Ground Reports

The Sketchy Affairs of Pyramid Schemes in the Business of Selling Dreams

Kya aap apni boring job se tang aa chuke hain? Kya aap bhi apne khud ke boss banana chahte hain or ghar baithe-baithe lakhon rupaye kamana chahte hain? Ab aap bhi pa sakte hain financial freedom. Kisi college degree ki zarurat nahi. Bus kuch paise invest karne hain aur aapke sapnon ki safar shuru (Are you bored of your job? Do you want to become your own boss and earn lakhs of rupees? Now you too can get financial freedom. No college degrees required. You just have to invest a little and then start your journey towards achieving dreams)”— This is how Kshitij recalls his brother-in-law convincing him for months to join a multi-level marketing (MLM) business, also known as a pyramid scheme.


By Rohin Kumar, 28 Jun 2022


Since then, the Enforcement Directorate (ED) has temporarily attached assets worth Rs. 757.77 crore of Amway India Enterprises Private Limited accusing them of multi-level marketing fraud. 

Kshitij had been asking his brother-in-law to “get out of the trap.” Kshitij’s brother-in-law had initially persuaded him to get into the chain and add people who would in turn add more people, thereby benefiting them all. Kshitij was assured that in the near future he would accumulate enough fortune to buy a Mercedes or go on a holiday to the Maldives. 

Kshitij, however, had his doubts. He wondered if earning money and maintaining a luxurious life was just as easy. The 32-year-old said that his dismissive attitude towards the business model has affected his relationship with his relatives.

Amway, a US-based company founded in 1959, is one of the multi-level marketing companies in India. The company uses a combination of direct selling and multi-level marketing, selling a plethora of FMCG (Fast Moving Consumer Goods) products. 

The company, already accused of money laundering, is under scrutiny for its contentious business model. There is a large concern for India. Amway is not the only MLM company operating in the country; many other companies such as RCM and Vestige continue to be popular.

What is a Pyramid Scheme? 

In the beginning, the scheme of adding new recruits and reaping high benefits sounds appetizing but the model is sketchy and unsustainable. 

Kshitij’s story is not as uncommon as it seems. When I was younger, my mother too tried to convince me to join a similar model. She would ask me to buy groceries from an XYZ company and her only convincing punchline was, “You anyway buy groceries from certain companies, then why not buy it from the company.” 

While I bought the products a few times, my mother felt that convincing people to buy products was not as easy a task as it was made out to be. She gave up in a couple of months, saying, “Everybody is not like my son.” During that short period, she earned a few hundred bucks. 

“It has been a few months since I put my paper. I was sitting idle at home and had nothing great to do. Your aunty told me this ‘business idea,’” my mom told me, “‘Ghar baithe kuch paise aa jayenge.’ I was like, it’s so simple, adding people and asking them to buy products. For the first time, the people I approached bought it because of my name but then they didn’t show interest in joining the scheme. Then, I became hesitant to ask them again and again. It was like the Nirmal baba scheme. Purse khula rakhne se kripa barsegi, similarly, products bechne se kripa barsegi,” she laughs. My mother was rescued by her conscience but that is not the case with many given their economic realities.

To a country of low per capita income, with a sea of unemployed youth and economically disenfranchised women — the pyramid scheme is sold as a business opportunity. 

People at the helm bring in new recruits and get a little commission. The person at the top sells products and asks you to join as a member with a small investment in the form of purchasing products. The seller is also the distributor and the new recruit who invested into the company is also persuaded to sell products, thereby making the new recruit a distributor. 

Now, these new recruits are motivated to persuade more people to be added to the scheme. The main aim is not to sell a huge number of products but to add more and more members to the business. With every new recruit, members at every level above the new recruit earn a commission and the person at the topmost level is the highest earner because they are eligible to receive a fixed commission. The more the pyramid expands, the higher the price of the products. 

It is people at the lower level at the end of the chain that bear the cost. These new recruits usually turn to their families, friends and relatives trying to convince them to either buy products or become a member. 

Remember Kshitij’s brother-in-law, remember my mom, they neither grew richer nor did they earn any foreign trips.   

A constant cash flow from recruits at every level is a prerequisite. But, this flow of cash is hard as the previously added recruits are either not able to sell the product or struggle to recruit new members. In the process, what happens is, the recruits often end up losing more money than the amount invested. 

A lack of awareness among consumers contributes to so many in India joining pyramid schemes. While the Consumer Protection Act is there to protect those who suffered, people are unaware of the basic consumer rights. Jaishree Gupta, President of Consumers India, a non-profit organization based in Delhi, that works on ensuring the rights of consumers, says “these companies play with the psychology of the people. They show the dreams of a happy future. But the reality is far from true. We do have a law but enforcement is very weak”

“In pyramid schemes such as Amway, you are often not given a receipt. That is at least the basics. Any aware consumer would ask for a receipt — be it a purchase of a diamond or a product of one rupee, the consumer is entitled to get a receipt. It makes the legalities a little easier,” Jaishree added.

The SCAM 

“Amway is running a pyramid fraud in the guise of direct selling multi-level marketing networks. It is observed that the prices of most of the products offered by the company are exorbitant as compared to the alternative popular products of reputed manufacturers available in the open market. The new members are not buying the products to use them, but to become rich by becoming members as showcased by the upline members,” the Enforcement Directorate (ED) said in the statement. “Reality is that the commissions received by the upline members contribute enormously in the hike of prices of the products.

The entire focus of the company is about propagating how members can become rich by becoming members. There is no focus on the products. Products are used to masquerade this MLM Pyramid fraud as a direct selling company,” the ED reported on its investigation. 

The Reserve Bank of India (RBI) at times has also been cautioning the general public against multi-level marketing activities so that people do not fall prey to unscrupulous entities.

Explaining the functioning of these entities, the RBI stated, “It is incumbent upon all members to enroll more members, as a portion of the subscription amounts collected is distributed among the members at the top of the pyramid. Any break in the chain leads to the collapse of the pyramid, and the members lower down in the pyramid are the ones that are affected the most.” 

The RBI also advised the public to not to be tempted by promises of high returns offered by entities running Multi-level Marketing/Chain Marketing/Pyramid Structure Schemes as falling prey to such offers can result in direct financial losses and people in their own interest should refrain from responding to such offers in any manner. 

A senior official at the Department of Consumer Affairs on the conditions of anonymity said, “We have been receiving similar complaints from consumers and other companies also indulged in similar activities of pyramid schemes that are under the scanner.” 

The ED has temporarily attached assets of Amway India worth hundreds of crores, which include land and factory building of Amway in Dindigul District, Tamil Nadu, Plant & Machineries, automobiles, bank accounts, and fixed deposits. The ED has also attached immovable and movable properties worth Rs 411.83 crore, as well as bank balances of Rs 345.94 crore, from 36 districts. 

Amway had been under the radar of the agencies since 2011. However, the company said,  “Recently, an Enforcement Directorate action has been filed that relies on previous, old complaints and charges. Amway is responding to this filing, and because we are in full compliance with all local and national laws in India; and are a leader in advocating for the Direct Selling Industry’s highest levels of integrity, corporate governance and consumer protections; we will continue to cooperate with authorities there to work toward a fair, legal and timely resolution to this issue.”

Amway may have pretended to sell the products but it wasn’t necessarily based on direct-customer selling. This fraudulent scheme of ever-increasing investors has been held illegal in India under the Consumer Protection Rules 2021.

According to the Ministry of Consumer Affairs, Food and Public Distribution, “All direct selling companies and sellers are prohibited from promoting a pyramid scheme or enrolling any person on such scheme or participating in such arrangement, in any manner whatsoever, in the garb of doing direct selling business or participating in money circulation scheme in the garb of doing direct selling business.”

The new norms also direct the state governments to set up a mechanism to monitor and supervise the activities of direct sellers and direct selling entities, while making it mandatory for direct selling entities to register themselves—like incorporation under the Companies Act, 2013, or if a partnership firm is registered under the Partnership Act, 1932, or if a limited liability partnership be registered under the Limited Liability Partnership Act, 2008.