PYRAMID SELLING AND SIMILAR TRADING SCHEMES

HC Deb 18 July 1973 vol 860 cc641-61

E.—(I) This Part of this Act applies to any trading scheme which includes the following elements, that is to say—

1. (a) goods or services, or both, are to be provided by the person promoting the scheme (in this Part of this Act referred to as "the promoter") or, in the case of a scheme promoted by two or more persons acting in concert (in this Part of this Act referred to as "the promoters"), are to be provided by one or more of those persons;
2. (b) the goods or services so provided are to be supplied to or for other persons under transactions effected by persons (other than the promoter or any of the promoters) who participate in the scheme (each of whom is in this Part of this Act referred to as a "participant");
3. (c) those transactions, or most of them, are to be effected elsewhere than at premises at which the promoter or any of the promoters or the participant effecting the transaction carries on business, and
4. (d) the prospect is held out to participants of receiving payments or other benefits in respect of any one or more of the matters specified in the next following subsection.

(2) The matters referred to in paragraph (d) of subsection (1) of this section are—

1. (a) the introduction of other persons who become participants;
2. (b) the promotion, transfer or other change of status of participants within the trading scheme;
3. (c) the supply of goods to other participants;
4. (d) the supply of training facilities or other services for other participants;
5. (e) transactions effected by other participants under which goods are to be supplied to, or services are to be supplied for, other persons.

(3) For the purposes of this Part of this Act a trading scheme shall be taken to include the element referred to in paragraph (b) of subsection (1) of this section whether the transactions referred to in that paragraph are to be effected by participants in the capacity of servants or agents of the promoter or of one of the promoters or in any other capacity.

(4) In determining, for the purposes of paragraph (c) of subsection (1) of this section, whether any premises are premises at which a participant in a trading scheme carries on business, no account shall be taken of transactions effected or to be effected by him under that trading scheme.

(5) For the purposes of this Part of this Act such a prospect as is mentioned in paragraph (d) of subsection (1) of this section shall be taken to be held out to a participant

1. (a) whether it is held out so as to confer on him a legally enforceable right or not, and
2. (b) in so far as it relates to the introduction of new participants, whether it is limited to the introduction of new participants by him or extends to the introduction of new participants by other persons.

(6) In this Part of this Act "trading scheme" includes any arrangements made in connection with the carrying on of a business, whether those arrangements are made or recorded wholly or partly in writing or not.

(7) In this section any reference to the provision of goods or services by a person shall he construed as including a reference to the provision of goods or services under arrangements to which that person is a party."

Sir G. Howe

I beg to move, That this House doth agree with the Lords in the said amendment.

Mr. Deputy Speaker

With this it will be convenient to discuss the following Lords Amendments:

No. 43, in page 87, line 43, at end insert new Clause F—Regulations relating to such trading schemes.

No. 44, in page 87, line 43, at end insert new Clause G—Offences under Part XI.

No. 45, in page 87, line 43, at end insert new Clause H—Defences in certain proceedings under Part XI.

No. 46, in page 87, line 43, at end insert new Clause I—Penalties for offences under Part XI.

No. 47, in page 87, line 43, at end insert new Clause J—Enforcement provisions.

No. 49, in page 93, line 9, leave out "or".

No. 50, in page 93, line 10, after "85(6)" insert "or Part XI".

No. 51, in page 94, line 21, after "order" insert: or whereby any regulations are made under this Act".

No. 54, in page 98, line 4, leave out "for" and insert: any reference in those provisions to services supplied or to be supplied, or to services provided or to be provided, shall be construed accordingly. ( ) For".

No. 74, in line 17, in the Title, after "Agreements" insert: to make provision with respect to pyramid selling and similar trading schemes".

Sir G. Howe

This is certainly the most important group of amendments that we are considering this evening. It deals with the problems that arise from pyramid selling and similar trading schemes. It is the group which results in adding to the Bill, as it left this House, Part XI, a totally new Part, to deal with this problem.

As the House well knows, it has been the Government's intention to get rid of the menace of pyramid selling as soon as it was possible to enact legislation. [HON. MEMBERS: "Hear, hear."] As is clear from the chorus of voices now raised, that has been for some time the general wish of the House.

10.45 p.m.

The House will recall that in March we published a consultative document setting out the measures which then seemed to us to be needed to impose a ban on the objectionable features of pyramid selling. At that stage we were proposing to impose a ban on the soliciting for or taking of payments in respect of rights in a pyramid selling scheme. As a result of that we received a number of comments from hon. Members and from commentators outside the House. It was suggested to us that the simple concept "taking of payment" could be disguised in a number of ways, for example through the sale to new recruits of excessive quantities of goods by the recruiter or by providing spurious training for recruits at exorbitant prices from which recruits would gain little or no benefit.

It became clear after the publication of the consultative document that the narrow definition of pyramid selling could be easily evaded and that, if that were to happen, many undesirable practices would not be caught. Accordingly, we decided that the only effective approach to the problem was to define widely those schemes which might be used as a basis for pyramid selling and to take flexible powers to control both their control and their operation. It is that which we have done.

We have defined trading schemes which are to be subject to these measures in relation to direct selling. The definition is further designed to ensure that, however disguised rewards for recruitment may be, schemes that offer such rewards and are open to abuse in that kind of way are brought within it. This is the essential object of Lords Amendment No. 42. Effectively, it covers schemes in which goods or services are provided by promoters otherwise than from business premises and in which the participants are offered the prospect of reward whether in cash, commission, profit on goods or services sold for recruiting efforts or as a result of the activities of others.

Lords Amendment No. 54 is a consequential amendment to extend the definition of "services" in Clause 127.

One unavoidable feature of defining the matter as widely as that is to bring within the scope of this part of the Bill some unobjectionable schemes. The fact that a trading scheme falls within the definition does not necessarily imply that it is objectionable. Schemes are objectionable if they are of a kind in which the offence proposed in new Clause G is committed. It is no part of the Government's intention to impede or restrict the development or operation of unobjectionable schemes such as those which subscribe to the code of conduct of the Direct Sales and Service Association or mail order trading schemes.

We have seen how quickly pyramid selling schemes can be shifted or bent to evade any proposed stipulation in the law. It is for that reason that Lords Amendment No. 43 provides the Secretary of State with wide and flexible powers to regulate by statutory instrument the promotion and conduct of schemes coming within the definition. Powers drawn in that form will ensure that any new and as yet unforeseen and perhaps undreamt of objectionable practice which can be adopted in this context can he stopped much more quickly than if the basic statutory law had to be amended. Amendment No. 51 provides for the negative procedure in relation to these orders.

I need not weary the House by going in detail through the matters which may be regulated, but they are set out in Amendment No. 43. The regulation-making powers can be used with discretion so as to ensure that the regulation catches only objectionable schemes. Equally, it enables us to amend the regulations if it transpires that inadvertently we are catching unobjectionable schemes.

The regulations may be a vital part of the measures here contained. We will ensure in the drafting that they are comprehensive. There is no difficulty about laying them during the recess.

Amendment No. 44 deals with the offences which may be committed under the new Part XI. Amendments Nos. 49 and 50 ensure that if the offences are committed by a body corporate the officers of that body may also be prosecuted. The provisions there will put an end to the evasion which has been frequently practised in the past, namely where certain activities have been carried on by over-zealous participants without the authority of the company or its promoters.

Amendment No. 46 provides for penalties at the usual level for such offences, if it is possible to speak in such terms about these matters. Amendment No. 47 deals with enforcement. It is essential that this part of the Bill should be enforced quickly and vigorously. That can best be done by the Department, because the organisation which will take on the job is already in existence. Staff of the Department are experienced in investigating these complicated matters and in bringing prosecutions over the whole area of company law. It seems right, therefore, to apply these resources to this purpose for what I hope will be the limited period which it will take to get rid of this objectionable practice of pyramid selling. The provisions here set out make available to the Department for the purposes of investigating pyramid selling schemes a suitably adapted form of the powers otherwise available in the rest of the Bill to weights and measures authorities. There is also a need to amend the Long Title of the Bill.

Pyramid selling has proved to be a difficult problem to deal with legislatively. These comprehensive measures are to be taken as a whole and will make it extremely difficult for any scheme remotely resembling pyramid selling in its present form to be set up or to continue without the promoters committing a criminal offence. I commend this part of the Bill to the House on that basis, as a determined effort to provide powers which will stamp out these objectionable, not to say fraudulent, methods of trading which have caused so much hardship. I hope when these measures are on the statute book they will have that effect and I hope that even beyond the territory covered by these provisions people who might be tempted by comparable things that appear on the market will remain as vigilant as they should be when confronted by this kind of fraudulent temptation.

Mr. Raphael Tuck (Watford)

The right hon. and learned Gentleman hath written me a letter dated 12th June 1973 which contained the following sentence: I hope that when you see the proposed measures, you will agree that they provide adequate powers. I congratulate the Government on the efforts they hath made to stamp out this abominable practice, but I regret that I cannot agree that the powers are adequate.

My hon. Friend the Member for Ebbw Vale (Mr. Foot) described the right hon. and learned Gentleman, when he was Solicitor-General, as being capable of wriggling out of anything. I suggest to the right hon. and learned Gentleman that these companies, too, can wriggle out of anything, and will try to do so. Holiday Magic has been boasting openly that the Government's measures will make no difference to it and that it will continue with its filthy practice—"filthy" is my word, not the company's. It has announced a New General Programme with effect from 27th June 1973, which tries to squeeze £1,020 out of unsuspecting clients.

The definition in the Bill contained in new Clause E tries to catch everyone, but the definition of a trading scheme has been commented on by the Public Interest Research Centre in a memorandum dated 18th June. I hope that the right hon. and learned Gentleman is familiar with it. It says: The definition of trading scheme now suggested by the Government is both long and complex". However, it agrees that some degree of complexity is inevitable if the definition is to be watertight in law. I wish that the parliamentary draftsman had drafted all these amendments to Bill in a simple manner which could be understood by the average layman. I am a lawyer, of sorts, and even with a wet towel over my head I was unable to understand quite a number of clauses. Perhaps the right hon. and learned Gentleman will explain them to me some other time.

The Public Interest Research Centre goes on: Even as at present drafted there are serious potential loopholes. I shall not speak about those loopholes because I am sure that the right hon. and learned Gentleman has them under advisement. One point to which I would draw attention is part of the definition clause—new Clause E(1)(c): those transactions, or most of them, are to he effected elsewhere than at premises at which the promoter or any of the promoters or the participant effecting the transaction carries on business". Surely this could be got round by the promoters or the participants effecting pyramid transactions on their own premises.

New Clause F(2)(e) provides that regulations made by the Secretary of State by statutory instrument may prohibit the promoter of a trading scheme or the participants from accepting from any such participation any payment, or any undertaking to make a payment, in respect of any goods or services supplied". Why limit it to goods or services supplied? Suppose payment were made for so-called "training", for joining or for raising the person concerned to a higher level. None of these matters is covered, but they should be covered.

New Clause F(3) says: Any requirements prescribed by regulations under subsection (2) of this section shall be such as the Secretary of State considers necessary or expedient for the purpose of preventing participants in trading schemes to which this Part of this Act applies from being unfairly treated; and, without prejudice to the generality of this subsection, any such requirements may include provisions— (a) requiring the rights and obligations of every participant under such a trading scheme to be set out in full in an agreement in writing …"— I agree with that and also with the next subsection, (b) specifying rights required to be conferred on every such participant". However, nothing is mentioned about requiring a specified territory to be assigned to a participant. The participants may find that there are a hundred or two hundred in their territory, and that they have no chance of selling the goods. There should therefore be a clause requiring a specific territory to be assigned to a particular participant.

Again, many participants, when they seek to sell their goods, make extravagant claims which are later found to be absolutely groundless. When the poor people who have bought the goods try to get back at the participant by going to the company, the company says, "We are in no way connected with this participant. He is not an agent of the company. He is merely an independent contractor."

No provision is made against that sort of practice. Quite a lot was said, however, in simple terms in my Bill, which the Government have blocked every Friday it has come up. It is still before the House. It says in Clause 2: (2) Every agreement entered into between a company carrying on business in multi-level marketing and an agent for any such company for the sale of goods or services shall—

1. (a) be in writing;
2. (b) designate the agent as agent of the company and not as an independent contractor; …
3. (d) grant to the agent exclusive territorial rights in an area clearly defined in the agreement."

Why is not such a provision incorporated in this Bill?

New Clause F(4) says: Regulations made under subsection (2) of this section— (a) may include provision for enabling a person who has made a payment as a participant in a trading scheme to which this Part of this Act applies, in circumstances where any of the requirements prescribed by the regulations were not complied with, to recover the whole or part of that payment from any person to whom or for whose benefit it was paid". That is a very good provision, but the right hon. and learned Gentleman will be inundated with claims under this clause. Why not legislate directly so that he will not be inundated by these claims?

If the right hon. and learned Gentle. man comes to my office he will see that I have a pile of claims about two inches thick. Those are claims which have been made by people who want their money back. If the right hon. and learned Gentleman multiplies that by 630—the number of Members of Parliament—he will see how he will be avalanched by claims. Why not legislate directly instead of making the matter subject to regulation by the Secretary of State or by the Minister?

11.0 p.m.

I agree that room must be left for regulations. The companies concerned will have a knack of getting round or under the Bill and, therefore, a safety valve must be provided. However, I suggest that there should be direct legislation on all matters on which it is possible so to legislate at this particular moment.

New Clause G(3) says: If any person who is a participant in a trading scheme to which this Part of this Act applies, or has applied or been invited to become a participant in such a trading scheme— (a) makes any payment to or for the benefit of the promoter or (if there is more than one) any of the promoters, or to or for the benefit of a participant in the trading scheme … any person to whom or for whose benefit that payment is made shall be guilty of an offence. The participant for whose benefit the payment is made may know absolutely nothing about it but he will still be guilty of an offence by virtue of this provision.

I realise that new Clause H(2)(b) says that it shall be a defence for him to prove—that the act constituting the offence was committed without his consent or connivance". However, that applies only to promoters and not to participants. Again, there is a lacuna here. I suggest that that be amended. I remind the House that new Clause G(3)(b) says: and is induced to make that payment by reason that the prospect is held out to him of receiving payments or other benefits in respect of the introduction of other persons who become participants in the trading scheme, any person to whom or for whose benefit that payment is made shall be guilty of an offence". The new clause relates only to inducement. But what if the payment to the promoter is made without that inducement? Supposing the payment is made for goods? Supposing the payment is made for training? Supposing the pay. ment is made for becoming a distributor? There is nothing to prevent such payments. I do not like to blow my own trumpet but I must refer to my Bill, which provides for such a situation. Clause 2(3) says: No company carrying on business of multilevel marketing shall require any person to purchase goods or services…. That is simple and direct. Companies—or promoters—cannot require anybody to purchase goods or services. If the goods are good enough they will be able to be sold on commission—for example, Kleeneze, whose brochure I have. If they are good enough they can be sold on commission and they need not be sold direct to the participant concerned. He need not be lumbered with £850 or £1,000 worth of the goods which he is to sell. He can merely sell the goods on cornsion. Kleeneze provide for a maximum payment of £5 for a kit. My Bill at Clause 2(3) says: No company carrying on business in multi-level marketing shall require any person to purchase goods or services, or to pay or give any consideration other than a maximum payment of i10 in consideration of becoming an agent of the company". That is simple and direct. The commission may be paid—such commission as is deemed to be fair. Clause 4 says: … but no such company shall pay or given any consideration to any of its agents for recruiting any other person as agent of such company". That would be much simpler and would catch anybody who gave any consideration to an agent for recruiting another person as agent of or participant in the company.

Therefore, the maximum payment would be £10. An agent or participant would not and could not be required to pay for the goods or for training or for becoming a distributor. I commend again that part of my Bill to the Minister. It is not complex. It is quite simple and would prevent any such practices as have been prevalent among pyramid selling companies.

Lords Amendment No. 46, laying down penalties, says that a guilty person shall be liable, on summary conviction, to a fine not exceeding £400 …". When people are making thousands and millions of pounds out of this kind of thing, what penalty is it to be deprived of £400. It is derisory. I suggest a very big fine indeed for the first conviction and a larger fine and/or imprisonment for the second. I ask the Minister to consider that £400 means nothing to these people. It means no more than a fine of £2 meant some time ago to wealthy people driving Rolls-Royce cars. I repeat finally that I think that the Minister will run into trouble and will find that loopholes will be found in the Bill by which its spirit can be successfully evaded.

Mr. Alan Williams

I welcome the inclusion of these amendments. In Committee we sought to have pyramid selling covered by the Bill but the Government were doubtful whether it would be possible. We welcome the fact that they have been able to use the Bill after all instead of waiting for separate legislation, which would probably have meant waiting for another year.

Equally; I recognise the Minister's approach in saying that the legislation must be flexible. That is obviously the case. We are dealing here with some companies which are honourable and honest, but many are fraudulent, dishonest and unscrupulous. They will employ the best and equally unscrupulous legal advice to find ways round the Bill.

The Government will probably recognise, as we and all the consumer groups recognise, that legislation for the control of pyramid selling can be only as effective as the determination with which it is applied and enforced. For that reason, I have a number of questions to put, since this is the first time we in this House have had the chance to consider the proposals relating to pyramid selling.

How is the legislation to be enforced? What is the precise role of the Director General of Fair Trading in the process of enforcement? Who will be responsible for collecting information? Is there a duty actively to collect information? In questions of health and safety, the Director General has a passive role—he can receive information but not actively search for abuse or information or initiate investigations and research. Is there any duty on anyone actively to seek out abuses as envisaged by the amendments? What duty is imposed and what machinery will exist to ensure that the information collected at local level by weights and measures inspectors is transferred through the consumer protection machinery to the centre?

I agree with the approach taken in the other place that enforcement is better treated in relation to pyramid selling as a national rather than as a local duty. That is correct. Nevertheless, the initial information may emerge at local level and we want to be sure that there is adequate machinery and that the duty is imposed at local level to guarantee that, as soon as such information is available, it is immediately transferred to the centre where the sanctions can be brought into operation.

When will this part of the legislation come into force? The right hon. and learned Gentleman said that it would be as soon as possible. Since the amendments have been in existence for a few weeks, it is not unreasonable to assume that draft regulations have been prepared. The Minister legitimately made the point that there is nothing to prevent these regulations being laid during the recess, but that does not alter the fact that it will still be two or three months before Parliament has the opportunity to interrograte the Minister in the nicest and most helpful way on the efficiency of the regulations he decides to introduce.

Can the Minister spell out how far Amendment 45 referring to schemes already in operation, will limit the effectiveness of the amendment? I note that Amendment No. 45—new Clause 4(2)—says: …it shall be a defence for him to prove … that the trading scheme to which the charge relates was in operation before the commencement of this Act". How far does that mean that existing abuses can carry on? I am sure that it is not the Minister's intention that abuse shall be permitted to exist where it existed before the legislation came into operation, but is the Minister sure that he can break abuses already in operation?

When we came to the question of penalty, my hon. Friend the Member for Watford (Mr. Raphael Tuck) made an important point when he said that the level of fine envisaged is small and derisory in relation to the sort of profit which these operators are making.

What will constitute an offence? Is the offence just to set up such an operation or venture? If so, £400, as my hon. Friend the Member for Watford said, in relation to turning oneself into a millionaire, will seem a worthwhile gamble. Or will the fine apply to each operation? Will the initiator of operations of a pyramid selling firm be liable to a £400 fine in relation to each new recruit?

Mr. Raphael Tuck

That would not be enough.

Mr. Williams

My hon. Friend says that it would not be enough, but one would assume that in those circumstances other fines, relative to the multiplication of offences, would come into operation, and there would be a possibility of imprisonment.

Mr. Tuck

A long stretch.

Mr. Williams

It would be valuable if these were spelt out in the starkest form. We should be happy to give the Minister the opportunity to warn pyramid sellers just how harsh can be the penalties, but he should warn the House if penalties are to be as minute as my hon. Friend feared they might be.

How far will these penalties be valid? I am not pretending that this is an easy situation, but what is the sanction where a company chooses to site its base in Holland, Belgium, or France? That has been done with certain firms sending pornographic literature to this country, thereby escaping the controls which we operate internally. What is likely to happen if the arch-villain decides to make his main base in a Common Market country, which lie is perfectly entitled to do? Then it is only his unfortunate victims who will face the sanctions outlined in the Bill. How do the Government envisage dealing with that type of situation? I do not pretend that it is an easy situation but it is a problem which might arise.

11.15 p.m.

In particular, will the right hon. and learned Gentleman investigate the activities of a firm whose letter has been sent to me by special delivery from one of the consumer protection bodies? I will give the Minister a copy of it so that his officials can look at it. This is a company which I feel should be considered. It is called Bestline Products. I believe that it is one of the antecedents of Golden Chemicals. Many of the companies which have brought pyramid selling into disrepute are now well known by name, thanks in many instances to the publicity given to them by hon. Members, and in particular by my hon. Friend the Member for Watford. Bestline is one of those companies which tends to be rather subdued.

Mr. Tuck

I do not know whether my hon. Friend is aware that Bestline had a chequered career in America and that Jerry Brassfield, who was head of it, left America very quickly and then appeared here as a director of Golden Chemicals.

Mr. Williams

The link is quite clear. I am obliged to my hon. Friend. This is a company which does not court publicity but which has been particularly active in building up its business among immigrant communities. It knows very well that among such communities there is, on the one hand, a considerable ignorance of the legal protection which exists against this type of business and, on the other hand, there is, perhaps, a greater than normal reluctance to use that legal protection.

This company has distributed a letter from its office in Potters Bar which says: Dear distributor. You have probably wondered why you have not received either a July calendar or a notice of our intended move to Watford. Well, the reason is that over the past few weeks Mr. Finley has been working on a marketing scheme to overcome all the fears and doubts of all our distributors about the proposed legislation by the British Government on pyramid selling, and to prove to everyone that Bestline are in the business of selling cleaning products with an ample opportunity for anyone to succeed. Already it admits that it has been looking for a loophole, looking for a way round the legislation. I will not read all of the letter and if I quote from parts I hope that I shall not be accused of being too selective. It goes on: From the 1st August, therefore, Bestline will have general distributors only, to whom the company will sell the product at a discount of 55 per cent. Each general will be running their own businesses. I will not comment on the grammar. It obviously has American antecedents.

Sir G. Howe

It is not Welsh.

Mr. Williams

It would have been three times as long if it were Welsh. The Totter goes on: Existing direct distributors will purchase what they need from their general distributors at a discount of 40 per cent. It will be the duty of each general distributor to hold a stock of product in order to supply their agents. That is the point my hon. Friend the Member for Watford raised. It continues: Anyone may become an agent of a general distributor in Bestline if they so wish. In order to, become a general distributor in Best-line an agent must not "may"— purchase a total of £4,500 from his or her general distributor in one year. Training sessions will be held in various places each month and corporate members of the Company will be in attendance at many of these meetings". It does not mention whether there will be a charge for attendance at the sessions or whether there is any compulsion about attendance. The document continues: A Direct Distributor has until August 1st a chance of becoming a General Distributor on payment of £250 to his General for the purchase of the extra 15 per cent. The General School will be held in Madrid at the end of August and all those entitled to go shall attend. Any other General may attend on payment of £250". I shall give this document to the Minister. As a non-lawyer, I am not able to assess how far this revision of the structure of this pyramid selling company will enable it to escape any of the controls which the Minister hopes to introduce by this Bill. However, I know that the right hon. and learned Gentleman's officials will look at it as a matter of urgency. It should be looked at urgently and, if necessary, action should be taken against the firm concerned.

Mr. Tuck

Is my hon. Friend aware that in many cases, when people purchase from the company £1,000, £2,000 or £3,000 worth of stock, they might sell £300 or £400 worth and then find that they are out of pocket and have to unload the remainder in the market at very low prices, thus hampering other people trying to sell at the recommended prices?

Mr. Williams

There is no reference in this document, despite compulsion to purchase certain amounts in a year, to any buy-back facility. My hon. Friend is right in giving that warning.

As this may well be the last major debate at this stage of the Bill, may I trespass on your tolerance, Mr. Speaker, and take this opportunity to make a positive statement of Opposition policy on the operation of the Bill because it may be helpful to the Minister. The Government will have to recruit personnel for the directorate, many of whom may be offered the opportunity, or asked to make the sacrifice, of leaving the Civil Service and going into the directorate, and they must inevitably be concerned about their futures.

Our approach to the directorate will be positive and, I hope, constructive. We shall not undo the basic framework envisaged in the Bill. That does not mean that we shall not replace the Consumer Protection Advisory Committee. That we shall do. When in Government we shall include professions within the provisions of the Bill and we shall give the same powers in relation to health and safety interests of consumers as are given in the Bill to economic interests.

I know that I am going further than I should, but I think that this is a helpful point at which to make this statement as recruiting for the directorate is soon to take place. The Opposition have no intention of abolishing the directorate, only to review and strengthen it at appropriate times. I hope that this statement will help in the recruiting process. I wish the Director and the members of his staff every success in their endeavours.

Sir G. Howe

By leave, may I say that I welcome the observations of the hon. Member for Swansea, West (Mr. Alan Williams), although they may have been founded on a rather remote hypothesis. They will, nevertheless, assure some of the younger civil servants who will be appointed to take up positions in the directorate that they can look forward to long and settled future careers—so long that they stretch into the period of office of the next Labour Government. That will give them much comfort.

I mean no unkindness to the hon. Member for Watford (Mr. Raphael Tuck) when I suggest that it is a pity that the non-stop train from Watford which rattled through the Chamber as he spoke, firing off question after question, did not find time to discharge some of the questions in writing a little earlier than at this penultimate stage in the proceedings on the Bill. I am comforted to find that, as far as I can answer them, the answers are entirely satisfactory to me and the hon. Member.

He referred to the representations of the PIRC, the Public Interest Research Centre, which has ceased to exist as such and has changed its name to Social Audit. The points that it made on the original amendments were closely considered and have been taken into account in the present form of the new clauses. He will find them reflected in particular in new Clause E(2) and new Clause F(2).

The hon. Member will find that it is hardly a valid criticism to complain at the complexity of these provisions, because they are designed to be complete and they must necessarily be widely drawn and complex to achieve their effect. He referred to the extent to which people might evade the prohibition by conducting pyramid selling businesses from their own premises. That point is dealt with in new Clause E(4).

The hon. Member also suggested that the scope of the regulations provided for in new Clause F(2)(e) was too narrow, but I think he will find that that paragraph relates back to the supply of services mentioned in paragraphs (a) to (d), so that also has a wider scope than he implied.

The hon. Gentleman suggested that there was no power to define territories in which agents could operate, but he will find that the regulation-making power in new Clause F(3)(b), specifying rights required to be conferred. and obligations required to be assumed by the promoter or promoters will be sufficient to deal with that kind of thing. It will also include provision to be made for the assumption by the promoters of agency responsibilities in relation to characters "out in the bush" on their behalf.

Mr. Tuck

Why leave that to the regulations? The power to make regulations surely is specifically included so as to stop any evasion of or getting around the law. Why not at this stage put that into legislation? It could be done quite simply.

Sir G. Howe

For the very reason which I would have thought had impressed itself more clearly upon the hon. Member than on anyone else—that we are here designing provisions which are intended to be flexible and adaptable in the face of people who are capable of reacting as the hon. Member so vividly described. As our consultative document said, to some extent, it would be easy enough to formulate a provision to provide for agency operations which would seem to be sensible, but, on the hon. Member's own analysis, that would be a temptation, set out in primary legislation, for those with whom he has been concerned for so long to wriggle around it.

With respect to the hon. Member's intellectual analysis, I cannot see how he can criticise us on those grounds. All the provisions that he wants, and more, can be made by regulation. I am sure that it is right to have that kind of flexibility to deal with the kind of point that he has in mind.

Mr. Tuck

If there were a clause stating that an agreement should designate a specified territory and another clause saying that an agreement should designate the agent or the participant as agent of the company as an independent contractor, how could that be got round?

11.30 p.m.

Sir G. Howe

I do not wish to be unkind to the hon. Gentleman's private authorship. I can think of half a dozen ways round each of them. It is not for me to give gratuitous advice as to how to evade that kind of provision, but each word used by the hon. Gentleman represents a loophole. He refers to a company for example. Who knows that the organisation will be a company? Much though we pay tribute to the hon. Gentleman's zeal in the pursuit of these activities, there is a limit to the extent to which I bow down and say that all that he says is right. On this occasion, we have got it more right than he has, simply because of the flexibility which we provide.

The hon. Member for Swansea, West asked on whom the duty to enforce was imposed. We considered whether it should be placed on the director general or on local enforcement authorities or whether the responsibility rather than duty should rest with the Department. We felt that the latter course was right. Most of these organisations are national ones whose activities extend to many different localities. Therefore it is right to have a central enforcement agency in the form of the Department.

Mr. Alan Williams

I accepted the right hon. and learned Gentleman's point about enforcement and said that I felt that it should be national. But that does not answer my other point, which is that the first information may be found locally. In such a case, on whom is there a duty to search out such information, and what procedure is there to ensure that it is passed to the centre?

Sir G. Howe

There is no express duty to collect information. I am sure that the lion. Gentleman will acknowledge that there has been no problem about the gathering of information about these practices and the transmission of it to my Department and to hon. Members. There has been no problem involving the gathering of information by the media and its ready transmission to us. The only question is who is to react to it. In the light of the publicity given to these practices, any information about it is likely to be quickly transmitted.

I was asked when the regulations are likely to be in force. I hope that they will be ready and brought into force before the House returns from the Summer Recess.

I was asked about the statutory defence available under new Clause H (2)(b). That statutory defence is one for promoters charged under new Clause G (6), which provides that if a participant or promoter commits certain offences, the promoter or other promoters will be guilty of those offences. In those cases only, promoters will have a good defence if they can show that the trading scheme to which the charges relate was in operation before the Act came into force and that the offences were committed without their consent or connivance. Even in our enthusiastic pursuit of these pyramid maniacs, it would be carrying enthusiasm too far to provide for guilt by association retrospectively.

As for the scope of liability, how far people can be involved by being promoters in relation to the activities of participants is provided for by the provisions of new Clause G (6). Where the person by whom an offence is committed under subsection (3) is not the sole promoter of the scheme, any other person who is the promoter or one of the promoters shall also be guilty of that offence. If 20 participants are guilty of offences by seeking to multiply the sub-participants, in relation to each participant any promoter is also guilty of an offence. So that quite a number of offences can be charged against a promoter if one can involve a number of participants.

As for the scale of the penalty, the House will have seen in new Clause I that even on summary conviction provision is made not merely for a fine of up to £400 and I take the point of the hon. Member for Watford that that could be regarded as being no more than the barrow boy's £2 fine in a magistrates' court for parking his barrow in Oxford Street—but also for a term of imprisonment of up to three months. That is unusual in modern penal practice. In addition, at the option of the prosecution proceedings may be taken an indictment, in which circumstances the maximum penalty may be two years or an unlimited fine. That should be enough to satisfy the anxieties of the hon. Member for Watford, at least for a day or two.

The particular company referred to by the hon. Member for Swansea, West Bestline Products—is known to the Department. We are investigating it, and if it proves to come within the scope of the legislation, the appropriate steps will be taken in relation to it.

Dr. Dickson Mabon

The Minister was kind enough to explain the complicated references to participants, promoters, and sub-participants, and the fact that there could be an aggregation of charges. I did not follow the summation of the points he made. Does it mean that there could be so many offences that there would be a multiplication of the fine of £400 as well as imprisonment, as a possibility?

Sir G. Howe

If the promoter is charged and found guilty in relation to a series of offences by a number of participants the promoter, in so far as he is convicted of more than one count or charge, would be liable to the maximum fine of £400 times the number of offences involved. I am glad to see that the hon. Member for Watford is filled with pleasure at that prospect.

I hope that I have dealt with most, if not all, the points that have been raised. We believe that we have covered this activity as far and as sensibly as we can, and as flexibly as is necessary.

Question put and agreed to.

Subsequent Lords amendments agreed to.