Tough Bill targets pyramid schemes

There are more painful days ahead for those engaged in pyramid schemes, if a Bill tabled in Parliament last week sees the light of day.

The proposal is meant to stop unscrupulous people from fleecing the public.

The Prohibition of Pyramid Schemes Bill initiated by Ikolomani MP Bonny Khalwale proposes up to 10 years imprisonment or a fine of Sh10 million, or both for those involved in pyramid schemes that have in the past seen Kenyans lose billions of shillings.

It will hold to account those who initiate the schemes, their promoters, and participants to deter further losses through such deals that openly thrived before 2009 but are being re-invented in different forms, with the most recent being disguised as trading in forex through the Internet.

If passed by Parliament, the Bill will make it illegal to participate in a pyramid scheme or induce others to do so, or to take payment from others based on the prospect held out to the new participant. The payment might be financial or non-financial.

The Bill has a wide definition of a pyramid scheme and says it could involve marketing of goods or services, or both.

This is bound to cause ripples in the multi-level marketing circles, some of which thrive on the prospect held out to new participants.

“If an offence under this Act is committed by a corporate or by a person as member of an unincorporated body, and it is proved that the offence has been committed with the consent or connivance or attributable to the neglect of the person, that person commits an offence and is liable to be proceeded against and punished accordingly,” says the Bill.

The court will not be held back by a requirement to determine whether a participation payment is entirely or substantially induced by the prospect held out to a new participant or entitlement to a recruitment payment.

Numerous deposits and withdrawals

According to a task force report released by the Ministry of Cooperative Development and Marketing in 2009, there were 270 identified pyramid schemes that went under with Sh8.2 billion belonging to 148,784 investors.

About 17 had been registered as savings and credit societies by the ministry. Among the top schemes identified were DECI, whose directors pocketed Sh2

46 billion, Clip Investments Sacco (Sh1.99 billion), Kenya Business Community Sacco Ltd (Sh780 million), Sasanet Investments Sacco Ltd (Sh629 million), Jitegemee Investments Sacco Ltd (Sh494 million) and Circuit Investment (Sh384 million).

The team found that the accounts were characterised by numerous deposits and huge withdrawals but were closed with no money. Several suicides and family break-ups were reported due to the frustration of losing huge amounts of money.

The task force, chaired by former MP Francis Nyenze, recommended enactment of an anti-pyramid schemes legislation within a year, which would define what a pyramid scheme is and criminalise proprietors and participants.

The team also recommended the setting up of an anti-pyramid scheme authority and the establishment of a policy framework by the Central Bank to identify pyramid schemes.

It also recommended prosecution of those identified as directors of pyramid schemes, recovery of money and assets, both locally and abroad, and restitution for the victims.
Last November, Attorney-General Githu Muigai told Parliament that he had set up a task force of legal counsel to assist in tracing and recovering money and assets bought with proceeds from pyramid schemes.

The AG, however, said the government could not compensate victims but could assist in recovery of the money and prosecution of those involved.