The recent news item about the arrest of William Pinckney in Kerala by the Andhra Pradesh police and remand to 14 days judicial custody must have aroused some curiosity. Mr Pinckney is the Chairman of Amway India. He was booked under the “Prize Chits and Money Circulation Schemes (Banning) Act 1978” (PCMC Act), and section 420 of the IPC. These are the same laws that were successfully used against Ponzi schemes and companies like Saradha and Japan Life. My interest in this issue was aroused because a number of Amway products are sold as healthcare products, and dietary supplements; though they also have other home care items. So how did Amway get embroiled in this muddle?
The answer is Multi-level Marketing (MLM), and the concept of direct selling. Companies like Godrej and HUL use the standard chain of manufacturer to wholesaler to retailer. This involves brick and mortar establishments which are accountable under various laws of commerce. In the direct selling module, the company recruits direct selling agents sometimes called “business owners” who often have to compulsorily purchase “starter kits” which they then have to sell to prospective customers, by approaching them directly. This is called inventory loading and borders on shady street. Further, the person recruited may have to pay a joining fee part of which goes into the pocket of the recruiter. In other words the money an agent (or business owner) earns comes partly from the actual sales as well as the kits sold to new recruits. You get paid for recruiting people. It is this that makes up the pyramid scheme and breaches the law.
In any pyramid scheme, it is always the people at the top of the pyramid that make the money. As the base of the pyramid widens, it will obviously become more and more difficult to sell. Companies usually have well publicized and impressive launches at five star venues to dazzle impressionable prospective recruits. Amazing figures of the income of existing agents (usually at the top of the pyramid) are presented to impress you about the potential for easy money waiting to be made. However, there is no such thing as a free lunch. Often these launches result in a local glut of agents making further sales difficult, and the money comes in mainly to the people at the top of the pyramid sponging on the new recruits at the bottom, who are often left with unsold stock. More importantly, you can run afoul of the law merely by recruiting other agents into such schemes for a fee.
One might wonder how the company operates in so many other countries, including USA. The answer is that such companies are listed in the US, and are therefore required to disclose revenues and profits. Regulations require the company to derive its profits from actual sales to customers or end users, and not to agents. The Indian branches of such companies are not listed and so are able to side step such transparency. Further, the PCMC Act itself is a muddle that was drafted in 1978, and does not cater to such present day financial convolutions. The key clause in the Act, “any event or contingency relative or applicable to enrollment of members” needs to be made more specific. No doubt some of the MLM firms are in genuine businesses; but we need clear regulations so that on the one hand, the genuine ones are not harassed and on the other, the frauds are singled out for punitive action. This particular case goes back to 2006, when the Andhra HC rejected Amway’s application to put the company outside the purview of the Act. A petition to the Supreme Court was similarly dismissed, and a Rs 2,169 crore business operating since 1998, hangs in the balance.
Finally, a patient recently asked for my opinion of an Amway product sold to combat osteoporosis and promote health in general. The packing indicated it contained calcium and various other vitamins and minerals. However what caught my attention was the header which stated “Not For Medicinal Use”. I still haven’t figured out how the description of the contents and the header are to be reconciled.
(Dr Gladstone D’Costa is the Chairman, Accreditation Committee and member, Executive Committee, Goa Medical Council. Lead author of book Health Care and Rights of Patients)
