Questions are being raised about TIENS, a Chinese company that sells medical products after the Central Bank (CB) relaunched its anti-pyramid scheme ad-campaign recently in the media, but TIENS officials say they are within the law.
“TIENS is a multinational company founded in China. The products we sell in Sri Lanka are sold through TIENS Lanka and they are based on Chinese culture of healthy therapy. We use network marketing to promote our products and it has nothing to do with pyramid schemes,” Andy Leh Zhao, Chairman TIENS Lanka told the Sunday Times FT.
He said the company sells products such as health food, health care, beauty care and home care products etc. through network marketing. “This is simply a method of providing goods and services to customers where the retail ‘middle man’ has been replaced with a network of independent distributors. These independent distributors use the product or service and for their own personal retail sales and for the volume of retail business generated by the people they train and lead in their network. Network marketing is based on ‘word of mouth’ and any business that produces quality products recognizes the power of this form of production,” he said.
The CB in recent adverts gave an explanatory note in a bid to provide a better understanding to the public and law enforcement agencies to assist in identifying prohibited schemes as referred to in Section 83C of the Banking Act No. 30 of 1988.
“A ‘Prohibited Scheme’ 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 Section 83C of the Banking Act No. 30 of 1988,” it said.
It explained that these schemes require new participants to make an upfront payment to the promoter to join the scheme. Participants are then promised future benefits (money or other privileges) that are primarily earned from additional participants recruited, as well as all new participants who are, in turn, brought in by the existing participants. The advert said these schemes are frequently disguised to appear as schemes engaged in selling goods or services.
“We discussed about our company with CB officials about a year ago and gave them TIENS marketing profile. We are not worried about pyramid schemes – we introduce our products through people’s net,” Mr. Zhao said.
He said that the company’s network marketing representatives will receive commission for their own personally generated sales of company products as well as for sales of other promoters they introduced to the company.
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. The entry fee is often high. The fee could be charged through the price of the product or service offered by the promoter. The product does not have a secondary market and the promoters never guarantee any after-sales services for the products or services sold,” the advert said.
Mr. Zhao countered this saying that TIENS market consumer products do not have a secondary market.
“The fact is that everyday we promote other people’s businesses without being paid for it. In Tanishi, we’ve simply taken the word of mouth process and attached a reward to it on sale results.”
The CB said that schemes of a pyramid nature are illegal in Sri Lanka under Section 83C of the Banking Act and certain payments and transactions may constitute offences punishable under the Exchange Control Act and the Prevention of Money Laundering Act.