India's Department of Financial Services recently proposed a complete ban on multi-level marketing companies. This move, suggested via an amendment to The Prize Chits and Money Circulation Schemes (Banning) Act, 1978, follows years of regulatory challenges and widespread fraud.
The Department of Consumer Affairs formed a committee last July to address numerous MLM scams. Local authorities had little power to regulate these schemes. The committee aimed to define legitimate MLM businesses apart from fraudulent ones. An initial deadline in early 2013 passed without resolution. A new deadline of April 30th also expired. The issue has since moved forward without public statements on the committee's findings.
Recent reports indicate a shift from defining legitimate MLM companies to banning the entire industry. The Department of Financial Services formally proposed this ban to the Indian parliament. The proposal suggests amending The Prize Chits and Money Circulation Schemes (Banning) Act of 1978.
This proposal will likely be fast-tracked. The standing committee of finance discussed the severe chit fund scam on May 17th. Speak Asia, shut down almost two years ago, first pushed for tighter MLM regulation. Its ringleaders still challenge investigations with ongoing legal actions against Indian authorities.
These legal challenges obstruct investigations. Many believe Indian authorities will struggle to apprehend Speak Asia's fugitive management, thought to be in Dubai and Singapore. Confusion and delays in the Speak Asia case stem from insufficient definitions in Indian laws. These laws were not designed for large, widespread scams.
The Saradha Group Ponzi scheme, which collapsed in March, also accelerated government action against MLM. It involved thousands of crores of rupees and lakhs of investors. The Department of Financial Services and the Department of Economic Affairs (DEA) both support the ban proposal.