Financial Times

Central Bank on GoldQuest trail again
By Duruthu Edirimuni
The Central Bank is once again trailing GoldQuest, the controversial network marketing company, as it is allegedly pursuing another marketing plan directed at existing customers with promises to regain their lost money squandered on the earlier scheme.

Central Bank authorities said the company, on a low key for some time now, is resurfacing in remote areas such as Polonnaruwa and Anuradhapura with a new strategy of marketing an e-card system that they are not authorised to deal in.

A top Central Bank official said that the regulator has sent three representatives to Polonnaruwa and Anuradhapura to investigate GoldQuest's latest scheme. "As far as we know they are taking existing clientele to these cities to avoid detection by the authorities and also as an incentive to the customers," he said. He said that it seems the company also wants to avoid the media frenzy that they might attract, which can sabotage the scheme.

The e-card, famous in financial institutions overseas, comes under foreign exchange dealing and is usually issued backed by Eurocard, MasterCard and VISA systems. "Forex dealing by a firm has to be authorised by the Central Bank," he said, adding that GoldQuest has not applied to become an 'authorised dealer'. The main difference of e-cards from conventional payment cards is that they are used exclusively for making Internet-based transactions (the so-called e-commerce transactions).

The regulator allows personal e-transactions, but not capital transactions via electronic payment methods. The official said credit card associations such as Eurocard, MasterCard and VISA back electronic card payment methods and GoldQuest can tie up with one of them, but they have to obtain prior approval from the regulator. "That is why we are concerned," he added.

The earlier network marketing scheme GoldQuest promoted was seen as being a hybrid of pyramid marketing and multilevel marketing concepts, where goods or services were sold through distributors who were promised commissions when they take in two or more levels of new recruits. Plans for recruiting new distributors inevitably fail when no new distributors can be recruited. And when a plan collapses, most people, except perhaps those at the very top of the pyramid, lose their money.

The regulator had a tough time last year to bring in directives to combat the pyramid and network marketing schemes, resulting in anti pyramid laws incorporated into the Banking Act as an amendment.

Last year, the Controller of Exchange imposed a four million-rupee fine on a GoldQuest dealer, who transacting through his credit card, had violated exchange control regulations. GoldQuest had also been advertising its other products and services such as timepieces, jewellery and vacations. The Exchange Controller sent show cause letters to 1,000 people who had violated exchange control laws in paying GoldQuest through credit cards last year.

Sources said GoldQuest, which exited last week from its stake in Asian Hotels is planning to exit the country. An active foreign investor, Raj Rajaratnam bought four million shares of Asian Hotels, with Rusi Captain taking the balance one million. Presently GoldQuest has a 12.92 percent stake amounting to 6.9 million shares in NDB.

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