Is the Amway pyramid scheme a fraud? The company’s business plan explained


Amway Fraud: The Law Enforcement Branch said in a recent statement that it seized assets from Amway India in a money laundering case. Central agency accused the company of perpetrating a “scam” by performing a “pyramid scheme” under the guise of a direct selling MLM network. Amway has often faced this problem in India and abroad, while it has adamantly refused to get involved in a “pyramid scheme” from time to time.

Here’s everything you need to know about Amway and the alleged pyramid scheme it committed:

What is Amway?

Amway, a US-based company, is one of the most famous multi-level marketing (MLM) companies in India. It is a direct seller of FMCG products, including the health, nutrition, beauty and homecare markets, and claims to be one of the most successful companies in the world. Amway uses a combination of direct selling and multi-level marketing business models, and the company has been the subject of controversy in the past.

Why is Amway making headlines?

As mentioned earlier, the Law Enforcement Branch released a statement on Monday stating that it had seized assets worth Rs 757.77 crore from Amway at various locations including land and buildings factory outlets located in the Dindigul district of Tamil Nadu. Of the total value of the attachments, the movable and immovable property is worth Rs 411.83 crore, while the remaining amount of Rs 345.94 crore is deposited in 36 bank accounts “owned” by Amway, the agency said. . He said the company was accused of “running a multi-layered marketing scam”.

Amway’s business model explained

Amway places its salespeople at the top of a pyramid, and then places other salespeople below them that these people recruit. “ABOs (Amway Business Owners) make money in three ways: one by selling products directly to customers, another when they get bonuses if the volume of sales is high, and the last 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, which the company denies. “In a pyramid model, people can generate income by simply recruiting new members. According to the brand, Amway participants, in contrast to this, rely on an agreed hierarchy of members who buy, retail and further spread out this sequence, characterizing more of a network than a pyramid itself,” says Business. Model Analyst on its website.

Is Amway running a fraudulent business?

While Amway has time and again denied committing fraud, the ED accused the company of running a pyramid scheme. “The purpose of the company is to propagate how members can become rich by becoming members. There is no focus on products. Products are used to turn this MLM pyramid fraud into a direct selling company “, alleged the ED.

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

“An ED money laundering investigation revealed that Amway is running a pyramid scheme under the guise of a multi-level direct selling marketing network.” Without knowing the real facts, the gullible public is induced to become a member of the company and buy products at exorbitant prices and thereby lose his hard-earned money,” the federal agency said.

Amway’s position in the world

Amway has been involved in India since 2006, and in 2014 its CEO and Managing Director was arrested in Andhra Pradesh for fraud. The Andhra Pradesh High Court in 2014 declared the company’s business model illegal. He has also encountered problems in China in the past. The ED tying up Amway assets is another of the controversies.

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