BFIU for the law prohibiting the Ponzi scheme
The Financial Intelligence Unit of Bangladesh has recommended banning the Ponzi scheme by enacting a law as one such company collected Tk 8,500.98 crore from people in just two and a half years on behalf of the e-commerce.
The BFIU also proposed to explicitly define the Ponzi scheme so that these entities cannot seduce the public and then leave them in distress.
Over the past year, the operations of around 25 e-commerce entities have been shut down by the authorities as almost all of them were following the Ponzi scheme and subsequently failed to refund customers’ money.
The BFIU, in its annual report for the 2020-2021 financial year, said: “The United States Securities and Exchange Commission defines the Ponzi scheme as an investment fraud that pays existing investors with funds raised from new investors.
The Ponzi scheme is similar to a pyramid scheme, also known as multi-level marketing, as both use funds from new investors to pay previous backers, the BFIU said.
“Ponzi schemes and pyramid schemes eventually hit rock bottom when the flow of new investors dries up and there isn’t enough money to go around,” he said, adding: “At this point, the schemes fall apart.”
The BFIU in its report gave four examples of such companies without revealing the identity of the entities by providing symbolic names.
An entity named Circle ID collected Tk 339.73 crore from its customers, X Products Ltd collected Tk 11.87 crore, Y Express Ltd collected Tk 41.36 crore and Nvaly Ltd collected Tk 8,500.98 crore from of its customers.
“So-called digital platforms and e-commerce sites are seen to be luring people to buy or invest in their businesses using pyramid or Ponzi schemes of MLM business,” the BFIU said.
Although there is a clear instruction for the MLM company not to sell products that do not exist, the eye-catching offers of many e-commerce platforms and their advertising modules show that most products and services have no visual presence, according to the report.
“Instead, these product advertisements are made in relation to products that may be made in the future,” he said.
The fundamental problem with these online digital MLM businesses is that their business is based on a pyramid scheme which is an inherent part of MLM business and declared illegal under Section 15 of the MLMAC Act of 2013, he said. declared.
Apart from proposing a separate law to outlaw the Ponzi scheme in the country, the BFIU has also proposed amendments to the Multilevel Marketing Activities (Control) Act 2013 by linking the cap on the fine applicable to the intensity of fraud, as many of these entities can embezzle millions of taka from customers.
The existing law allows authorities to charge only Tk 50 lakh for operating illegal MLM activities.
The penalty for breaching the provisions of the MLM Activities (Control) Act 2013 should be consistent with and deterrent to such an act.
“The question arises when an MLM company has the ability to seize millions of taka, how justifiable it is to penalize them with a fixed monetary fine,” he said.
Inserting an ad valorem fine would instead be a more sensible and pragmatic step to put a stop to these scams, the BFIU recommended.
The intelligence unit also offered to raise awareness of the MLM business and expand financial literacy, as people need to be more aware of businesses that offer higher returns with little or no risk.