It’s no secret that India has become an MLM legitimacy warzone over the past decade or so. Legitimate MLM companies fight for market share in an industry space increasingly dominated by recruitment scams and dodgy investment schemes.
Whereas five or ten years ago these scams were low-key startups that usually had the rug pulled from under them before they gained any traction, as the market evolved these scams became increasingly sophisticated and widespread.
I frequently receive requests from Indian readers wanting me to look into the multitude of scams running in their area. Unfortunately most of these are either not in English or don’t have a significant online presence for me to conduct any research into them.
They’re designed for a local Indian consumption, primarily targeting those who are in all likelihood ignorant of the main types of scams those following the MLM industry see around today.
Today the biggest Indian MLM scams involve hundreds of millions of dollars and swallow up ever-increasing numbers of the Indian general public. Figures that haven’t escaped the attention of the government.
The proliferation of scams in India operating within the MLM industry is the overall lack of enforcement and applicable laws to deal with large-scale scams. Currently any scam in India using an MLM compensation plan falls under the “Prize, Chits and Money Circulation Scheme (Banning) Act”.
The problem?
The Act was passed into law way back in 1978 and is woefully ill-equipped to deal with today’s scams.
For evidence of this one only needs to look at the ongoing aftermath saga surrounding the biggest scam in Indian history, Speak Asia.
Speak Asia was a survey based pyramid/Ponzi scheme hybrid that required affiliates to pay a fee to join and then guaranteed a weekly ROI.
Despite being shut down just under two years ago, to date the owners and key management of the scheme have not been brought to justice and top affiliates within the scheme still believe the company will restart operations at some point.
Low-level arrests have been made in the case but pending further developments, investigations appear to have cooled for now. Hampering said investigations, primarily that of the Economic Offences Wing (EOW), has been the scam-proceed funded legal games Speak Asia management have conducted from their offshore hidey-holes, spearheaded by local management and top affiliates in the scheme, who they also covertly fund.
After two years of investigation it’s hard not to conclude that Indian authorities simply aren’t able to quickly and decisively deal with scams as big as Speak Asia, primarily due to the outdated legal framework they have to work within.
In response to the growing number of complaints from the public about scams the government is seemingly powerless to combat, India’s Department of Consumer Affairs established a committee in July of last year.
This committee was charged with determining once and for all ‘what exactly constitutes a genuine multi-level marketing (MLM)‘, with a conclusion deadline set for early 2013.
That deadline however “recently”
came and went, yet the committee has still not managed to define what makes a genuine MLM company.
Due to ‘draft guidelines formulated by the department of financial services not entirely (resolving) the issue’, a new deadline has been set for April 30th.
“As the issue remained unresolved, the committee’s tenure has been extended with a clear mandate to define MLMs and guidelines as to what distinguishes network, MLM and direct selling companies from those indulging in just money circulation,” a government official said
During this time the government hopes that the committee will “take a fresh look at the matter” and
lay down clear guidelines on what distinguishes these companies from those indulging in money circulation activities and unlawful activities.
Possibly adding to the confusion is the overseeing of the committee by the Department of Financial Services, who have issued guidelines stating that a legitimate MLM company should ‘not have any start-up cost‘.
Right idea with the committee but if that’s what they’re going off then they might very well be heading down the wrong track.
Personally I believe the issue of legitimacy in the MLM industry is clear-cut. If your affiliate-base is not selling the majority of your products to retail customers, thus meaning a company’s revenue is primarily generated via retail customers, then something fishy is going on.
Affiliate costs are fine, as is self-consumption but it should not be the primary source of revenue. Trying to claim self-consumption as retail sales is also a red flag (many MLM company try to claim affiliate purchases as retail sales), with the actual source of the revenue the only factor that should be taken into consideration.
Work a legal framework around those simple guidelines, empower Indian authorities to act on them, launch a public awareness campaign and hopefully we might start to see some change in India.
And of course all the better for the legitimate MLM industry there who, after such changes are implemented and enforced, will find it much easier to distance themselves from the “MLM stigma” scams and the scammers launching them have established.
