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Amway is not a Ponzi player :- At least for one company in India, the Modi government’s peppy slogan ‘Achchhe din aanewale hain’would have seemed a nasty joke. In a strange repeat of what occurred a year ago in Kerala, Andhra Pradesh police arrested the India boss of the US direct selling giant Amway (under the Prize Chits and Money Circulation Schemes (Banning) Act) for allegedly running a Ponzi scheme.

William Pinckney’s arrest throws up more questions than it answers. For one, why was the arrest made the same day as a year earlier? Why was it made more than 150 days after a complaint was lodged, that too by an activist and not anyone affected by Amway’s activities?
Business model
No doubt, Amway’s business model is “different”. Its founders — Jay Van Andel and Rich DeVos — thought up a plan which combines direct selling with multi-level marketing. Under this, ‘independent business owners’ (IBOs) market products directly to customers and also recruit (sponsor) and train people to become IBOs.
IBOs may earn both from the retail mark-up on the products they sell, plus a performance bonus on the sales volume they and their downline (IBOs they sponsor) generate. People may also register as IBOs to buy products at discounted prices.
It is very simple to label this a money chain; there is always another person in the chain on whom either you are dependent or who is dependent on you.
But the point that everyone misses is there is always an underlying product involved. If business owners keep adding members by collecting money without an underlying product, one can very well book them under the Prize Chits and Money Circulation Schemes (Banning) Act.
In fact, Amway also has a product return policy, which further fortifies the point that it is more about the product and less about people changing money.
Legal wrangles
Amway has had brushes with the law in the past. In 1979, in the US, the Federal Trade Commission (FTC) found Amway’s system did not qualify as a pyramid scheme. The distributors were not paid to recruit people and had to sell products to get a bonus. Hence, the company was committed to buying back its distributors’ excess inventory.
The FTC found Amway guilty of price-fixing and exaggerated income claims. The company was prohibited from misrepresenting profits, earnings or sales its distributors were likely to achieve.
It was ordered to accompany any such statements with the actual averages per distributor, pointing out that more than half of the distributors did not make any money, with the average distributor making less than $100 per month.
In 2007, the UK Department of Trade and Industry accused Amway and distributors of objectionable practices and petitioned to wind up the firms.
The case was dismissed in 2008 on the condition that a full earnings disclosure was published publicly, no registration or renewal fees were charged and sale of business support materials was prohibited.
In India, several laws deal with direct selling. The question is whether these are relevantly drafted and correctly implemented. The Amway episode calls for a law that defines direct selling and distinguishes it from a pyramid or Ponzi scheme.
It would be ideal if the Centre could formulate a model law and ask states to enact them. A start could be made by replacing the word ‘banning’ in the PCMC Act with ‘managing’. The law should manage rather than malign the direct selling industry in India. Source :-

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