‘Lack of laws brackets direct selling cos with pyramid schemes’ Thomas P Abraham
QNet, the Hong Kongbased direct selling company, which has operations across many countries, lately ran into rough weather with authorities in India. Worse, law authorities in the country have gone after some highprofile people associated with the company’s India operations, saying their operations tantamount to a Ponzi scheme. To understand the other side of the story, Business Line interviewed Singaporebased Zaheer Merchant, Director Corporate Affairs and Director Legal Affairs. Excerpts from an email interview: There is a controversy over QNet’s operations in India. What is it all about? It is unfortunate that an unmerited claim of cheating against certain individuals has been turned into allegations of fraud against the company. If anyone takes the time to look at the facts of the actual case and the complaint that gave rise to this controversy, it would be obvious that the accusations are baseless. The issue originates from an unfounded claim of 31,500 made in April by Parmeet Kaur Anand, wife of Gurupreet Singh Anand at Oshiwara Police Station in Mumbai. The complaint alleged that three representatives of Vihaan Direct Selling, the Indian franchisee of QNet, sold her a bio disc, which could help her son, who is suffering from brain damage. The three representatives deny misrepresenting any product as this would be in breach of their agreement with Vihaan Direct Selling. Company records indicate that Kaur did not even agree to purchase a biodisc but signed up for an educational course, which was later cancelled by her husband along with the cheque. No money exchanged hands. The original complaint was withdrawn on May 18, 2013 and the matter was recorded as a ‘No Crime’ by the police. There has been no further change in this position. But strangely, this complaint was refiled on August 16 by Gurupreet Singh and the matter moved to the Economic Offences Wing (EOW). This is quite inconceivable in a case where no financial transaction took place and the allegation involves an amount of around 30,000. The EOW is generally triggered for financial matters exceeding 50 lakh. The entire episode is surprising. The way this has played out in the media has done an enormous amount of damage to our reputation internationally. Our Indian franchisee has been fully cooperating with the authorities and from the headquarters we are prepared to extend any further cooperation. We trust that the truth will emerge soon and we will be exonerated. Tell us about the binary pyramid business model that the company follows. Why has this business
model been banned in some countries? Such terminologies tend to be used without any understanding of what it means. There is no such thing as a ‘banned binary pyramid’ business model in the first instance. QNet is a direct selling company. Direct selling is simply the marketing of products and services directly to consumers in a facetoface manner, away from a retail location. Direct selling encompasses a variety of distribution methods; multilevel marketing and network marketing are two types of distribution methods. A binary or a unilevel plan is a reference to the compensation plan based on which commissions are calculated for payment to a distributor. Pyramid schemes, on the other hand, are clearly declared illegal in a number of countries. These are schemes where no real products are involved, only the people joining at the early stages make money, commissions are paid for recruitment of members and not on product sales, no training programmes or marketing support is provided and people often promote these as ‘getrichquick’ schemes. Pyramid schemes rarely last for longer than a year or so since promoters of such schemes are only interested in making a fast buck and disappearing. QNet, on the other hand, has been in business for 15 years. From a small, singleproduct company, we have grown today to offering a wide range of high quality products and services in nine different product categories. We have a focused R&D division that invests years to source and develop the right products for our diverse, global customer base. We provide regular training programmes, promote a strong ethical code of conduct, support our distributors with marketing materials and business tools and are available 24x7 through a multilingual customer support centre. India too has banned this particular form of business model. How then does QNet operate in India? Walk us through QNet’s rationale. As stated earlier, India does not have a legislative framework for the DS/MLM industry; so the question of any compensation plan within the DS/MLM company being banned does not arise in the first place. The lack of guidelines and legislation leads to genuine direct selling companies being bracketed with pyramid schemes that disguise themselves as direct selling companies. This negatively impacts the entire industry. Some reports make a reference to QNet being in violation of the Prize Chits and Money Circulation (Banning) Act 1978 (PCMCA). The PCMCA is a ‘banning’ act and not a ‘regulating’ act. It sets out a framework to ban certain activities, which come under the purview of ‘Prize Chits’ and ‘Money Circulation’. QNet’s business, in the definition in the said Act, is neither prize chits nor money circulation. The Act deals with the banning of a scheme, which is aimed at making quick or easy money and on the happening of a contingent event. In the case of QNet, we neither fall under the category of making quick and easy money, nor is there any event which is contingent in nature. The Act bans all illegal money circulation schemes. It does not regulate the direct selling or MLM industry. Also, there is no ‘entry fee’ or periodical subscription required here pursuant to Section 2(c) of the Act. Many countries like Hong Kong, Malaysia, Singapore and the Philippines, for example, have specific and strict direct selling and MLM legislation. Based on our Policies and Procedures and Terms and Conditions with our Independent Representatives (IRs), QNet is compliant in these heavily regulated countries. In India, we have reproduced the same strict terms and our business through Vihaan is in accordance and compliance with the current guidelines in place. Vihaan is clearly registered with the RoC as a direct selling / MLM / network marketing company that will promote its business in India through a network of IRs. The company has been paying all its taxes and complying with all the regulations of the Government of India. In fact, all commissions payable to the IRs for product sales are paid only after TDS. All documentation has been provided to the investigators and the management of Vihaan are fully cooperating with them in this investigation. The allegation of any ‘scam’ arising is farfetched. (This article was published in the Business Line print edition dated January 30, 2014) Printable version | Apr 6, 2015 6:54:46 PM | http://www.thehindubusinessline.com/todayspaper/tpinfotech/lackoflawsbracketsdirectsellingcoswith pyramidschemes/article5632470.ece © The Hindu Business Line