Financial regulators in India have charged the Amway Corporation with a financial crime: running a $7 billion “money laundering” scam. Amway’s “multi-level marketing” enterprise is described as “pyramid fraud in the guise of direct selling.”
This charge breaks new ground in law enforcement of “multi-level marketing.” By presenting another way to describe the MLM phenomenon, as a form of money laundering, it makes an important contribution to removing MLM’s disguises and exposing what MLM actually is.
The USA – and most other countries are pressured to follow suit – regulates MLM primarily as a “business” proposition, distinct from investment and financial offerings. Victims are classified as “buyers” and “distributors” in a “direct selling” business. Though 99% of consumers who invest in MLM’s financial proposition lose money, year in and year out, US regulators attribute the losses to the “market”, not fraud and describe the consumers as “losers in the market” and “business failures,” not victims.
As a “sales business”, when an MLM is (rarely) prosecuted, the charge of “pyramid scheme” is reduced in gravity from criminal fraud to merely an “unfair and deceptive act in or affecting commerce.” The pyramid scheme is treated as “commerce.” Often the prosecutions lead only to “settlements” with promises by MLMs to change behavior (which is not enforced).
Laundered “Commissions” and “Profits” Transferred to USA
Indian authorities define Amway’s pyramid scheme in financial terms, claiming it illegally obtained $7 billion from the people of India and then laundered much of that money. The “business” identity is only a front. In reality, the “sales commissions”, the regulators say, are payments to recruiters who help facilitate the pyramid fraud. The “profits” claimed by Amway owners are part of the ill-gotten money, re-labeled in commercial terms for laundering money and transferring it out of the country.
Beyond “profit” and direct “commissions” to recruiters, the “laundering” also includes payments from millions of Indian consumers to US-based recruiting ring-leaders for “motivation”, marketing and related costs. India’s Enforcement Directorate charges that twenty-eight percent (28%) of the $7 billion Amway took out of India was laundered as payments to recruiters. The ED press release named two of Amway’s most notorious recruiting operations, Britt Worldwide and Network Twenty One.
India’s Enforcement Directorate (ED) a federal law enforcement agency that brought the case provisionally attached Amway assets worth $190 million, about 40% of the company’s current annual revenue in India. About $90 million of the assets is cash spread among 36 bank accounts. The rest are in buildings, real estate and inventory.
MLM: Money Laundering Machine
“Money laundering” (a term reputedly originated with the American gangster Al Capone who used local laundromats to disguise and transfer money illegally gained from selling alcohol) is a criminal operation, masquerading as normal business. Its purpose is to disguise and then provide access to money obtained from criminal activity. Accessing the money directly from the criminal activity creates an investigative pathway to the criminals for law enforcement. Money laundering not only shields the criminal activity but also enables criminals to access the dirty money without detection. Drug trafficking, mafia “businesses” or terrorist activities are frequently cited as criminal money sources needing to “launder” their ill-gotten funds.
“Shell” companies, gambling and front businesses are often noted as examples of money laundering enterprises but, arguably, banks are the world’s main money launderers. Among the top banks involved in money laundering prosecutions or publicized investigations include Citibank, Wachovia (now part of Wells Fargo), HSBC, Deutsche Bank and Goldman Sachs. Often bank executives claim to be unaware of the funds’ illicit sources or, when revealed, blame their “compliance” departments for ineptitude.
Pyramid and Money Launderer All in One
In the case of Amway in India, the regulators treat the criminal enterprise generating the funds and the one laundering the funds asone and the same: Amway. Seen this way, MLM is a fully integrated Money Laundering Machine. This analysis may confuse consumers accustomed to conventional descriptions in which the money-generating criminal enterprise and the money-laundering enterprise are related in transactions but are separate entities. Regarding the Amway case in India, confusion is expressed in these questions:
- What is the illegal source of money that Amway in India is “laundering”?
- In engaging in money laundering, how is Amway operating differently from other MLMs in India or elsewhere that are not prosecuted?
India’s case of “money laundering” against Amway does not charge that Amway is in any way different from hundreds of other “multi-level marketing” companies. The fact that Amway’s core business is functionally identical with hundreds of other “MLM” companies is clarified by India-based financial writer and consumer advocate, Sucheta Dalal in an insightful article in MoneyLife, entitled, “Will Action on Amway Lead to a Crackdown on Thousands of Chain-money Schemes Operating with Impunity across India?” The article is also presented in a podcast video on YouTube.
The Indian regulators also do not argue that Amway, as a money-launderer, is working with any other enterprise. Rather, Amway’s own business is both the source of illegal money and money laundering mechanism (MLM), all in one. The false identity of “direct selling” is a front for conducting a pyramid swindle that brings in the billions in ill-gotten gains. The false claim to be a “legitimate direct selling business” is how the money is laundered and made accessible to the perpetrators and accomplices.
Financial Crime Enforcement vs. Consumer Protection
The Enforcement Directorate of India is a financial crimes agency, not a “consumer protection” agency as the US Federal Trade Commission (FTC) is that “regulates” MLM in America. The FTC officially treats Amway’s operation as “legitimate business”, a form of “direct selling.” The FTC has not investigated Amway in over 40 years.
The counterpart to India’s Enforcement Directorate in the USA is Financial Crimes Enforcement Network (FinCEN), a division of the US Treasury Department. FinCEN can refer cases for criminal prosecution, but does not bring criminal charges itself. FinCEN has never taken an action against any MLM or investigated one for “money laundering.” The immediate past director of FINCEN is Kenneth A. Blanco. Blanco left FinCEN last year to work for Citibank, a global bank that recently paid hundreds of millions to settle charges of laundering Mexican drug cartel money.
The Enforcement Directorate (ED) in India looked at the same operational facts (paying recruiters and transferring money) and financial consequences of Amway (99% annual loss rates) as regulators have done in America.
Breaking new ground in law enforcement, the Indian authorities recognized that MLM’s fraudulent pyramid proposition and the massive losses suffered by its victims get “washed” away when the recruiting payments are treated as “commissions” and the money transferred to owners as “profit.” They stripped away the fake identity of “direct selling” to reveal the pyramid scam. They identified the billions transferred to Amway’s US owners and US-led recruiters – “ropers” in con artist parlance – as laundered dirty money, not “commercial” revenue.
USA-Sponsored, Protected and Promoted
Amway came into India in 1993, one of the later non-Communist countries that Amway entered. Amway expanded beyond the USA in the 1970s and is now in over 100 countries. Amway claims to have total annual revenues of more than $8 billion.
A 1979 decision by the Federal Trade Commission that Amway was “not a pyramid scheme” created “legitimacy” for all MLMs in the USA. This extraordinary regulatory reversal – any “endless chain” scheme was routinely viewed as illegal prior to 1979 – occurred just as MLM-supporter Ronald Reagan became president. Reagan’s Secretary of State, Alexander Haig joined Amway as paid consultant to aid Amway’s expansion into other countries, eventually to India. Another former US Sec. of State, Madeleine Albright, worked also as an international promoter of MLM, reportedly getting over $10 million for services to Herbalife.
From 1979 forward, Amway and similar “multi-level marketing” companies have been protected and promoted in countries around the world by the US State Dept. and the Dept. of Commerce, directly aiding MLM in entering new countries and defending against local law enforcement.
Independent studies by non-profits and some government regulators have repeatedly shown that over 99% of all Amway recruits never gain a profit. Amway has been sued for deception and pyramid fraud in class action lawsuits brought by victims in the USA and Canada. It was prosecuted by federal regulators for pyramid fraud in the USA and UK. In each situation, it either promised to reform or paid millions to “settle” the cases. Though Amway and other MLMs are repeatedly accused, sued or prosecuted for operating pyramid schemes, as is now occurring in India, the FTC has never clarified in 40 years the legal dividing line between “MLM” and illegal pyramid schemes.