Govt working on law to combat ponzi schemes, monitor direct selling

The surge in the number of ponzi schemes has been primarily due to the lack of regulatory oversight.

By: ENS Economic Bureau | New Delhi | Published: November 24, 2014 1:39 am

As it expedites probe in the Saradha chit fund scam, the government is gearing up to introduce the much-awaited amendments to the Chit Fund Act and a legislation on direct selling companies.

According to senior officials in the finance ministry, the bill on multi-level marketing (MLM) companies is “being fine-tuned and a Cabinet note on MLMs will be soon circulated for comments”.

The sources added that the changes in Prize Chits and Money Circulation Schemes (PCMCS) (Banning) Act, 1978, have also been finalised by the department of financial services and “may be taken up in the Winter Session”, which begins November 24.

This will help the Centre curb the menace of ponzi schemes, which have flourished in the country due to absence of regulatory oversight.

“The government is essentially looking at having a Central agency for taking up such cases, which are currently not covered by any act or governed by any regulatory body. This void has been largely misused by several entities. Also, there is an attempt to define the term direct marketing and internal trade,” the source added.

In 2012, after the case of alleged fraud committed by Singapore-based MLM portal SpeakAsia Online, the government had formed an inter-ministerial committee comprising the Reserve Bank of India, and ministries of consumer affairs, corporate affairs, finance and law, to look into the schemes which offered impossibly high returns in a very short span or offered huge benefits for enrolling more subscribers.

Last year, the Kerala police arrested the CEO of Amway India, William S Pinckney, and its two directors on charges of cheating.

The case was registered under the PCMCS Act, which was invoked for the Saradha scam too. Such companies under the banner of Indian Direct Sellers Association have been asking the government to amend the PCMCS Act to distinguish between them and the multi-level marketing companies and similar frauds.

The corporate affairs ministry had subsequently suggested setting up a multi-disciplinary body like SFIO to deal with such cases. Further it had also proposed setting up a committee to decided on the cases which need to taken up by the multi-disciplinary body.

Further it had also proposed setting up a committee to decided on the cases which need to taken up by the multi-disciplinary body. It had also made a case for making such frauds a ‘predicate offence’ under the Prevention of Money Laundering Act 2002. A predicate offence is a crime that is a component of a more serious offence.

The Centre has already asked states to ban all companies running schemes which offer monetary benefits to subscriber for enrolling members to their scheme according to the State Money Circulation Scheme (Banning), 2012.

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