July 16, 2024
Is Amway Pyramid Model A Fraud? Company’s Business Plan Explained

Amway Fraud: The Enforcement Directorate has in a recent statement said that it has attached assets of Amway India in a money laundering case. The central agency has accused the company of perpetrating a “scam” by running a pyramid “fraud” in the guise of direct-selling MLM network. Amway has been often faced this problem in India and abroad, while it has categorically declined being involved in ‘pyramid scheme’ from time to time.

Here is everything you need to know about Amway and the alleged Pyramid Fraud it has committed:

What is Amway?

Amway, a US-based company, is one of the most famous multi-level marketing (MLM) in India. It is a direct seller of FMCG products including health, nutrition, beauty and home care markets, and claims to be one of the top-performing businesses in the world. Amway uses a combination of the direct selling and multi-level marketing business models, and the company has landed in some controversies in the past.

Why is Amway in the News?

As mentioned earlier, the Enforcement Directorate on Monday issued a statement saying it has attached assets worth Rs 757.77 crore of Amway in various locations including  land and factory buildings of Amway located in Dindigul district of Tamil Nadu. Of the total attachment value, immovable and movable properties are worth Rs 411.83 crore, while the remaining amount of Rs 345.94 crore is deposited in 36 bank accounts “belonging” to Amway, the agency said.  It said the company is accused of “running a multi-level marketing scam”.

Amway’s Business Model Explained

Amway places its sellers at the top of a pyramid, and then puts below them other sellers that these people recruit. “The ABOs (Amway business owners) make money in three ways: one by selling products directly to the customers, another when they get bonuses if the sales volume is high, and the last one through incentives when the business grows,” The Business Model Analyst says on its website.

However, the structure of Amway’s business model makes it appear like a pyramid scheme, and the company denies this. “In a pyramid model, people can make revenue by simply recruiting new members. According to the brand, participants of Amway, unlike that, rely on a granted hierarchy of members who purchase, retail, and further spread out this sequence, characterizing more of a network than a pyramid itself,” Business Model Analyst says on its website.

Is Amway Running a Fraud Business?

While Amway has time and again denied committing any fraud, the ED has accused the company of running a pyramid scam. “The entire focus of the company is about propagating how members can become rich by becoming members. There is no focus on the products. Products are used to masquerade this MLM pyramid fraud as a direct-selling company,” the ED alleged.

The agency said the company collected a total amount of Rs 27,562 crore from its business operations during 2002-03 to 2021-22 and of this, “paid” a commission of Rs 7,588 crore to its distributors and members in India and the United States from 2002-03 to 2020-21.

“A money-laundering investigation by the ED revealed that Amway is running a pyramid fraud in the guise of direct-selling multi-level marketing network. “Without knowing the real facts, the common gullible public is induced to join as members of the company and purchase products at exorbitant prices and are thus, losing their hard earned money,” the federal agency said.

Amway’s Position Around the World

Amway has been involved in India since 2006, and in 2014, its CEO and MD was arrested from Andhra Pradesh on fraud charges. The Andhra Pradesh High Court had in 2014 ruled the company’s business model illegal. It has also faced problems in China in the past. The ED attaching assets of Amway is another one of the controversies.

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