Pyramid Selling (Hansard, 11 February 1997)

§ The Minister of State, Department of Trade and Industry (Lord Fraser of Carmyllie)
My Lords, trading schemes covered by existing provisions will be subject to new regulations setting minimum standards of business practice. There is a six-month transitional period. Those schemes newly within the scope of controls also have six months to comply with the regulations, but they must comply immediately with the controls on recruitment set out in the Fair Trading Act.

Lord Campbell of Croy
My Lords, I thank my noble and learned friend for his Answer, especially as the new provisions are carrying out the intention stated in reply to a Question which I tabled in November 1994.
While consumer protection cannot help the blindly gullible, will the Government act firmly, after the six-month moratorium, in closing down schemes which appear to be plausible and attractive but are bound to lead to most participants losing money? Will they respond favourably to any request for advice from Albania, a country emerging from more than 50 years of isolation?

§ Lord Fraser of Carmyllie
My Lords, we have not introduced the new regulations to do nothing at the end of the six-month period. In our view, the six-month transitional period is appropriate. Certainly, if after the end of that period we discover that people are acting outwith the terms of the Act or regulations we would intend to take action. Ultimately, that could result in prosecution.
As my noble friend indicated, the luckless people of Albania seem to have suffered appallingly under a wide range of pyramid schemes and thousands have lost their money. I suppose that it will be of little comfort to them to know that such schemes would have been caught by the regulations in this country.

§ Lord Peston
My Lords, I am a little puzzled because such scams are of great age. Fly people preying on the gullible and greedy have been around for a long time. Why is there a delay? Why are not such schemes illegal and why are not the people concerned behind bars? We are talking about the three-card trick in its most extreme form. The police constantly stop people running the three-card trick, although, in my view, not enough of them end up in prison. I am staggered that we are talking about delay and so forth. It is about time that once and for all we made it clear that such people will be caught and dealt with by the law, and I am surprised that the noble and learned Lord's department has not done so.

§ Lord Fraser of Carmyllie
My Lords, the noble Lord is correct in saying that some of these so-called 118 money circulation schemes are little more than scams and are probably fraudulent from the outset. If that can he established there is no reason why a prosecution could not or should not be taken immediately. With a number of the schemes the difficulty is that whether you can secure a return on your money depends upon enough people being recruited after you. In those circumstances, if people wish to participate in them, understanding that an element of gamble is involved, it is a matter for them.
We are anxious to ensure that anyone participating in such a scheme understands clearly the range of risks they are undertaking. I understand that traditionally only about 10 to 15 per cent. of those participating in such schemes make a profit or get their money back. Those who are recruited at the beginning can do very well, but up to 85 per cent. may lose out badly.

§ Lord Peston
My Lords, I hesitate to pursue the matter but the noble and learned Lord keeps using the word "may". Does he agree that the logical essence of such a scheme is that those who join later must be exploited or ripped off by those who joined first? That is the essence of the fraudulent behaviour. Those who try to argue to the contrary simply fall into the trap of the proponents of the scheme. I do not understand why such a scheme even remotely gets to run and I am looking for an explanation of that. Such a scheme is not a gamble; it is a crooked operation.

§ Lord Fraser of Carmyllie
My Lords, with respect, it is not necessarily a crooked operation. Curiously, I agree with the noble Lord that at the end of the day it is a matter of remorseless logic that some will lose out in the schemes. If the noble Lord had read the Daily Telegraph of 10th February he might have noticed that Professor Patrick Minford managed to construct an elaborate economic model to establish that that would not be the case. I believe that for once I am closer to the noble Lord in his economics than I am to Professor Minford.
If at the outset people participating in the schemes understand the risk there need not necessarily be something fraudulent in them. People must assess the risk. The regulations are set out to ensure that people participating in such schemes understand clearly the risk that is open to them. The noble Lord's observations probably apply in equal force to many of our fellow citizens who today will doubtless spend some of their money on horse-racing, where the odds of securing a return are probably worse than for the 10 or 15 per cent. who will probably gain under the pyramid schemes.

§ Lord Mackie of Benshie
My Lords, can the noble and learned Lord recommend any good schemes to the House?

§ Lord Fraser of Carmyllie
My Lords, no. However, I believe that when Professor Minford indicates that it is possible to make money out of them and that there is a reasonable way to approach them the adage of putting his money where his mouth is would be appropriate. I would not put a single penny of my money into the 119 schemes. Those who have recently participated have lost considerable sums. The most recent to secure public attention required an initial fee of some £3,000. Therefore, people did not lose trivial sums.

§ The Earl of Northesk
My Lords, is my noble and learned friend aware of the seeming proliferation of pyramid schemes on the internet? What plans do the Government have for addressing that problem?

§ Lord Fraser of Carmyllie
My Lords, I must be honest with my noble friend and say that I had no idea whatever that such schemes were operated on the internet. However, I hope that I can offer him reassurance. One of the concerns has been that those who promote such schemes from foreign countries will not be caught by the offence provision in the regulations. I hope that I can reassure my noble friend that if the internet schemes are promoted from another country but operate in this country those who are operating them will be caught by the offence provisions of the regulations.