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Pyramid schemes start to collapse

Probes start over firms accused of defrauding investors

Pyramid schemes start to collapse
Destiny's head office in Dhaka reporter, Dhaka

June 5, 2012

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It all seems a bit too good to be true. With their smart offices, attractive advertisements and a promise that customers can double or even triple their money in a matter of years, the likes of Destiny and UniPay2U have attracted millions of customers. The only catch is that most people who have bought into the scheme don’t expect to ever see their money again. Following years of press reports that these pyramid-selling businesses were cheating Bangladeshis out of tens of millions of dollars, the authorities have finally taken action. Last month, police arrested the directors of Destiny, the largest company of its kind in the country, filing charges of illegal business practices using public money, tax evasion and money laundering. The directors were reportedly about to close the company and run away with the ill-gotten gains. Bangladesh Bank and the National Board of Revenue (NBR), the central tax administration, found that the company’s directors recently withdrew 40.5 billion taka (US$495.9 million). As part of their investigations, the authorities have also seized the bank accounts of 35 of Destiny’s sister companies which in total had 4.3 million customers, or about 3 percent of the entire population of the country. “We have not sued them in the court yet,” said Rabeya Khandaker, a director of Bangladesh Bank. “But we will do when we have all the information.” The bank, along with the NBR, the ministries of Commerce and Finance, and the Securities and Exchange Commission are jointly investigating allegations of fraud and plan to take legal action, said Khandaker. Nasiruddin Ahmed, the chairman of NBR, said Destiny and its sister companies are also facing charges of tax evasion. Millions of customers have also signed up with UniPay2U, another pyramid-seller whose directors were similarly taken into police custody, said an investigating officer at Mohammadpur police station in central Dhaka. “We found that the company collected around 10.2 billion taka from people and later the directors withdrew 7 billion taka from company accounts,” said Kamruzzaman Biswas. Customers have filed hundreds of legal actions against Unipay2U in a bid to claim back their deposits, he added. But while the authorities are finally bringing down the big pyramid-selling companies, Bangladesh’s media continues to report on smaller such firms that are continuing to operate. The Office of the Registrar of Joint Stock Companies and Farms puts the number nationwide at 70 companies in an industry that has snowballed since the Global Guardian Network launched the first such operation in 1998. Finding people that face the very real prospect of losing their savings is straightforward – they are everywhere. “I sold my land and invested 300,000 taka in Destiny because I was told I would get double back,” said Joseph Murmu, a Catholic NGO worker. “Now I’m really worried about my investment.” In a desperate attempt to reclaim 100,000 taka invested with UniPay2U, Mostafa Anwar headed to Mohammadpur police station intent on filing a law suit against the company. “I … was told I was going to get back 150,000 taka after one year,” he said. Mahmud Faisal, director of public relations at Destiny, attributed the rising number of accusations against his company to jealousy following its staggering growth and success since launching in 2000. “We have not cheated people and have paid tax to the government accordingly,” he insisted. “However, if the government says we have done something wrong we can correct it.” Mahbubul Mokaddem, a professor at the department of economics at Dhaka University, said it was disappointing that such large companies had been charged with fraud, adding that the government had to shoulder some of the blame. Severe loopholes in the system were the main cause, he said, which had allowed the same thing to happen time and again. “There are [pyramid-selling] companies in developed countries too,” said Mokaddem. “But here nobody monitors their activities unless the media reports fraud.”
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