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Decriminalising Multi-Level Marketing: The Need For Nuance

A notification by the Department of Financial Services on June 8, inviting comments from stakeholders on the decriminalisation of a number of legislations and provisions, has drawn much interest, especially from the financial and legal sectors.

However, much of the attention has been concentrated towards one legislation, which is the Negotiable Instruments Act and the decriminalisation of the offence of cheque bounce. The notification also proposes the decriminalisation of money circulation schemes punishable under Sections 4 and 5 of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978 which is a significant development for the multi-level marketing industry.

Most people of a certain age know enough to recognise a multi-level marketing pitch at a distance. Perhaps you have that one acquaintance who enthusiastically suggests you read the book ‘Rich Dad Poor Dad’, or know a friend of a friend who persistently invites you to a talk at a nearby hotel or community centre which he promises will open your eyes to the secrets of doing business, or maybe a distant relative who puts in considerable effort to convince you that you can make your money earn more money for you. Going forward from the pitch, there are some people who have made significant sums of money from MLM schemes, a large number who haven’t made much money, many who have lost money and from anecdotal evidence, the vast majority have stayed away.

These pitches can draw you into a direct selling arrangement, an MLM arrangement or they may be a pyramid scheme. The last of these is essentially a fraud that grants membership for payment and promises that you will recover many times the amount you have invested when you recruit similar paying members and those members further recruit more paying members.

There are legislations in every major country designed to punish and prevent such pyramid schemes. But separating the genuine MLM company from a pyramid scheme is not always an easy task.

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