency businesses have also adopted similar tactics and strategies which often include mind control and financial abuse. Mr FitzPatrick, who has authored two books on MLMs (False Profits and Ponzinomics) alleges that “regulatory agencies are politically corrupted and prevented from enforcing the law or even investigating MLM.”
This has been true in India as well. Most MLMs and direct sellers, who were lobbying for a dilution of rules, had strong political support. The bigger ones are fronted by famous personalities. This explains the half-hearted action against their mis-selling and fraud, despite the mind-boggling losses inflicted on people.
For instance, PACL or Pearls thrived for over two decades by managing stay orders from courts against regulatory action and raised over Rs49,000 crore. Just a fraction of the money has been recovered from the founders, despite the investigation and distribution being supervised by a retired judge of the Supreme Court. We have covered the scam extensively in Moneylife (Read: https://www.moneylife.in/tags/pacl.html ).
One can be certain that the industry will push back against the ED crackdown and lobby for change in the 2021 consumer protection rules to distinguish between direct-selling companies ‘with sustainable products’ and the ones that are pure Ponzi operations.
Strategy India, a direct-selling consultancy, is already creating this distinction through its MLM Scams Alert which lists shady Pyramid and Ponzi operations after an investigation. It currently lists 3,510 companies on its website.
Ponzi schemes and chain-marketers are quick to latch on to the latest buzz to con people. Crypto-currency scams, e-learning operations and the promise of high returns through stock and commodity trading operations are some of the newer tricks used to lure people. The question is: Will the ED action in Amway’s case have a chilling impact on thousands of others that operate with impunity and can expand rapidly by using social media to push their false claims? A lot depends on whether the ED can make its charges against Amway stick and if there is a political will to shut down shady MLM operators by the thousands.
Editor's Note: Typical of the times we live in and how MLMs operate, any article on MLM leads to a flurry of comments to obfuscate the issue and continue to mislead people. We reserve the right to delete all such comments to protect our readers.
Comments
bmkamath2000
2 years ago
Finally moneylife found its mojo back... I read that your editor had exposed the harshad Mehta scam... And subsequently taken up the cudgels on investor protection making it a mission.. your coverage of aadhaar project something which I used to follow a lot was very much appreciated but I didn't like it when you took sides and not presented the whole story. Anyways I hope you have many more such stories of investment protection to uncover.
@Moneylife Can you cover another story how Amway distributors are still buying the products as their stores and website are still running. What is the government doing in this regard? Middle class people are getting poorer each day and rich getting more rich
Piling up the stocks, fooling middle class people, selling their assets to maintain the PV. What a shame for the government, they have formed laws after so many innocents have lost their time and money
And to those who are defending Amway, remember you are working for criminals for free. What do you think which authority is certifying or regulating your fancy overpriced products. Have you seen chemicals listed out at the back of your products. Keep dreaming and you will be on road one day.
The boosted cost is that fills the cheaters’ coffers and empties the purses of the gullible. The modus operandi is very simple. They call their products food supplements. Let them clarify whether it is food or a supplement. If it’s a food then, it will be coming under the control of FPO. If it is a health supplement then, it will be coming under the drug control act. So to escape both, such bogus companies use fancy terms such as food supplement, neutracuetical, et cetera. They say their products are from own (note the word) certified organic farms. What the hell is that? who is certifying? They themselves? what a fun!
Varun what u have said let's analyse it with facts. Amway has earned over 27500+ crore since its operations in India and paid over only 8750+ crore to its distributors. Do u imagine the Gap?
No matter.
Point no. 2.
Go to a bloody So called Diamond of Amway and ask him how many he has referred to his team? How long has he been in BUSINESS? IMP - How many people are earning 10,ooo rupees per month consistently. Calculate the percentage and speak here.
No. 3 : How much time they waste to their gullible new comers through Amway Bhajans???? in weekend rather than training their people atleast how to earn a livelihood. They focus expanding their network. Becoz Amway knows every newcomers who joins a new member will be an automatic customer for his greediness for becoming overnight rich.
That is d wrong practise in every MLM operating in Amway.
Why their price are 2-3 times more than market prices? They have bcoz they pay hepty amount to uplines looting newbies and Amway itself has the profit margin as stated above.
I suggest MDT to take up with the Regulators about starting a website wherein such MLM can be reported. If the Authorities are serious is curbing such nefarious activities, they should advertise widely. Many a middle class and lower middle class families would be saved of being fleeced.
After reading your background, I'm sorry to say that this article dose not match with your past accomplishments. I dnt know the reality but it seems like you have only seen what ED has put on paper and not the actual concept Amway offers. If u are a sincere generalist which I'm sure you are, you must see both sides of the coin before making any statement. Kindly look further into the allegations, the direct selling rules & Amway's plan, I'm sure ull recognise the truth.
If you need my help u can reach me on 8965010007.
Senior Amway representatives had met Moneylife to clarify their views on Amway. Richard N Holwill and Rajat Banerjee , who met us, admitted that although some distributors tend to go overboard in pitching the scheme, income from being a distributor of Amway can, at best, be a source of additional income or pocket money for most people. It is not the pathway to riches as MLM companies make it out to be.
However, Amway also insisted that there is no longer any joining fee and the model does not necessarily require enrolment of distributors.
However, there was no answer to expensive nutraceuticals being prescribed by doctors, whose wives or relatives were Amway agents.
Varun what u have said let's analyse it with facts. Amway has earned over 27500+ crore since its operations in India and paid over only 8750+ crore to its distributors. Do u imagine the Gap?
No matter.
Point no. 2.
Go to a bloody So called Diamond of Amway and ask him how many he has referred to his team? How long has he been in BUSINESS? IMP - How many people are earning 10,ooo rupees per month consistently. Calculate the percentage and speak here.
No. 3 : How much time they waste to their gullible new comers through Amway Bhajans???? in weekend rather than training their people atleast how to earn a livelihood. They focus expanding their network. Becoz Amway knows every newcomers who joins a new member will be an automatic customer for his greediness for becoming overnight rich.
That is d wrong practise in every MLM operating in India
Why their price are 2-3 times more than market prices? They have bcoz they pay hepty amount to uplines looting newbies and Amway itself has the profit margin as stated above.
Sir your question about nutraceuticals and being expensive shows your ignorance.. A. You need to check the pricing on units.. of base price.. They are at par.. However govt taxation is very different.. Nutraceuticals are charged 18% (say vitamin B fir example) and pharmaceutical charged @5%.... Still CUSTOMERS stop taking cheap pharmaceutical and shift to Nutrilite.. ..
I just now checked Amway opportunities selling brochure issued by the company. It states clearly that by building only the structure does not guarantee commission income and only when you sell products, you can earn commission. Today without networking also, one can earn commission income and nobody is stopped on that. Moreover, the structure is built to ensure stability / sustainability of the income every month.
A structure of distribution starts with lower percentage of commission from top level ( like Stockist) and higher margin goes to down level ( retailer) in every ethical business. Coz top level has large group of network and have sustainability with small cut of margin. A retailer have low volume of sale and hence gets a major share of margin. Check the Idiot MLM like Amway and other third class business model. Retailers have 3% commission level and top lines are 21% commission level and even 0% to down level of pyramid if they don't attain 22,000 per month sale!
What a non-sense idea!
A newbie joined and made a sale of 19000 he will get 0% coz he didn't attain target and his total commission will be transferred to all his upline eagles waiting his hard earned labour. Isn't it un ethical?
Today I notice there are no other products which are having efficacy as good as Amway products. Moreover, who decides on pricing ? It’s free market snd if the people are willing to pay, why not ? In the case of Covid vaccines, why itne product has a differential price than another vaccine?
Fiercely independent and pro-consumer information on personal finance.
1-year online access to the magazine articles published during the subscription period.
Access is given for all articles published during the week (starting Monday) your subscription starts. For example, if you subscribe on Wednesday, you will have access to articles uploaded from Monday of that week.
This means access to other articles (outside the subscription period) are not included.
Articles outside the subscription period can be bought separately for a small price per article.
Fiercely independent and pro-consumer information on personal finance.
30-day online access to the magazine articles published during the subscription period.
Access is given for all articles published during the week (starting Monday) your subscription starts. For example, if you subscribe on Wednesday, you will have access to articles uploaded from Monday of that week.
This means access to other articles (outside the subscription period) are not included.
Articles outside the subscription period can be bought separately for a small price per article.
Fiercely independent and pro-consumer information on personal finance.
Complete access to Moneylife archives since inception ( till the date of your subscription )
And to those who are defending Amway, remember you are working for criminals for free. What do you think which authority is certifying or regulating your fancy overpriced products. Have you seen chemicals listed out at the back of your products. Keep dreaming and you will be on road one day.
Varun what u have said let's analyse it with facts. Amway has earned over 27500+ crore since its operations in India and paid over only 8750+ crore to its distributors. Do u imagine the Gap?
No matter.
Point no. 2.
Go to a bloody So called Diamond of Amway and ask him how many he has referred to his team? How long has he been in BUSINESS? IMP - How many people are earning 10,ooo rupees per month consistently. Calculate the percentage and speak here.
No. 3 : How much time they waste to their gullible new comers through Amway Bhajans???? in weekend rather than training their people atleast how to earn a livelihood. They focus expanding their network. Becoz Amway knows every newcomers who joins a new member will be an automatic customer for his greediness for becoming overnight rich.
That is d wrong practise in every MLM operating in Amway.
Why their price are 2-3 times more than market prices? They have bcoz they pay hepty amount to uplines looting newbies and Amway itself has the profit margin as stated above.
If you need my help u can reach me on 8965010007.
Senior Amway representatives had met Moneylife to clarify their views on Amway. Richard N Holwill and Rajat Banerjee , who met us, admitted that although some distributors tend to go overboard in pitching the scheme, income from being a distributor of Amway can, at best, be a source of additional income or pocket money for most people. It is not the pathway to riches as MLM companies make it out to be.
However, Amway also insisted that there is no longer any joining fee and the model does not necessarily require enrolment of distributors.
However, there was no answer to expensive nutraceuticals being prescribed by doctors, whose wives or relatives were Amway agents.
https://www.moneylife.in/article/amway-india-chief-two-others-arrested-under-pcmcs-act-what-about-other-mlms/32894.html
No matter.
Point no. 2.
Go to a bloody So called Diamond of Amway and ask him how many he has referred to his team? How long has he been in BUSINESS? IMP - How many people are earning 10,ooo rupees per month consistently. Calculate the percentage and speak here.
No. 3 : How much time they waste to their gullible new comers through Amway Bhajans???? in weekend rather than training their people atleast how to earn a livelihood. They focus expanding their network. Becoz Amway knows every newcomers who joins a new member will be an automatic customer for his greediness for becoming overnight rich.
That is d wrong practise in every MLM operating in India
Why their price are 2-3 times more than market prices? They have bcoz they pay hepty amount to uplines looting newbies and Amway itself has the profit margin as stated above.
What a non-sense idea!
A newbie joined and made a sale of 19000 he will get 0% coz he didn't attain target and his total commission will be transferred to all his upline eagles waiting his hard earned labour. Isn't it un ethical?