India to ban MLM completely?
When we last checked in with the MLM industry’s fight for legitimacy over in India, the various government agencies involved were engaged in ongoing discussion as to what constitutes a legitimate MLM company.
In response to the multitude of scams operating within the MLM industry and local authorities seemingly all but powerless to regulate them, the Department of Consumer Affairs established a committee back in July of last year to establish guidelines to separate legitimate MLM companies from the scams.
A deadline was initially set in “early 2013” however it passed without the committee reaching its goal. As such a new deadline was set for April 30th, which has also now come and gone.
Whether the Department of Consumer Affair’s committee reached a conclusion or not I’m not sure but since the April 30th deadline, the issue seems to have quietly progressed behind the scenes.
In somewhat of a departure from establishing guidelines to define legitimate MLM companies, reports are now stating that the Indian government is looking to ban the entire MLM industry.
Whether on the advisement of the Department of Consumer Affairs committee or not is unclear, but recently the Department of Financial Services proposed to Indian parliament that, via an amendment to The Prize Chits and Money Circulation Schemes (Banning) Act, 1978, the Indian government “ban multi-level marketing companies”.
The proposal is likely to be fast tracked considering the seriousness of the chit fund scam, an issue that was discussed by the standing committee of finance on Friday.
“Friday” being the just passed May 17th.
Speak Asia is credited as being the first major scam to spearhead heightened efforts to establish tighter regulation of the MLM industry, with ringleaders in the scheme even today, almost two years after the scam was shut down, still dragging out investigations with ongoing judicial action against the Indian authorities investigating the scheme.
Such action has naturally hampered the investigations, which already suffer from the commonly held view that even with co-operation, the Indian authorities will be able to do little to apprehend the fugitive management of Speak Asia, currently believed to be hiding out in the middle-east (Dubai) and Singapore.
Much of the confusion and long delays in the Speak Asia case, as I understand it, can be attributed to a lack of structure and definitions in current Indian laws, which were never intended to be used against such easily wide-spread and devastatingly huge scams like Speak Asia.
Saradha Group, another recent Ponzi scheme involving “thousands of crores of rupees” and “lakhs of investors” that went bust in March of this year is also credited with fast-tracking the government’s action against the MLM industry.
Given what has happened with Saradha Group and others, the department of financial services and the department of economic affairs (DEA) which has concurred that this proposal finally moots a specific amendment which will ban MLM companies from operating in India.
When will this be operationalised, the legal amendment will have to go through the Parliamentary route and will be tabled for Cabinet approval which will come up shortly.
However, in some ways this is the biggest regulatory loophole beyond what has been reported in the collective investment scheme — a mess that has been dogging India for so many years and is proposed to be closed.
Personally I find it a bit disappointing that the Indian government is taking such a heavy-handed approach on MLM. I’d much rather have seen them work on defining a legitimate MLM income opportunity than ban the entire industry.
That of course would have taken more time and required a great deal of legal framework to be fleshed out and in the face of mounting scams of increasing magnitude popping up faster than they can be investigated, I can see why, perhaps at least for now, the government has opted to just ban the MLM industry outright.
Especially when, under the current legal framework covering the industry, the authorities run into problems like this when they launch an investigation:
In the Saradha scam, the IT department has confessed to the standing committee that it has not been able to obtain the details as the West Bengal police and other authorities have refused access.
Forget about scams like Speak Asia funneling hundreds of millions in Ponzi funds across multiple countries in multiple continents, here you have authorities in one Indian state (Calcutta) being hampered by authorities in another. That’s currently just how ineffective India’s laws are regarding Ponzi and pyramid schemes.
All this paints a situation where the government is yet to come to grips with the chit fund issue but the key news will be that it may be doomsday for companies like Speak Asia very shortly.
Is banning the MLM industry in India rather than working to define framework for legitimate MLM companies to operate under throwing out the baby with the bathwater?