Deer placenta scam gang arrested

Following the latest arrests of people involved in a pyramid scheme con in Changping district, experts and lawyers have again called for more regulation of this shady industry.

Changping Procuratorate yesterday said in a press release the boss of a cosmetics pyramid scheme, selling deer placenta products, is still at large, while they have detained seven lower level managers after a raid in Nanshao township.

Most of those arrested were in their 20s, with a low educational background, said Liu Wei, with the communications department of Changping Procuratorate. One of them, a 23-year-old man surnamed Zhang, told police that his friends helped him join in 2010. He said there were five "levels" to the scheme, and he was a district manager, the second from the top, and had over 64 subordinates.

Those joining the scheme had to pay 2,900 yuan ($460) up front, and then would try to involve family or friends to make money.

Zhang only saw the cosmetics once, a box containing five small bottles, but others never even saw the product.

"If a pyramid scheme involves over 30 people and over three levels, it's a crime," said Liu, adding that pyramid schemes are more likely to target those in rural or semi-rural areas like Changping.

"Pyramid selling activities are rampant in Changping because there are many migrants here," said Liu.

Pyramid schemes are illegal in China, and direct sales are strictly controlled, according to regulations issued in 2005. Direct sales companies such as Avon or Amway are allowed to operate on the Chinese mainland, but must pay a deposit of 80 million yuan for a license, and are not allowed to pay for making business introductions.

Tian He, a lawyer at Beijing Zhongzhe Law Firm said that pyramid selling developed from direct sales.

"It's not aimed at really selling products, but to get more people involved to make more profit," said Tian.

After direct sales were introduced to China, pyramid schemes subverted them, Tian said, and abandoned any actual product sales.

"What future can we expect from direct selling in a country where it is difficult for strangers to knock on others' doors?" said Qiao Xinsheng, professor of law with Zhongnan University of Economics and Law in Hubei Province. He said that promotion sellers eventually have no choice but to sell products to their friends or relatives.

Tian agreed with Qiao, and said that most people were duped by the idea of a get-rich-quick scheme.

"People deceived are usually those who want to make a quick fortune, and pyramid schemes promise them a bright future," said Tian, adding that people are brainwashed, and often people were even intimidated into joining up, for example by having their identity card or other valuable items taken.

One of the problems in dealing with these fraudsters is that they take advantage of a loophole in the law, said Qiao. They know that the police will only get involved if there are over 30 members associated with the scheme, and so are unafraid of being punished.

"The law leaves room for people involved with pyramid selling," said Qiao.

"When people are defrauded of cash, it can be handled under economic crime laws, but when personal safety is threatened, like mobile phones or ID cards being confiscated, the perpetrators should be charged under public security laws," Qiao noted.

In early March, another pyramid group was found in Changping, with 9 suspects detained who had allegedly swindled at least 64 victims.