Bank says pyramid scheme declared illegal in Nepal
The Central Bank last week identified Gold Quest as a pyramid scheme,
perhaps for the first time, and said it had been banned in Nepal.
"Gold Quest, perhaps the most popular of the pyramid schemes,
spread rapidly within Nepal, which resulted in a circular declaring
Gold Quest illegal," a Central Bank Sri Lanka statement said.
does not have any pyramid schemes in existence at present as domestic
schemes that were launched collapsed due to lack of response from
statement, issued after a regional seminar on combating pyramid
schemes, quoted the Sri Lankan delegation at the seminar as saying
that a large amount of foreign currency was channeled out of the
country due to the operations of a "product-based pyramid scheme
or multi level marketing scheme".
are currently being conducted by the Controller of Exchange under
the Exchange Control Act. In addition, the recent amendments to
the Banking Act in 2005, has prohibited the operation of pyramid
schemes and those who contravene such provisions shall be liable
to heavy fines and /or imprisonment.
law has empowered the Central Bank to conduct investigations into
such schemes, the statement said. "Further, a request has also
been made to the relevant authorities to explore the possibility
of taking action under the provisions of the Consumer Affairs Authority."
statement said that in the Maldives the authorities noticed that
these schemes thrived best amongst young people, due to the rise
in Internet usage and unemployment. However, due to the concealed
nature of these operations, the Monetary Authority has not been
able to play a proactive role in combating the scheme apart from
issuing public notices.
seminar was a follow-up to the SAARCFINANCE meeting held in Washington
D.C in October 2004, where members raised concerns on widely spreading
pyramid type investment networks in the region and their potential
adverse economic, social and political implications.
persons for the seminar in Colombo were Christopher Jarvis and Robert
FitzPatrick. Jarvis from the International Monetary Fund is currently
serving as the Mission Chief for Maldives. Following his research
on pyramid schemes, he has published an IMF Working Paper titled
"The Rise and Fall of Pyramid Schemes in Albania."
founded and serves as president of Pyramid Scheme Alert, the first
international association to expose and prevent pyramid scheme frauds.
He is also the author of several books and articles including the
"False Profits", the first book to critically examine
the multi level marketing industry.
from Central Banks of six SAARCFINANCE member countries, including
India, Nepal, Bhutan, Bangladesh, Maldives and Sri Lanka participated
in the seminar and shared experiences through presentations of country
the opening remarks at the inaugural session, Assistant Governor,
Dr. A. G. Karunasena highlighted the potential adverse implications
of pyramid-type investments as it threatens both economic and price
stability and financial system stability, which could pose the risk
of destabilising an economy.
further stated that with the expansion of pyramid schemes, the public
might be tempted to borrow from financial institutions to participate
in such schemes with the expectation of repaying the loans from
their expected returns.
is a mathematical certainty that the pyramid schemes will collapse
leaving a large number of loses and a very few gainers. Combating
of pyramid schemes is more challenging as the prevention of new
schemes, identification of existing ones and closing down their
activities are not easy even though they are possible.
combating actions not only require an appropriate legal authority
but also need continuous vigilance, a broader public awareness,
and strong commitment of the authority as pyramid promoters introduce
these schemes with different faces and modalities in order to exploit
loopholes in the existing legal system and/or to circumvent the
prevailing regulatory system, the Central Bank said.
the Albanian experience, Jarvis in his address stated that unfamiliarity
with market institutions and practices, undeveloped and inefficient
banking systems and gimmicks to lure investors were the most common
reasons why pyramid schemes spread in an economy. Fitzpatrick, calling
pyramid schemes a new form of fraud in global market economies,
said that these schemes include a concept of an "endless chain"
where the trick is on the distributors who are induced to buy products
and also keep inducing others into buying products and joining the
also touched on the continuing trend to legalize these schemes by
yielding to pressure and allowing types of schemes, which they had
formerly outlawed. In India the multi level marketing schemes were
two pronged: Price Chit Scheme and Money Circulation Scheme (Pyramid).
However, a legislative action to ban the schemes was taken following
an indepth study of the impact of these activities.