The Office of Consumer Protection (OCP) yesterday directed the MagneSSa Bhutan and Orien’s Bhutan to discontinue the operation of their pyramid schemes with immediate effect.
The OCP also notified the general public to refrain from engaging in promotion of the schemes and other unfair trade practices.
The decision follows an investigation by the Drug Regulatory Authority (DRA) and the OCP that found that MagneSSa Bhutan and Oriens Bhutan were operating pyramid schemes.
The two had obtained retail trade licences but misused them to operate the wholesale business of the products.
This, OCP states, violates Bhutan Retail Trade Regulation 2006.
“If any one is asked to join the schemes, he or she should report to the OCP,” Chief Programme Officer with the OCP, Jigme Dorji, said.
The OCP estimates that there are about 2,000 and 8,000 MageSSa Bhutan and Orien’s Bhutan members in the country. Public official, he said, have been asked to refrain from participating in such schemes.
The OCP states that the pyramid scheme will collapse at one point of time as it is dependent on the recruitment of members and the prospective members in any given community or geographical location is going to get exhausted.
Members that will be affected the most will be the recent entrants or bottom rung members who are apparently in the most numerous.
The mode of business operation of MagneSSa Bhutan and Oriens Bhutan requires a person to register as a member by purchasing products worth Nu 38,500 and Nu 6,000 respectively. Each entrant should introduce new members to receive bonus and other incentives depending on the increase in the number of members.
Operation of pyramid scheme businesses is prohibited as per Consumer Protection Act of Bhutan 2012 (CPA 2012) and Consumer Protection Rules & Regulations 2015 (CPRR 2015).
Rule 38 (xiii) of CPRR 2015 describes establishing, operating or promoting a pyramid promotional scheme where a consumer receives compensation that is derived primarily from the introduction of other consumers into the scheme rather than from the sale or consumption of products as an unfair trade practice.
The reward for participation in the scheme is dependent on introduction of new members. Only the higher rung or earlier members benefit from the contribution made by the members on the lower rung rather than sale or consumption of products.
“Therefore, the mode of business operation by MagneSSa Bhutan and Oriens Bhutan constitutes a pyramid promotional scheme that tantamount to unfair trade practice,” a press release from OCP states.
The investigation also found the engagement of MagneSSa Bhutan and Oriens Bhutan in misleading representation of goods and services, misleading advertisement, trade practices that lack professional diligence, and material distortion of economic behaviours of the consumers. These, OCP states, are in violation to Consumer Protection Act 2012 and its Rules and Regulations 2015.
“In most cases, they have represented, directly or indirectly, expressly or by implication, that individuals have earned substantial income from participation in the business scheme,” the press release stated.
The chief programme officer said that the promoters unfairly targeted vulnerable groups such as unemployed youth, housewives, villagers, illiterate persons and monks.
In truth, the OCP states the members are not always likely to earn substantial income due to difficulty in recruitment and saturation of prospective members. “They have failed to disclose, or disclose adequately, that business structure ensures that most consumers who become members will not earn substantial income.”
Such information, the OCP states, would be crucial to consumers in deciding whether to participate in the business scheme. The investigation found that members were recruited without providing prior and detailed information about the goods and services in order to enable them to make an informed decision regarding the purchase of goods and services.
The business is operated on a pretext of approval from competent authorities and violated the Bhutan Retail Trade Regulation 2006.
Jigme Dorji said that the scheme robbed members, exploited personal relationship, unfairly targeted vulnerable groups of consumers and compelled the members to endlessly recruit new members to earn promised rewards and commissions.
“This threatens social harmony and cohesiveness in the country and may lead to social and community disharmony. There is a development of unhealthy society based on deception and misleading practices,” he said.
According to the OCP, the pyramid schemes put the consumers’ health safety at risk as they are made to believe and depend on their products through members’ coercion in substitute of allopathic and traditional medicines.
The investigation found that the members function and claim as distributors of their products without a license, violating licensing regulations. The members are not competent to deal and recommend health and food supplements.
The chief programme officer said that the products such as health supplements should be stored in a proper facility and transported in a proper manner. Informal distribution channels such as ‘person-to-person’ delivery leads to product damage that could jeopardise the consumer’s health safety.
OCP in collaboration with all relevant stakeholders will carry out a study on the prevalence of other such schemes in the country and take appropriate actions to curtail their proliferation in the market.