Need to rein in Ponzi schemes

In what could be described as a welcome move, the Department of Financial Services of the Union Ministry of Finance has decided to clamp down on Ponzi schemes which are thriving throughout the country in the name of selling products and services. With several people fleeced by them filing criminal cases against these companies, the Union Ministry of Finance has woken up and taken stock of the situation. It augurs well for the Modi administration to get tough with the illegal money circulation schemes or Ponzi schemes by bringing in the toughest of norms to rein in the money circulation schemes and pyramid marketing businesses. The new norms, it appears, would include a detailed definition of ‘money circulation schemes’ to cover all money-pooling activities with a corpus of less than Rs 100 crore as well as those not covered under the collective investment schemes regulated by the SEBI. As the SEBI can only deal with illicit money-pooling activities with a turnover of Rs 100 crore or more, the ponzi operators are running at times multiple small schemes rather than a single big one. This has to be taken under consideration before framing of new rules to rein in all the ponzi schemes.

However, one has to wait and see the outcome of these proposals. In relation to the amendments to the PCMCSB Act, the draft proposals would be first discussed by various ministries concerned before they are placed before the Union Cabinet for approval. It would be better if the draft legislation is forwarded to the consumer organisations for their views as larger issues are involved. Since the Consumer Affairs Ministry has to decide whether to seek a separate legislation to cover the direct selling companies, these companies may lobby hard for legislation in their favour. The Enforcement Directorate decided recently that Amway alone has siphoned out Rs 8,000 crore illegally out of India. Against this backdrop, the Consumer Affairs Ministry should thoroughly look into all angles of the issue before preparing guidelines for direct selling. The Kerala State government has already prepared some guidelines in this respect, and the Consumer Affairs Ministry could well study them. As SEBI chief U K Sinha rightly pointed out, some action is required in the area of multilevel marketing (MLM) and PCMCSB Act. It is high time all the loopholes are plugged. In a welcome move, the Central government is said to be contemplating heavy penalties and even imprisonment for the managements of companies or individuals running such type of illicit schemes. It has been estimated that people all over India have lost about Rs 3 lakh crore in the schemes illegally run by these fraudulent companies. It is desired that the Union Ministry Finance should take a right decision to completely banish such schemes in the larger interests of people.  

The Editorial published in The Hans India newspaper on 18-10-2014