CB probing pyramid schemes, unregistered finance firm

Nearly a decade after GoldQuest, the controversial network marketing scheme operated here, the Central Bank (CB) is probing some three entities dealing in pyramid type-schemes, CB sources said.

"CB is investigating some multi-level marketing firms who are dealing in pyramid schemes," a CB source told the Business Times adding that most of these schemes are functioning in the South with one being operated in Hambantota, he added. "They are selling furniture, electronics, etc above the market value to customers."

He also said that CB is probing an illicit finance company based in a remote area. "This is a small time company that's unregistered with CB," he said.

The CB source said that the CB constantly tries to provide a better understanding to the public and law enforcement agencies to assist in identifying prohibited schemes as referred to in Section 83 C of the Banking Act No. 30 of 1988. The source said that those who participate in such prohibited schemes would commit an offence punishable under the Banking Act.

"A 'Prohibited Scheme' (a term used by CB) is a structure where the participants are required to contribute or pay money or monetary value, so that the benefits earned by the participants are largely dependent on an increase in the number of participants in the scheme or an increase in the contributions made by the participants in the scheme, as stated in the Section 83C," he said, adding that these schemes require new participants to make an upfront payment to the promoter to join the scheme. He said that CB encourages anyone to come forth with complaints in this regard.

The CB source said these schemes are frequently disguised to appear as schemes engaged in selling goods or services. "The CB has said the nature of the scheme is important in distinguishing the features of prohibited schemes. The promoters of the schemes require the new participants to invest money by way of purchasing products or services when they sign up, in order to join the scheme; thereafter, they have to bring additional participants into the scheme by selling those products service. The products or services do not have strong demand in the market and are usually available only through the promoter," he explained. He said that many gullible will fall into these traps.

"They would lose their hard-earned money."

The CB source said that the CB constantly tries to provide a better understanding to the public and law enforcement agencies to assist in identifying prohibited schemes as referred to in Section 83 C of the Banking Act No. 30 of 1988.