Harsher penalties for pyramid selling

China Daily/August 28, 2007

Pyramid selling is becoming rampant in the country despite a number of crackdowns over the years, officials said yesterday.

Officials from the Ministry of Public Security and State Administration for Industry and Commerce (SAIC) said the government is also considering revising relevant laws to impose heavier punishments against people engaging in such a selling practice.

"Pyramid selling, outlawed in the country about 10 years ago, is still serious. And it's growing," Gao Feng, deputy director of the ministry's economic crime investigation bureau, said.

Ministry figures released yesterday show that police in 14 provinces and autonomous regionChina Daily August 28, 2007s where pyramid selling is particularly rampant, including Guangxi, Guangdong, Shandong and Henan, dealt with 800 cases from July 16 to August 15, involving 1.7 billion yuan (US$224 million) in illegal sales.

However, the figure for the entire country last year was 2,081 cases, or about 170 cases a month.

Gao said a pyramid sales organization often requires every member to pay a non-refundable registration fee, and then they have to coax other people to join the multi-level network and earn commissions based on the number of new members they entice.

He said a multi-level network is the basic characteristic of pyramid selling, and such organizations often brainwash new members and limit their movements to one area.

"We call them economic cults," Gao said. "They can turn a normal person into an idiot."

He said many people fall in the trap because they believe in getting rich overnight, and such desire is particularly strong as China is undergoing a social transformation.

A large number of low-income people, such as migrants, laid-off workers and fresh school graduates, also facilitate the development of pyramid selling, Zhang Hui, director of the SAIC's direct sales supervision bureau, said. Direct selling without multi-levels is allowed in China.

Official figures show that from July 16 to August 15, industry and commerce administrations handled 1,179 minor pyramid selling cases and dispersed 250,000 people involved.

Zhang said pyramid selling disturbs economic order and triggers serious criminal crimes and mass incidents.

"It's a cancer in the society," he said.

Both Gao and Zhang agreed that poor social administration in some places and mild punishments for pyramid selling give rise to the illegal practice.

Under existing laws, pyramid selling organizers are only charged with "illegal business operations" and usually receive a sentence of less than five years.

Gao said his ministry and the SAIC are proposing a revision of relevant laws that offer clearer provisions and heavier punishments for pyramid selling crimes.

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