Amway Fraud: What Is Pyramid Scheme And Multi-Level Marketing

The Enforcement Directorate has attached assets worth over Rs 757 crore belonging to multi-level marketing (MLM) scheme promoting company, Amway India, in a money laundering case. The central agency has accused the company of perpetrating scam by running a pyramid fraud. The agency further stated that the multi-level marketing 'scam' allegedly involves prices of most of the products offered by the company are "exorbitant as compared to the alternative popular products of reputed manufacturers available in the open market." 

Out of the total Rs 757.77 crore of assets attached under the Prevention of Money Laundering Act (PMLA), immovable and movable properties are worth Rs 411.83 crore while the rest are bank balances of Rs 345.94 crore kept in 36 accounts belonging to Amway, it said.

The ED has said that an investigation has revealed that Amway is “running a pyramid fraud in the guise of direct selling multi-level marketing network”.

What is Amway?

Founded in 1959 and based in Michigan, Amway, a US-based company, is one of the most famous multi-level marketing in India. It sells FMGC (Famst Moving Consumer Goods) products. The company uses a combination of direct selling and multi-level marketing.

However, Always has landed in similar controversies in the past for running a pyramid scheme. Although it has never been allegedly found guilty, but according to several reports, the company had to pay huge sum of money to settle suits globally.

What is a pyramid scheme?

“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. Often called "pyramid scams," these operations are illegal in some countries,” according to the website Investopedia. 

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.

The scheme often takes the shape of a pyramid, where there’s one person at the top and the number keeps increasing as more and more people are hired at the base level. 

What are the recent charges against Amway?

The ED has claimed that the company collected an amount of Rs 27,562 crore between FY 2002-03 and FY 2020-21, out of which, the company paid a commission of Rs 7,588 crore to their affiliated members and distributors in the US and India.

The agency said that the general public is often induced to become members of the company and purchase products at exorbitant prices and are thus losing their hard-earned money. “Reality is that the commissions received by the upline members contribute enormously in the hike of prices of the products,” it added, reiterating that the modus operandi of the company is to make people grow richer by taking them as members and not treating them as consumers. 

ED alleged that the products are used to masquerade this MLM pyramid fraud as a direct-selling company.

(with agency inputs)