Monday, 3 September 2012

[] Rules to check fraud by Chit Funds, MLM Firms on the cards


Model rules for checking financial fraud and irregularities committed by hundreds of chit funds and multi-level marketing (MLM) firms are on the cards. The move comes just weeks after the central economic investigation bureau (CEIB) was asked to beef up its operations in tackling the generation of black money via chit funds and MLM firms. Sources said even the home ministry is examining a proposal to set up a specialised body to monitor and regulate chit funds and MLM companies spread across the country.
A chit fund company typically collects money from several investors and gives a prize to a handful of investors via a lottery or draw. While a central law exists to regulate such chit funds and MLM companies, it is the responsibility of the state governments to notify the law and enforce its provisions on such state-level companies.
Taking steps towards the formulation of model rules to check chit fund and MLM frauds, the central government wants stringent provisions in place, like hefty financial penalty, jail terms, de-listing from the registrar of companies (RoC) roster, among others.
Sources said this has happened after the Serious Fraud Investigation Office (SFIO), under the ministry of corporate affairs (MCA), demanded setting up of a separate central regulatory agency. "MCA may not be the nodal ministry that can set up a separate entity to check frauds and scams through chit funds and MLM firms," said a senior government official
According to MCA, since the applicable law — (Prize Chit & Money Circulation Scheme (Banning) Act, 1978) — is administered by the department concerned in the finance ministry, an inter-ministerial committee, comprising representatives from MCA, RBI, Sebi, consumer affairs department and CEIB, is in the process of drafting the model rules for checking such related fraud and irregularities.
These rules will be applicable on MLM companies and prohibition schemes under the prize and chit fund banning laws. The inter-ministerial panel will also frame classificatory guidelines on how to distinguish between genuine direct sales from disguised money circulation schemes.
Sources said once the model laws are in place, the government might give its nod for the creation of a SFIO-type body under the home ministry to enforce these laws and monitor the currently unregulated menace of chit fund and MLM frauds.
Source- Financial Express
Best Regards
Prakash Nair

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