CNA Explains: What are pyramid schemes and are they legal in Singapore?

On September 4, 52 Singaporeans were arrested in Guangxi, China for suspected involvement in a pyramid scheme. Fraudulent pyramid schemes are distinct from legitimate multi-level marketing (MLM) sales structures, according to lawyers Tania Chin and Andy Yeo of Lighthouse Law and his own firm, respectively. In MLM, distributors earn revenue through direct sales and recruitment of new representatives, who in turn sell products and recruit others.

However, in pyramid schemes, participants make money primarily by recruiting others, with no emphasis on selling actual products. MLMs are illegal in China and only single-level direct selling is permitted. In Singapore, MLMs are legal but only if participants earn commissions mostly from actual product sales, not recruitment fees or mandatory purchases.

The laws in Singapore aim to prevent people from being pressured to buy high monthly quotas of products or recruit from their social circle, which can lead to social capital bankruptcy and strained relationships. To avoid pyramid schemes, individuals should check the regulatory status of the business, understand the business model and how organisers benefit, and map out the flow of money in the business to ensure there is an actual product being sold.