Centre issues model guidelines to curb ponzi frauds
 Source : News Bharati English  Date : 13-Sep-2016

New Delhi, September 13: Model guidelines are issued for states in order to protect consumers from Ponzi frauds, to regulate direct selling and multi-level marketing businesses while prohibiting pyramid structures as well as money circulation schemes.
The ‘Direct Selling Guidelines 2016’ framework was released by the Food and Consumer Affairs Minister Ram Vilas Paswan and has been sent to the states and Union Territories for adoption. The guidelines clearly define legitimate direct selling in order to help investigating agencies identify fraudulent activities.

 “Direct selling means marketing, distribution and sale of goods or providing of services as a part of network of direct selling other than under a pyramid scheme,” the guidelines said. They have also defined Pyramid Scheme. Money Circulation Scheme has the same meaning as defined under Prize Chits and Money Circulation Schemes (Banning) Act, 1978.

“We are sending the model guidelines to all State governments. States can make some change as per their localised requirements. The guidelines were necessary for better growth in the direct selling business,” Consumer Affairs Secretary Hem Pande said. The Consumer Affairs Ministry said in a statement that “state governments/ UTs may kindly take necessary action to implement the same”.

The guidelines will help protect consumer’s interests, mandate direct sellers to constitute a grievance redressal committee to protect consumer’s right, has laid down remuneration system for the person engaged by direct selling firms on sharing of incentives, profit and commission, a provision is made for appointment of monitoring authority at both Central and state level and the guidelines also prohibit direct selling entities from using misleading and deceptive or unfair recruitment practices.

This move of framing guidelines was executed in 2013 after the police had arrested the then Amway’s India Chairman William S Pinckney and two company Directors over allegations of fraud in Kerala under the Prize Chits and Money Circulation Schemes (Banning) Act.

The ministry had held round of discussions with all stakeholders to frame guidelines to make a clear distinction between genuine direct-selling companies and fraudulent Ponzi schemes. It’s a very progressive move towards a consumer driven regulatory era.