CNA Explains: How China deals with pyramid schemes

The arrest of 52 Singaporeans in Guangxi has put China’s pyramid-selling laws under scrutiny. The cases raise questions about when participation becomes a crime and how Chinese authorities treat people who first entered a scheme as victims but later recruited others.

Singapore’s Ministry of Foreign Affairs said the Singapore government does not intervene in foreign judicial systems. It continues to provide consular assistance to the arrested Singaporeans.

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For pyramid schemes, the criminal offence generally applies only to those who organise and lead the scheme, because the law only punishes organisers and leaders.

Chinese law does not treat every pyramid-selling case as a criminal offense. Kevin Hong, a partner at Shanghai-based AllBright Law Offices, said the criminal provisions generally apply to people who organize or lead the scheme. That group can include more than those who created it or occupy its highest level. People who manage teams, control funds, conduct training or help expand the network may also be treated as organizers or leaders.

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Participation in pyramid selling itself constitutes an administrative violation.

Mere participation is generally considered an administrative violation, Hong said. Under China’s Regulations on Prohibiting Pyramid Selling, participants can be ordered to stop and fined up to 2,000 yuan, or about US$300.

Being deceived at the outset does not automatically remove responsibility. Hong said that if someone later understands that a scheme depends mainly on money from new participants and lacks a genuine source of profit, continued recruiting, fundraising, training, team management or collection of recruitment commissions could lead to administrative or criminal liability.

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Being deceived at the beginning does not automatically exempt a person from responsibility, and recruiting others does not automatically constitute a crime.

“You have to be an organiser or leader, because many people at the lower levels have themselves been deceived and lured into the scheme. You cannot possibly punish all of them,” Hong said. Beijing Yida Law Firm criminal lawyer and senior partner Zhao Feiquan also discussed the legal distinction, although the provided text ends before his explanation is completed.

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You have to be an organiser or leader, because many people at the lower levels have themselves been deceived and lured into the scheme. You cannot possibly punish all of them.