Recent CAA Gazette on network marketing questioned

The Consumer Affairs Authority’s (CAA) recent Gazette for entities engaged in network marketing has some stark ambiguities, those familiar with the industry say.

The Gazette pertaining to all direct traders involved in the sale of multiple specified products and companies covering, solar lighting systems, phones and accessories, furniture, cleaning agents, shoes, stationery, kitchen utensils, and accessories, bed sheets and mattresses as well as readymade garments required to register themselves with the CAA.

Informed sources told the Business Times that many such multi-level marketing companies which are being interrogated and probed by the Central Bank (CB) have been lobbying for such a notification from a state authority.

“CB is the authority on pyramid schemes and the message to the public after this Gazette was published, is confusing. The CB has to be consulted prior to issuing such a notification because it is the authority on such schemes. There is ambiguity in the gazette notification,” a source said.

He said already it is difficult to figure out what pyramid schemes are. It is unfathomable how a section of such traders is exempted from the accepted regulation, he added.

The Gazette was issued on April 12, barely a month after the banking regulator requested the Attorney General to take steps to file legal action against such schemes, after launching an investigation into Fast 3Cycle International (Pvt) Ltd (F3C), Sport Chain App, Sports Chain ZS Society Sri Lanka and the OnmaxDT saying they have violated the provisions of 83C of the Banking Act. These schemes which started with gold coins promoted by Gold Quest about 15 years ago have grown into areas that cannot be immediately identified as pyramid schemes.

Thousands invested in the pyramid styled scheme until Business Times and other media highlighted the dangers of such schemes which led to the CB probe where exchange control violations had reportedly taken place since these items were purchased through the Internet in unauthorised deals.

“The promoters manipulate the loopholes in the system. That is why these schemes are mushrooming,” a CB official said, noting that in countries like Singapore multi-level marketing schemes are banned due to the confusion they create with the identification of pyramid schemes.

Minister of Justice, Wijedasa Rajapaksa told The Business Times that the ministry has appointed a committee to see what policy is needed for such multi-level network marketing schemes. “We had several discussions on this matter with the Central Bank. After the discussions, we realised that a committee is needed, to discuss further on this matter. The committee was appointed about two months ago,” he said.