Amway, a company that sells items directly to customers, has been accused of operating a multi-level marketing (MLM) scam and is currently being investigated by the Law Enforcement Branch ( ED) from India. Under the Prevention of Money Laundering Act, assets of Amway India Enterprises Pvt Ltd worth Rs 757 crore have been seized (PMLA). Land, factories, machinery, bank accounts, fixed deposits and automobiles are examples of such assets.
“An ED money laundering investigation discovered that Amway operates a pyramid scheme disguised as a multi-level direct sales network,” ED said.
Amway used a pyramid model to promote its products (more on that later). According to the ED statement, Amway enticed consumers to join the company and purchase their products at exorbitant prices. Previously, people bought these expensive items not to use them, but to become members of the company.
“The reality is that the commissions received by upline members are a huge contributor to increasing product prices,” ED noted.
The ED went on to say that Amway’s primary goal was to recruit more and more members into the organization.
The company claimed to be a direct-to-customer company, but there was little focus on the items. The idea was based on enriching old members by attracting new members.
WHAT IS A PYRAMID SYSTEM?
We’ve all met at least one aunt who sells Oriflame or Amway products and invites you to join her team. This is precisely what a pyramid scheme is.
A pyramid scheme is a type of scam.
A pyramid scheme seems like a legitimate business opportunity. People with little or no money are more likely to fall victim to these schemes.
The people at the top of a pyramid scheme recruit new members and earn a commission.
The top tier will sell stuff and invite you to become a member. These new members are then encouraged to get others to join. The main goal is not to sell a large amount of stuff, but to grow the business by adding more and more members. Members of all levels receive a commission for each new addition, with the highest level earning the most.
The cost is borne by those who are at the end of the chain or by new members. And these new members frequently try to persuade family and friends to buy the merchandise or sign up.
The pyramid scheme is based on fees collected from new participants. Recruits at all levels must provide consistent cash flow. However, this revenue stream is not continuous as old members are either unable to sell that many things or unable to recruit new members.
This disrupts the flow of money causing others at lower levels to suffer losses. They often run out of funds or lose everything they have invested. In this situation, the members at the highest levels collect all the remaining money because they are entitled to a fixed amount of interest.
If you think this is a good business idea and worth pursuing, let us tell you how you can lose all your money.
Also, in most of these systems, people at different levels are required to buy a certain number of things at regular times. And, as the pyramid grows, the price of the products increases.
IN THE CASE OF AMWAY
Amway uses a multi-level marketing (MLM) pyramid scheme. In this method, the company tries to offer things, however, it does not always close the sales. It is also necessary to attract members in order to earn money.
They seem to basically offer stuff when in reality they are running a pyramid scheme.
If you think this is a decent business idea worth pursuing, let us explain how you can lose all your money.
Also, in most of these systems, people at different levels are forced to regularly purchase a certain amount of items. And as the pyramid grows, so do the prices of things.
IN THE EXAMPLE OF AMWAY
Amway uses a pyramid structure for multi-level marketing (MLM). The company tries to deliver items this way, but it doesn’t always close sales. It is also necessary to attract members to earn money.
They appear to be offering something when in fact they are running a pyramid scheme.
People join the business to make money. According to FirstPost, the agency said the company raised Rs 27,562 crore between FY 2002-03 and FY 2020-21, of which Rs 7,588 crore was paid in commission to associate members and distributors in the States. United States and India. Also, it is claimed that new members who get involved in the business do so to earn money from the upline members rather than to use their products. The company worked by persuading people to become members of the company in order to increase their wealth.
The Logical Indian asked its readers what they think of Amway and if they feel compelled to buy their products. Anshu Thakur, a resident of Pathankot, said, “People connected with Amway were forcing their relatives and friends to buy their items. Manvi Bhatia, another reader, noted, “My parents were members of Amway when we were kids, but they left in time. My parents were forced to buy expensive things from the company”. The company’s distributors are the general public, thanks to the multi-level marketing strategy. The company encourages new distributors to buy its products, then recruits people to join its network as second-tier distributors, and so on.
As a result, the company eventually ends up with a large number of distributors who keep the company’s items but are unable to sell them. At the same time, the company continues to encourage individuals to purchase more products, saying “demand will come soon.”
In multilevel marketing, the company requires its distributors to sell its products directly to the public through person-to-person sales, which may occur among friends and family, at home, at a customer’s office, or in line. Companies persuade people that they can make money in two ways: by selling their products directly to retail customers or by recruiting new distributors under their direction. Because one distributor tries to bring others into the business, the system becomes a pyramid structure.
What the law says?
The government prohibits direct selling companies from promoting pyramid schemes under the Consumer Protection (Direct Selling) Rules 2021. According to Megha Virk of The Logical Indian, “I remember seeing Amway enter India when I was in sixth ! Everyone wanted Platinum status. Because they were getting incentives like overseas trips, huge discounts, and extra money in their accounts. In the United States, my uncle works as a neurosurgeon. He told me they deliver low quality items especially to ‘3rd world countries’ so sure it was a ruse. % of total.
What steps has the investigative agency taken so far?
A property worth Rs 757 crore was confiscated by the agency. Related assets include the Company’s property and industrial building in Dindigul district of Tamil Nadu, as well as machinery, vehicles, bank accounts and term deposits. These properties cannot be transferred, converted or moved by the company.
The total value of attached properties is Rs 757.77 crore, which includes immovable and movable assets of Rs 411.83 crore and Rs 345.94 crore as bank balances in his 36 bank accounts.
What does Amway India have to say?
“We will continue to work with relevant government agencies and law enforcement to achieve a fair, legal and rational resolution of the outstanding issues,” he said.
Why are pyramid schemes dangerous?
Not only are scams illegal, but they are also a waste of time and money.
Because it relies solely on recruiting new members to generate revenue, the program frequently fails when the pool of potential recruiters dries up or the market becomes saturated.