Pyramid law update to cast a wider net

PUBLISHED : Tuesday, 26 October, 2010, 12:00am
UPDATED : Tuesday, 26 October, 2010, 12:00am

A tougher law against pyramid schemes is likely to be passed in the first half of next year.

Commerce minister Rita Lau Ng Wai-lan outlined the first update of the ordinance in 30 years to a panel of lawmakers yesterday. And she invited comment on whether participants in such schemes, not just their promoters, should be held to have committed a criminal offence.

Pyramid schemes, which are illegal in many countries, require members to pay a participation fee in return for the right to receive commissions on fees when they introduce new members, and when those new members introduce more, and so on.

But in many cases, the potential cash flow tempts recruits to borrow money to join, and then they fall into financial difficulty or bankruptcy when they fail to find new members.

Under the present law, a pyramid scheme must involve the selling of goods or services by a participant.

But under the update proposed by the secretary for commerce and economic development, any scheme in which new participants must make a payment and attract new members would be covered, whether or not it involves the sale of goods or services. Anybody who establishes, manages or promotes such a scheme would commit an offence and face a maximum penalty of seven years' jail, up from three, and a fine of HK$1 million, up from HK$100,000.

'Pyramid schemes serve little or no economic purpose,' Lau said. She sought lawmakers' opinions on whether participants should be held to have committed an offence.

'Since a pyramid scheme cannot be sustained if no new participants join, therefore participants, in fact, have a huge impact on it,' Lau said. 'I believe many would wonder about the effectiveness of the law if participants are exempted from liability.'

Most lawmakers supported the proposals, though some asked whether those ignorant of the law who fall victim to a scheme would be punished as well.

Lau said their innocence or guilt would be a matter for the courts, but public education on the subject should be stepped up.

Lau said a public consultation on the proposals would start soon and she hoped the bill would go before Legco in the first quarter and be passed by the summer holiday.

Police say three companies faced allegations over pyramid schemes in the first half of the year.

Lawmaker Wong Kwok-hing said he had received requests for help from more than 50 people in the past year. Most related to Digital Crown Holdings (Hong Kong) Limited (DCHL), and the victims were more than HK$3 million out of pocket in total. He said the government should learn from the example of Macau in implementing tougher laws. The Lampe Berger office in Macau, whose fragrance products are sold through DCHL, was forced to shut down after a new law took effect there in 2008. DCHL did not reply to inquiries.

A 45-year-old construction worker who went bankrupt two years ago because of a pyramid scheme was among several protesters outside Legco yesterday during the meeting.

The man, who borrowed about HK$400,000 to join the scheme, said: 'Many families have been broken and many friends have been deceived. I was silly to have believed them in the first place, but the way they pressured me by forcefully persuading me was intolerable.'

Pyramid schemes have been banned by the European Union, they were made an offence in Ireland in 2007, and Australian legislation against them was revamped this year.

Bigger teeth

The law on pyramid schemes has not been updated for 30 years

The amendment calls for an increase in penalties from three years' jail to seven, and from a HK$100,000 fine to: $1m