Amway, a corporation that sells items directly to clients, has been accused of operating a multi-level marketing (MLM) scam and is currently being investigated by India’s Enforcement Directorate (ED). Under the Prevention of Money Laundering Act, Amway India Enterprises Pvt Ltd’s assets worth Rs 757 crore have been attached (PMLA). Land, factories, machinery, bank accounts, fixed deposits, and automobiles are examples of these assets.
“A money-laundering investigation by the ED discovered that Amway is operating a pyramid scheme disguised as a direct selling multi-level marketing network,” the ED stated.
THE FRAUD:
Amway was using a pyramid model to promote its products (we will come to this later). According to the ED’s statement, Amway enticed consumers to join the company and buy their products at exorbitant costs. People used to buy these high-priced items not for usage, but to become members of the company.
“The reality is that the commissions received by the upline members contribute tremendously to the increase in product pricing,” the ED noted.
The ED went on to say that Amway’s major goal was to recruit more and more members to the organisation.
The company pretended to be a direct-to-customer sales company, but there was little emphasis on the items. The idea was based on making old members wealthy by attracting new members.
WHAT EXACTLY IS A PYRAMID SYSTEM?
We’ve all met at least one aunty who sells Oriflame or Amway products and invites you to join her team. That is precisely what a pyramid scam is.
A pyramid scheme is a type of SCAM.
A pyramid scheme appears to be a legitimate business opportunity. People with little or no money are more likely to fall victim to these schemes.
People at the top of a pyramid scheme recruit new members and earn a commission.
The upper level will sell things and invite you to become a member. These new members are then encouraged to urge other people to join. The main goal is not to sell a large quantity of things, but to grow the business by adding more and more members. Members at all levels get a commission with each new addition, with the highest level earning the most.
The cost is borne by those at the end of the chain or by new members. And these new members frequently try to persuade their family and friends to either buy the merchandise or join.
The pyramid scheme is based on fees collected from new participants. Recruits at all levels must provide a consistent cash flow. However, this income flow is not continuous because the old members are either unable to sell that number of things or are unable to recruit new members.
This disrupts the flow of money, causing others at lower levels to suffer losses. They frequently run out of funds or lose whatever they have invested. In this situation, the members at the highest levels collect all of the remaining money because they are entitled to a fixed amount of interest.
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Furthermore, in most of these systems, persons at various levels are required to purchase a particular number of things at regular periods. And, as the pyramid grows larger, the price of the products rises.
IN THE CASE OF AMWAY
Amway employs multi-level marketing (MLM) pyramid scheme. In this method, the corporation does try to offer things, however, they do not always close sales. It is also required to attract members in order to make cash.
They are essentially appearing to offer things when, in reality, they are running a pyramid scam.
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Furthermore, in most of these systems, people at various levels are forced to buy a certain quantity of items on a regular basis. And as the pyramid expands, so do the prices of the things.
IN THE EXAMPLE OF AMWAY
Amway uses a pyramid structure for multi-level marketing (MLM). The corporation does try to provide items in this method, but they do not always close sales. It is also necessary to attract members in order to gain money.
They appear to be offering something when, in fact, they are running a pyramid scheme.
People join the company to make money. According to FirstPost, the agency stated that the corporation collected Rs 27,562 crore between FY 2002-03 and FY 2020-21, of which Rs 7,588 crore was paid in commission to associated members and distributors in the United States and India. Furthermore, it is claimed that new members who become involved with the company do so in order to gain the money of the upline members rather than to use their products. The company operated by persuading people to become members of the company in order to increase their fortune.
The Logical Indian asked its readers for their thoughts on Amway and whether they felt pressured to buy their products. Anshu Thakur, a Pathankot resident, stated, “People linked with Amway would force their relatives and friends to buy their items.” Manvi Bhatia, another reader, noted, “My parents were Amway members when we were kids, but they left in time. My parents were forced to buy pricey things from the company “. The company’s distributors are the general public, thanks to the multi-level marketing strategy. The corporation encourages new distributors to purchase its products, and then recruits people to join its network as second-tier distributors, and so on.
As a result, the corporation eventually ends up with a large number of distributors that hold onto the company’s items but are unable to sell them. At the same time, the corporation continues to encourage individuals to buy more products, claiming that “demand would arrive soon.”
In multi-level marketing, the corporation requires its distributors to sell its products directly to the public through person-to-person sales, which could occur among friends and family, from home, a customer’s office, or online. Companies persuade people that they may earn money in two ways: by selling their products directly to retail customers or by recruiting new distributors under them. Because one distributor tries to get others into the company, the system becomes a pyramid structure.
What Does The Law Say?
The government prohibits direct selling companies from promoting pyramid schemes under the Consumer Protection (Direct Selling) Rules, 2021. According to Megha Virk of The Logical Indian, “I remember seeing Amway enter India when I was in sixth grade! Everyone desired Platinum Status. Because they were getting incentives like overseas trips, huge discounts, and extra money in their accounts. In the United States, my uncle works as a neurosurgeon. He told me that they deliver low-quality items, particularly to ‘third-world countries,’ so sure, it was a ruse “.. Amway India has about 5,50,000 direct sellers or distributors in its network, with women accounting for 60% of the total.
What steps has the investigation agency done thus far?
Property worth Rs 757 crore has been confiscated by the agency. The attached assets include the company’s property and industrial building in the Tamil Nadu district of Dindigul, as well as machinery, vehicles, bank accounts, and fixed deposits. These properties cannot be transferred, converted, or moved by the company.
The entire value of attached properties is Rs 757.77 crore, which includes immovable and movable assets of Rs 411.83 crore and Rs 345.94 crore as bank balances in its 36 bank accounts.
What does Amway India have to say?
“We will continue to work with relevant government agencies and law enforcement officers to reach a fair, legal, and rational resolution of the outstanding concerns,” it stated.
Why are pyramid schemes dangerous?
Not only are the scams illegal, but they are also a waste of money and time.
Because it is solely reliant on the recruitment of new members to generate revenue, the program frequently fails when the pool of possible recruiters runs dry or the market becomes saturated.
