Authorities warn over pyramid sales

By Zhao Huanxin (China Daily)
Updated: 2006-11-23 06:52

Eight years into its crackdown on pyramid selling schemes, China still faces an uphill battle against an illegal activity that authorities say has disturbed economic order and sparked rioting against police.

Market regulators and public security officers yesterday said a September campaign had "tentatively contained" the rampancy of the notorious marketing mode. They pledged to strike harder at the "economic evil."

"We will particularly target pyramid selling groups who operate under the guise of direct selling, at a time when most people know little about (new) statutes concerning direct marketing," Gao Feng, a senior economic crimes investigator, said yesterday.

Pyramid selling, which is banned in many countries, is a method of selling products or services through a multi-level hierarchy of salespeople. It relies on funding from new recruits, which is provided to people above them in the pyramid.

In line with its promise for World Trade Organization accession, China reinstated direct selling in 2005. It was suspended in 1998 in a blanket ban on all varieties of direct and pyramid selling to curtail the latter from further spreading.

The country enacted regulations on direct selling administration and anti-pyramid selling almost simultaneously last year, hoping that rectifying direct selling will help eliminate pyramid sales, according to Zhao Xiaoguang, a division director of the State Council Legislative Affairs Office.

However, at a time when many people are desperately in need of jobs, some ringleaders have made use of the country's opening up of the direct selling businesses to induce people into pyramid selling, Zhao said.

Public security departments detained on average 32 suspects a day in the first nine months of the year, when they investigated 1,499 cases concerning pyramid selling, Gao, deputy director of the Ministry of Public Security's Economic Crime Investigation Bureau, said.

He did not specify how many of the cases were pyramid activities conducted in the name of direct selling.

Following repeated crackdowns in recent years, pyramid selling has been curbed in most parts of China, Gao told a press conference in Beijing.

However, easy-money traps thrive in some regions and are showing signs of spreading, resulting in a chain of social woes that adversely affect market order and stability, he said.

In addition to depriving many participants of their life savings, pyramid selling has illegally absorbed at least 40 billion yuan (US$493 million) of funds, Gao estimated.

Branding it an "economic cult," the officer said pyramid selling organizers usually incite participants to challenge law enforcement personnel.

As a result, at least 83 police were wounded in anti-pyramid selling efforts between January and September, he said.

Gao disclosed that the marketing schemes have caused 58 cases of death, looting and other serious crimes and at least 400 public security offences in the same period.

Gao said the Ministry of Public Security will co-operate with the State Administration for Industry and Commerce (SAIC) and other departments to deal with all forms of illegal pyramid selling, including those through the Internet.

"Whenever this type of illegal activity appears on our radars, we will waste no time in smashing it."

The SAIC has dismantled 24,446 pyramid selling schemes through October this year, taking at least half a million people out of the illegal work force and transferring 1,553 to judicial departments, SAIC deputy chief Zhong Youping said yesterday.

Both Gao and Zhong said public education was the key to the success of the country's efforts to ultimately eliminate the illegal marketing mode.

To enhance the public's prevention awareness, the SAIC and ministries of education and public security will launch anti-pyramid selling seminars at schools, he said.

With regard to direct selling, Zhong said his agency will step up supervision of the practices of approved direct sellers to safeguard the interests of both consumers and sales agents.

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