Financial pyramid is a phenomenon being fought in the whole world. A pyramid scheme is a non-sustainable business model that involves promising participants payment or services, primarily for enrolling other people into the scheme, rather than supplying any real investment or sale of products or services to the public. Pyramid schemes are illegal in many countries including Australia, Austria, Canada, China, Japan, South Africa, USA and the EU countries. In Ukraine, these financial pyramids are also illegal, but scammers find new ways to cheat on people again and again.
The most infamous example of the pyramid scheme in the post-soviet countries is MMM of Sergey Mavrodi. Back in 1990ies, many people lost their savings, MMM company declared bankruptcy and Mavrodi was arrested and prosecuted for fraud committed in extra large size or in an organized group, and for tax evasion. However, in 2011 he was released and stated a new pyramid with the same name - MMM-2011. And people started to bring him money again.
Ukraine's authorities have decided to toughen responsibility for similar activities. The National commission on state control over financial services proposes to introduce criminal responsibility for creation and promotion of financial pyramids. The draft bill, published on the commission's official website, stipulates that the creation, assistance and promotion of a pyramid scheme will be punished with community services up to 240 hours, correctional labor up to two years or imprisonment up to three years. In case of repeated crime or in an organized group the punishment will be toughened, including correctional labor up to two years, custodial restraint up to five years or imprisonment up to three years.
Wondering if the upgrading of penalties will help to root out this phenomenon in Ukraine, ForUm has decided to ask politicians and experts:
Valery Bevz, MP (CPU), head of the VR committee on fight against corruption and organized crime:
- Whatever administrative or criminal punishment we introduce, it would not change anything. We can adopt a bunch of laws, which will toughen responsibility for creation of financial pyramids, but the situation will not change. The desire to earn a lot and immediately is becoming a national feature. The only way is strict financial control by relevant state bodies.
Vitaly Kulyk, director of the research Center on society problems:
- At least in 1990ies MMM was not a surprise against the background of total chaos and breakdown. But nowadays such schemes are absurdity, especially when people, sadder but wiser, are no wiser at all. MMM offices speck and span all over Ukraine and people go there again hoping against hope.
The amendments to the Criminal Code regarding these pyramid schemes will b submitted for consideration soon. But I want to point out that the majority of similar schemes are not legally registered. Hence, it is hardly possible to punish the organizers in accordance with the law. In addition, some 'pyramids' are registered as legal entities (King's Capital, for example), while the draft bill of the National commission focuses on individuals. In case of legal entities, it is really difficult to get the true scam organizers and punish them.
Rostislav Kravets, senior partner of the legal firm "Kravets, Novak and partners":
- There has been no such notion as pyramid scheme in Ukrainian legislation lately. Hence, it was impossible to punish for such activity. Besides, participants of the MMM and similar schemes did not sign any contracts back then.
However, the fight against these pyramids develops not only in Ukraine. In Russia, for example, the advertising of financial pyramids is expected to equal to promotion of drugs and to sentence the organizers for illegal activity. In Moldova, the authorities have introduced amendments to the legislation providing fines for organization of pyramid schemes.
Anyway, these methods have arrived late. The new MMM pyramid has been functioning since 2011, but the amendments to the legislation are being introduced only now.
Volodymyr Paniotto, sociologist, director of the Kyiv international sociology institute:
- In his book Madrodi wrote that human greed cannot be fought, and if a man can feather he will go for a risk. In fact, people who invest first and escape in time may double or even triple their money.
Moreover, I think, that apart from greed and desire for risk, there is another factor, which is mistrust in the government. The state has been cheating on the people and keeps cheating. People lose money, but officials say everything is ok. The dollar rate is falling, but bank officials say everything is ok, and so on. People no longer trust in the state officials and are ready to risk in private sector.
Vitaly Yarema, former head of the state department of the Interior Ministry in Kyiv:
- Of course, the problem must be eliminated. We've had many cases when such schemes led to infamous crimes and people got hurt. In the course of investigation, it was impossible to return the money.
Our legislation requires victims. We had a sad experience in 2008, when we instituted a criminal case against Sandey Adeladji and his "God's Embassy", which used Christian activity as a shield to collect people's money and buy land. The financial pyramid crashed and people lost their savings. But back then, in the process, we could not do anything, as there were no reports or complaints from citizens. And if there is no victim or report, there is no crime.
Hence, the lawmakers should invent some legal protection to enable law enforcement agencies to stop similar illegal activities at the stage of formation and to solve the crime before it is too late.
Myroslav Popovych, Ph.D., director of the Institute of philosophy of the National Academy of Science:
- People, bringing their money to pyramid schemes want to win, though they know they will lose. This is the same thing as any gambling, and I don't think that toughening the responsibility will kill the interest in it. However, there must a way to reveal these scams and eliminate them at the stage of formation.
The most infamous example of the pyramid scheme in the post-soviet countries is MMM of Sergey Mavrodi. Back in 1990ies, many people lost their savings, MMM company declared bankruptcy and Mavrodi was arrested and prosecuted for fraud committed in extra large size or in an organized group, and for tax evasion. However, in 2011 he was released and stated a new pyramid with the same name - MMM-2011. And people started to bring him money again.
Ukraine's authorities have decided to toughen responsibility for similar activities. The National commission on state control over financial services proposes to introduce criminal responsibility for creation and promotion of financial pyramids. The draft bill, published on the commission's official website, stipulates that the creation, assistance and promotion of a pyramid scheme will be punished with community services up to 240 hours, correctional labor up to two years or imprisonment up to three years. In case of repeated crime or in an organized group the punishment will be toughened, including correctional labor up to two years, custodial restraint up to five years or imprisonment up to three years.
Wondering if the upgrading of penalties will help to root out this phenomenon in Ukraine, ForUm has decided to ask politicians and experts:
Valery Bevz, MP (CPU), head of the VR committee on fight against corruption and organized crime:
- Whatever administrative or criminal punishment we introduce, it would not change anything. We can adopt a bunch of laws, which will toughen responsibility for creation of financial pyramids, but the situation will not change. The desire to earn a lot and immediately is becoming a national feature. The only way is strict financial control by relevant state bodies.
Vitaly Kulyk, director of the research Center on society problems:
- At least in 1990ies MMM was not a surprise against the background of total chaos and breakdown. But nowadays such schemes are absurdity, especially when people, sadder but wiser, are no wiser at all. MMM offices speck and span all over Ukraine and people go there again hoping against hope.
The amendments to the Criminal Code regarding these pyramid schemes will b submitted for consideration soon. But I want to point out that the majority of similar schemes are not legally registered. Hence, it is hardly possible to punish the organizers in accordance with the law. In addition, some 'pyramids' are registered as legal entities (King's Capital, for example), while the draft bill of the National commission focuses on individuals. In case of legal entities, it is really difficult to get the true scam organizers and punish them.
Rostislav Kravets, senior partner of the legal firm "Kravets, Novak and partners":
- There has been no such notion as pyramid scheme in Ukrainian legislation lately. Hence, it was impossible to punish for such activity. Besides, participants of the MMM and similar schemes did not sign any contracts back then.
However, the fight against these pyramids develops not only in Ukraine. In Russia, for example, the advertising of financial pyramids is expected to equal to promotion of drugs and to sentence the organizers for illegal activity. In Moldova, the authorities have introduced amendments to the legislation providing fines for organization of pyramid schemes.
Anyway, these methods have arrived late. The new MMM pyramid has been functioning since 2011, but the amendments to the legislation are being introduced only now.
Volodymyr Paniotto, sociologist, director of the Kyiv international sociology institute:
- In his book Madrodi wrote that human greed cannot be fought, and if a man can feather he will go for a risk. In fact, people who invest first and escape in time may double or even triple their money.
Moreover, I think, that apart from greed and desire for risk, there is another factor, which is mistrust in the government. The state has been cheating on the people and keeps cheating. People lose money, but officials say everything is ok. The dollar rate is falling, but bank officials say everything is ok, and so on. People no longer trust in the state officials and are ready to risk in private sector.
Vitaly Yarema, former head of the state department of the Interior Ministry in Kyiv:
- Of course, the problem must be eliminated. We've had many cases when such schemes led to infamous crimes and people got hurt. In the course of investigation, it was impossible to return the money.
Our legislation requires victims. We had a sad experience in 2008, when we instituted a criminal case against Sandey Adeladji and his "God's Embassy", which used Christian activity as a shield to collect people's money and buy land. The financial pyramid crashed and people lost their savings. But back then, in the process, we could not do anything, as there were no reports or complaints from citizens. And if there is no victim or report, there is no crime.
Hence, the lawmakers should invent some legal protection to enable law enforcement agencies to stop similar illegal activities at the stage of formation and to solve the crime before it is too late.
Myroslav Popovych, Ph.D., director of the Institute of philosophy of the National Academy of Science:
- People, bringing their money to pyramid schemes want to win, though they know they will lose. This is the same thing as any gambling, and I don't think that toughening the responsibility will kill the interest in it. However, there must a way to reveal these scams and eliminate them at the stage of formation.
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