The recent arrest of top officials of Amway India, including its American CEO, on allegations that the direct-selling firm is operating an illegal ‘money circulation scheme’, smacks of arbitrariness and misuse of powers by the police. Even assuming the company’s sales of various products in India are camouflaged schemes to collect money from enrolling successive layers of so-called sales agents, there was no case for the arrest and physical detention of its top brass. These men, after all, are unlikely to have fled or prevented the police from carrying out investigations, leave alone posing a threat to those willing to tender evidence against the company.
Abuse of the power of arrest can damage overall business confidence, apart from undermining the credibility of the criminal justice system. What is surprising about the police action on Amway is that the company has been around for a long time in India and growing. There is no law barring it – or, for that matter, other multi-level marketing (MLM) firms – from operating in the country. The question then is whether there should be such a law. Are MLM companies, in reality, only operators of Ponzi investment schemes by another name? At one level, there are similarities. Both rely on recruitment of sales force at multiple layers with the compensation to salespersons calculated not just on sales generated but also on the number of salespersons recruited down the line. In a pure money circulation scheme, money is mobilised by enrolling subscribers who are rewarded out of monies collected from those they enlist. This process is repeated endlessly until, of course, the flow of new ‘salespersons’ stops.
As long as the MLM structure – including the mechanism of compensating the sales force – is a means for hawking products for which there is genuine consumer demand, it must qualify as a legitimate form of marketing. Linking employees’ remuneration to the business generated by agents recruited by them is, for example, an established practice in the Indian insurance industry. If MLM has been used to attract investments in assorted pyramid schemes promising astronomical returns from ‘potato bonds’ or emu farming, the fault lies in the underlying products and their dubious promoters. While MLM can be a legitimate avenue for marketing genuine products, there is a case for greater transparency in the operations of such companies. Disclosure of commission structures, as a percentage of such costs to the retail price, and perhaps even setting a cap on it, are things that consumers as well as ‘downline’ distributors are entitled to know.