Financial pyramids and network marketing. Differences in legal aspect

Abstract

Pyramid schemes started to imitate the characteristics of network marketing which makes the pyramid scheme look legal. The big trouble with pyramid schemes is that they don’t offer any meaningful products or services. Their business model is built on making money by recruiting new members. When you join a pyramid scheme, the way you can make money with them is to lure unaware people into joining the system, then pressure them to do the same for others. A distributor can earn commissions from his downlines while his uplines take portions from his income. Day by day it’s becoming harder to differentiate these two types of companies, and the victims of this are the states, people and legal companies. To solve this problem, preventive measures should be taken, especially by RA, because as discussed above, the provision of Criminal Code is not enough and is very weak to prevent the spread of pyramid schemes. The most effective measures against the activity of pyramids are: Amendment of Criminal Code so as the definition of pyramids includes all characteristics of modern and complicated pyramids. Establishing a state institution which will be responsible for this sphere of business. That institution may be DSA created on the base of international practice. Afterwards, membership of DSA to WFDSA. network companies bring them under supervision; write a code of ethics for legal companies, which should have binding power. The Code of ethics should be based on singularities of RA and international practice. Posting and publishing guidance to inform the population about their differences and singularities in advance. Creating a mechanism due to which the quality and price will be checked and evaluated, which most probably should be done by DSA of RA. Anyway, the first and most important factor in preventing the development of pyramids, is a social condition of the population, due to which they get attracted by promises of huge income. The second is the unawareness of the population. The state should pay huge attention to informing the population, as it does the USA by its state bodies, DSA and FTC.