Implement more safeguards to protect consumers and investors from fraud
A new study suggests most of the 62 registered multi-level marketing (MLM) companies in Bangladesh are operating on a product-based pyramid marketing schemes.
Pyramid schemes which promise participants payments primarily taken from enrolling newer participants, rather than from selling goods and services, are notoriously unsustainable and outlawed as being fraudulent in many jurisdictions.
The lack of a clearer presumption against pyramid schemes makes it harder for authorities to clamp down on analogous schemes operated by MLM businesses.
Eight MLM companies have obtained a stay on a court order seeking to stop them operating because they do not have a valid licence. Commerce ministry sources have raised a number of other allegations against the firms accusing them of taking abnormal commissions and illegally transferring profits abroad.
The government is prevented from acting on allegations because the law enables a loophole whereby MLM companies are presumed to be legitimate, provided they have obtained a government licence.
This is not acceptable given the use of pyramid scheme-style methods in the major Destiny group scandal which saw over Tk5,113cr laundered after being fraudulently obtained via MLM from its 7 million clients.
The government should follow countries where pyramid selling is outlawed by implementing the safeguards they apply to MLM. It should place the onus on MLM companies to prove they are not disguised pyramid schemes make them disclose adequate information to enable prospective participants to make informed decisions about their profitability. This would help regulators protect consumers and investors by more easily taking pre-emptive action to close down disguised pyramid schemes.
Source: Dhaka Tribune
