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 Post subject: GoldQuest: Pyramid style schemes illegal in Sri Lanka
 Post Posted: Sat Jun 04, 2005 2:46 pm 
Illegal Quest

3 June 2005 22:03 hours

GoldQuest, the controversial network marketing scheme, is now illegal in Sri Lanka after its scam drained US$ 15 million in foreign exchange from the country, the Central Bank said Friday.

The Central Bank rushed through amendments to the Banking Act, banning pyramid style schemes, but not before few thousand people parted with their cash.
"It is illegal," Central Bank's Director Banking Supervision Joan de Zilva said, responding to questions from journalists whether Goldquest was now illegal after the conclusion of a SAARCFinance seminar on pyramiding. "Under the Banking Amendment Act is it illegal."

Sri Lanka's Central Bank spearheaded an anti-pyramid crusade, after network marketers began duping customers to purchase gold coins through international credit cards.

Pyramid schemes are banned in many countries but their proliferation in Sri Lanka alarmed President Chandrika Kumaratunga, bankers and regulatory authorities, which fear the public may be duped into investing money in such scams in the absence of laws to prevent them.

"We estimate around US$ 15 million has gone out of the banking system during the 18 month period this scheme was in operation," Additional Controller of Exchange H M P Herath said adding that the department has so far prosecuted eight people with fines up to Rs. 88 million (US$ 8.8 million).

Central Bank says it has also banned banks from facilitating GoldQuest transactions.

"Our vigilance over this has resulted in not a single bank engaging in these transactions today," says de Zilva.

"So Goldquest is not able today to use the banking system to facilitate its transaction. Severe strictures will be placed on any bank that is found facilitating these transactions through international credit cards," she said

"We were able to act swiftly because the network marketing people operated through the Banking system. I can tell you that we are going all out to prevent such things from reoccurring," de Zilva said.

Despite arming itself with more muscle, experts say Sri Lankan authorities should step up awareness campaigns to educate the public.

"We can never totally eliminate it. But a public awareness campaign to educate investors about the dangers of such easy money schemes, starting from schools to community level will help prevent new people from being duped," says Robert FitzPatrick, President of the US based Pyramid Scheme Alert.

Besides awareness campaigns, investors should also not to fall into schemes which offer instant returns.

"If you are getting returns way above market averages, then you've got to re-think your investment. If it's too good to be true, then there's some hidden catch," warns Christopher Jarvis, who authored an IMF working paper titled "The rise and fall of pyramid schemes in Albania."

In most countries, pyramid schemes are busted by law enforcement authorities, and the consumer protection authorities. But Sri Lanka took a different route, with the Central Bank taking the leadership to plug the leaks using the Exchange Control Act.

"I commend the Central Bank for doing so, because its rare to see a country's Central Bank leading the crusade, its usually the Justice Department or law enforcement authorities," FitzPatrick said.

FitzPatrick and Jarvis were key resource personnel at the SAARCFINANCE seminar on Combating Pyramid Schemes in Colombo on Friday.

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