InfoGraphic

Going against the slippery slope of a pyramid scheme

By Hu Yongqi (China Daily)
Updated: 2010-07-29 15:08

A staff member of the China Anti-pyramid Selling Association in Beijing presents evidence of a pyramid scheme. [Feng Yongbin / China Daily]

In 2001, the State Administration of Industry and Commerce (SAIC) set up the Office Against Pyramid Schemes and four years later the State Council promulgated the "Regulation on Prohibiting Pyramid Schemes". In 2008, SAIC expanded the department and increased its powers to crack down on pyramid schemes.

Li said he contacted the Office Against Pyramid Schemes several times this year, but the office would not agree to be his supervising department. The Office Against Pyramid Schemes was contacted last week to confirm this but did not reply.

It was only in February last year that "organizing pyramid schemes" became a criminal act and last week was the first time that a pyramid scheme organizer was imprisoned, in Beijing, when Tan Xuelin was sentenced to one-and-a-half years in detention for conning more than 90 people in a pyramid scheme that involved more than 300,000 yuan.

"In reality, victims will not recover their money," said Gao Feng, deputy director of the economic crimes investigation bureau of the Ministry of Public Security, adding people are often too eager to make money and are thereby easily taken in by confidence tricksters.

"The first line of defense against such schemes is to avoid speculating in them. The public has to be alert when making investment decisions, especially for unusually high profits."

Zhang Hui, director of SAIC's direct sales regulation bureau, said anyone involved in the lowest level of a pyramid scheme can be fined up to 2,000 yuan ($295). There are five levels of involvement in pyramid schemes and top-level organizers can have their property confiscated, be fined from 500,000 ($73,750) to 2 million yuan, and face jail terms, Zhang added.

Typically, Li said, those operating pyramid schemes will target their friends or relatives because they are more likely to be trusting. After the organizers gain trust they then claim "the country supports their business" and promise a huge profit. After one week of "training" victims will generally pay money and start trying to recruit new members.

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Once someone is involved in a pyramid scheme it's really difficult to get out of it, Ye said, partly because they are financially involved and partly because they have been "brainwashed".

"Organizers will threaten or beat us if they know we are trying to help victims," Ye said.

For instance, one of Li's assistants, nicknamed Tian Xing, was stabbed by both the scammer and the female victim when he was trying to help her. Li has several scars on his left arm, all bites from victims of pyramid schemes who he was trying to help.

Both anti-pyramid selling scheme organizations have a high turnover of staff because of threats and shortage of funds. The Beijing association does not even have money to buy a new website server after scammers damaged the old one. Currently, the website is only online intermittently.

Association staff members do cooperate with the police and SAIC to prosecute scammers but there is no official channel for complaints, both Ye and Li said.

They have previously reported schemes involving sums of between 400 ($59 million) to 500 million yuan to the Economic Crimes Investigation Bureau, under the Ministry of Public Security, but Li said no action was taken.

An official letter from China Daily to the Ministry of Public Security regarding the matter has not been replied to as of press time.