CHINA / National

Police crack down on pyramid selling
By Zhu Zhe (China Daily)
Updated: 2006-05-10 05:56

Chinese authorities have uncovered more than 1 billion yuan (US$127 million) of illegal pyramid sales in the last 12 months, it was revealed yesterday.

Figures disclosed by the Ministry of Public Security showed that 516 cases have been uncovered involving 1147 direct selling organizations. A total of 3,408 suspects were arrested.

Gao Feng, deputy director of the Economic Crime Investigation Bureau of the ministry, said that pyramid selling had become "a serious economic crime in China."

He added that there had been a resurgence of the illegal phenomena despite the lifting of the ban on direct sales last December.

"The increase of online pyramid selling has made our task more difficult. Some criminals even use Internet servers based overseas," he said.

He warned that special attention would be paid to pyramid selling on university campuses,

Direct selling is the marketing of products to consumers face-to-face, away from fixed retail locations. It is permitted in some countries with certain legal restrictions to guarantee consumer interests.

China issued a blanket ban on all varieties of direct and pyramid selling in 1998 due to widespread pyramid schemes. During the ban, door-to-door sellers were restricted to selling in retail stores.

However, the State Council issued a regulation late last year to distinguish direct selling from pyramid selling, which opened the door to legitimate direct selling companies.

The only company to have acquired a license was Avon China in February.

A pyramid sales organization requires every member to fork out a non-refundable registration fee, and then they have to coax other people to join the multi-level network and earn commission based on the number of new members they entice.

The biggest case was based in South China's Guangxi Zhuang Autonomous Region, which involved more than 380,000 people from 31 provinces, autonomous regions and municipalities.

The organizers, who sold a fertilizer named Shengwulin, required every member to pay a registration fee of 288 yuan (US$36), and promised a return of 1,204 yuan (US$150).

The five-level organization was smashed last June, and 291 ringleaders were rooted out.

Meanwhile in Qingdao, East China's Shandong Province, police cracked China's first pyramid selling case involving foreign organizers. A South Korean citizen surnamed Lee, who started the illegal selling of cosmetics and underwear in 2004, faces criminal charges.

Gao reiterated that the public should not believe organizers' deceptive stories about getting rich overnight, and advised that anyone could dial 010-65204333 to report pyramid selling activities.

(China Daily 05/10/2006 page2)