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Trading Schemes, Pyramid Selling Quick Facts
Subject: Trading Schemes, Multi-level marketing, Pyramid Selling, Chain Letters, and Gifting Schemes
Relevant or Related Legislation:
Part XI of the Fair Trading Act, as amended by the Trading Schemes Act 1996 and the Trading Schemes Regulations 1997. The Gambling Act 2005.
Current Position:
• There are no immediate plans to review the trading schemes legislation.
• There is precedent for schemes operating as chain letters being subject to the Lotteries and Amusement Act 1976. However, under the Gambling Act 2005 (when commenced) it will be an offence for a person to invite someone to join a chain-gift scheme or for them to knowingly participate in the promotion, administration or management of a chain-gift scheme. The Department for Culture, Media and Sport (DCMS) have policy responsibility for the Gambling Act 2005.
Recent Relevant Campaigns or Consultation:
The Office of Fair Trading (OFT) Scams Awareness month in February 2005 and the jointly produced booklet ‘How to Recognise a Scam’ included some relevant warnings, including:
• What am I being asked to pay for?
• Can I afford to lose the money?
• Does it look to good to be true? (If it does, it probably is)
Key Facts:
• The Department for Business, Enterprise and Regulatory Reform (BERR) has enforcement responsibility for Trading Schemes legislation and will investigate schemes which appear to be breaking the law.
• Trading schemes can be a legitimate opportunity for people to operate a business from home and are not illegal in the UK.
• Trading schemes become illegitimate and illegal if, while purporting to offer business opportunities, the sole purpose of the scheme is to make money by recruiting other participants, rather than trading in goods or services. This form of bogus scheme is sometimes referred to as "pyramid selling".
• There are also a wide range of bogus schemes which do not claim to trade in goods or services but which are known as "pyramid schemes". Schemes operating as chain letters or games are common examples.
• All these bogus schemes need an infinite supply of new participants for everyone to make money. Since the supply will always be finite, the pyramid must collapse eventually and most participants will lose their money.
• All schemes where money changes hands are subject to the general criminal law on fraud, theft, and deceit and the police are responsible for enforcement of the law in these areas.
