A surge in swindlers setting up so-called "pyramid scheme" scams has led to authorities outlawing the practice in Bahrain, it has been revealed.

The Industry and Commerce Ministry's Consumer Protection Hotline received dozens of complaints about pyramid schemes and network marketing in the first two months of this year alone, up from zero last year, which sparked a ministerial order banning both business models, said a report in the Gulf Daily News (GDN), our sister publication.

Pyramid schemes are very risky "get-rich-quick" rackets that can cost a lot of people a lot of money.

They rely on new members paying to join up, with the promoters at the top of the pyramid benefiting from the fees paid.

Profit

For the scheme to work so that everyone can make a profit there would have to be an endless supply of new members, which becomes statistically impossible the larger the "pyramid" grows.

Network marketing, on the other hand, sees salespeople compensated not only for the sales that they generate, but also for the sales of the other salespeople they recruit.

In some cases this can be a genuine marketing strategy, but it is often used to exploit members in a similar way to a pyramid scheme.

More than 60 complaints about such practices were received by the Industry and Commerce Ministry up to the end of February, a ministry representative told the GDN.

"These calls notified us of various types of marketing schemes selling different products including gold, watches and home products," he said.

"Many of them involved roping in people to be part of a sales network on a commission basis.

"The consumer protection directorate did not receive any complaints regarding pyramid schemes or network marketing in 2014.

"However, in 2015, we received seven complaints through Tawasul, the national complaints system (80008001) and more than 60 calls were handled by the consumer protection call centre."

Although an outright ban on pyramid selling and network marketing was now in place, the representative said "very few companies" had been contacted to adhere to the ministerial order.

"No cases have been referred yet to the Public Prosecution through the directorate," he said.

"But if anyone is ignoring the ban and continues with such practices, they could face a prison sentence and a fine of up to BD5,000 ($13,179).”

Industry and Commerce Minister Zayed Al Zayani issued ministerial order two of 2015 on February 17, "banning hierarchical and network marketing".

Various forms of pyramid schemes and network marketing, which are classified as "unsustainable business models" have been banned by countries including France, Germany, the US and the UK.

The ministry's consumer protection director Senan Ali Al Jabrey told the GDN that his department was ensuring strict implementation of the order.

"The prison term and the fine depend on the case and degree to which the law has been violated," he said.

"The ministerial order was issued as a result of carefully surveying the market and studying these schemes thoroughly, which found that such practices breach the laws and regulations of Bahrain, especially the consumer protection law.

"Inspectors at the Consumer Protection Directorate are watching the market closely to ensure the implementation of the order.

"In parallel, the Bahrain Chamber of Commerce and Industry has been approached to ask the commercial sector, including hotels and hall renting companies, not to allow meetings to promote these two types of marketing at their venues."

Al Jabrey urged consumers to notify the ministry of any violations they come across through the hotline 17007003, by email to consumer_protection@moic.gov.bh, or via the ministry's Twitter and Instagram accounts @MOIC_bahrain.

"We will take the required procedures in co-operation with relevant bodies at the General Directorate of Anti-Corruption and Economic and Electronic Security to stop such marketing," he added. - TradeArabia News Service