Government reins in on ‘pyramid schemes’

The Ministry of Trade and Industry (Minicom) on Monday banned operations of any kind of a pyramid business in the country.
People registering businesses at RDB. Companies have been warned against registering and modifying operations. The New Times/File.
People registering businesses at RDB. Companies have been warned against registering and modifying operations. The New Times/File.

The Ministry of Trade and Industry (Minicom) on Monday banned operations of any kind of a pyramid business in the country.

In messages published in the media, the ministry said investigation have established that some companies and cooperatives register to operate authorised business, but upon certification, they modify their operations to start pyramid schemes.

 

In pyramid schemes, promoters recruit people and require them to pay a fixed membership fee and promise them to be paid a certain amount of money for each new recruit they bring in the system.

 

Diamond Holiday Travel Ltd, Twese Development Initiative Ltd, Ingaru Company Ltd, Aguka Development Ltd and Cooperative Abigize, have been confirmed as part of the scheme, but the ministry said investigations are ongoing to establish if there are more such companies.

 

Minicom said it condemns such a practice wherein people are promised “a magic” gain by simply recruiting other people, instead of investing real money and trade goods and services.

The ministry has identified a number of challenges with pyramid business.

“First of all the client paying membership fee cannot ascertain that they will get back their money since they neither get any service/good nor sign any contract with the company-cooperative,” Minicom said in the published messages.

“Secondly, the investigation found, recruits are diverted from any other productive activity and throw their efforts in trying to convince other people to register with the schemes.

“Collection of these funds is not transparent, and sometimes, funds are transferred in foreign accounts where the recruits would not have a way to claim their funds.”

Accused cites frustration

This paper yesterday contacted some of the companies named in the scheme. Officials of Diamond Holiday Travel  said they were in a conference.

The company has a parent company registered in Hong Kong and, according officials, they have operations in several countries in the region.

Cedric Abuna, a senior manager at Diamond Holiday Travel  East Africa region, said they had a “very ambitious plan” for the Rwandan operation.

“We were planning to set up our regional headquarters in Rwanda, but we are getting discouraged by these incidents. We have sought appointments with the ministry to explain what we do and how it is different to a pyramid business but they did not consider meeting us,” he said by phone from Kampala.

Diamond Holiday Travel Ltd is registered at Rwanda Development Board and licensed to offer high-end tourism and multi-level marketing services, which Abona said people do not understand well, and end up misconstruing them to pyramid schemes.

“Even the central bank could not tell us the conditions we failed to follow,” he said.

Claiming that their business is good to the community, he said they are planning an international conference in Kigali later this month, which he said would be a good platform to explain their operations.

Efforts to reach Pierre Celestin Buhuru, the legal advisor of Diamond Holiday Travel Ltd in Rwanda, were futile as his phone was switched off by press time.

How it works

Under the Diamond Holiday Travel Ltd system, a new member deposits Rwf250,000 on the company’s account, then builds a client base to get bonuses from subsequent revenue by new members.

A software whose main server is managed from Hong Kong will enter new members on the bottom level and then gradually push them from bottom to the top of the board.

“The faster the rate of subscriptions, the sooner they receive their bonuses,” reads a note on Diamond Holiday Travel Ltd communication leaflets.

When the holiday board fills up, after 14 members have joined, the member is put in what they call Level Four, which earns them Rwf500,000.

This step drives the member to the final membership category, depending on how hard they work to bring on board new recruits, a category called the ‘Diamond Board’ where a member earns Rwf5 million.

After earning this, you then go back to the bottom level and start over again.

The New Times has established that some people abandoned their previous jobs and joined Diamond Holiday Travel Ltd on a full-time basis.

Alphonse Rukundo, in his early 20s, was a truck driver, earning Rwf200,000 per month until March when he heard of the company and registered.

He interested two colleagues, also drivers who deposited their contributions under his code, and they have also quit their respective jobs to search for revenue recruits.

Rukundo said after one month, he earned five million.

According to the Minicom announcement, no company, cooperative, association or individuals are authorised to operate a money pyramid scheme on Rwandan territory.

They also require companies running this business to file reports indicating how they have been using money.

The ministry also asked Rwanda Development Board and Rwanda Cooperative Agency to consider legal action against the entities cited in the practice.

“Rwanda Cooperative Agency  will take measures after consulting the legal advisers, but all in all they should stop because such business is not allowed in Rwanda,” said Damien Mugabo, the Rwanda Cooperative Agency director-general.

He added “the problem is that their business is not open.”

However, yesterday, Yves Sangano, a senior officer in the registrar’s office at Rwanda Development Board said they have not received any instruction from the ministry.

He, however, confirmed that some companies indeed register businesses with the agency, but revert to other activities once they start operating, but said they have not conducted any kind of survey to that effect.

Complaints

Some of the beneficiaries of the scheme such as Rukundo, the truck driver, are not amused by government’s stance on pyramid undertakings. Rukundo claimed that what Diamond Holiday Travel Ltd is engaged in is improving livelihood.

However, Emmanuel Hategeka, the permanent secretary in Minicom, said the ban concerns only pyramid operations and if a company has registered other authorised business, they will be allowed to continue.

“What we can’t tolerate is a cooperative registering to run a restaurant and changing it into pyramid business scheme later,” said Hategeka.

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