Multi-Level Marketing and Pyramid Scheme – Explained: The case against Amway

What is the News?

The Enforcement Directorate (ED) has provisionally attached assets worth Rs 757.77 crore belonging to M/s Amway India Enterprises Private Limited in connection with a money laundering case. 

What is Amway case about?
Source: Indian Express

Amway is a US-based company founded in 1959. It is a direct seller of FMCG products in health, nutrition, beauty and home products.

The company has been accused of running a pyramid fraud in the name of direct selling multi-level marketing network.

According to ED, Amway lured people into joining the company and buying their products at unreasonably high prices. People used to buy these expensive products, not for use, but to become a member of the company.

Hence, the main aim of Amway was to add more and more members to the company and not to sell products.

What is a Pyramid Scheme?

Source: Medium.com

A pyramid scheme is a sketchy and unsustainable business model where a few top-level members recruit newer members. 

Those members pay upfront costs up the chain to those who enrolled them. As newer members in turn recruit underlings of their own, a portion of the subsequent fees they receive is also kicked up the chain. 

In a pyramid scheme, the major profit comes from the recruitment fees rather than the sale of the actual products.

Multi-Level Marketing operations(MLMs) are similar to pyramid schemes with one difference: they involve the sale of tangible goods.

Is Pyramid Scheme allowed in India?

As per the Consumer Protection (Direct Selling) Rules, 2021, the government bars direct selling companies from promoting pyramid schemes.

Source: ​​This post is based on the article Explained: The case against Amwaypublished in Indian Express on 20th April 2022.

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