Pyramid Schemes According To Turkish Law
Burçin Aydoğdu
Since late 1990's, Turkish law has been dealing with pyramid scheme organizations, which are locally called "chain of felicity".Titan case was the first pyramid scheme organization charged for defrauding its members with impracticable promises. In 1999, the court convicted founders of Titan, a ponzi-scheme organization, for defrauding its members.This became a pioneering decision, based on which further ponzi-scheme organizations were prosecuted or qualified.
In their defense, founders of Titan said: "What we do may be against the business ethics, but not against laws.... I didn't defraud anyone or obtained unjust gain. I demand acquittance".However the court found them guilty of fraud:
"...With its objective, Titan, the mathematical gain system, is a type of business against ethics and
customs, which is described as crime and prohibited by the applicable law; it is a kind of of gambling..."
Now there is new law against pyramid schemes. Law no. 6502 On Protection Of Consumer, which will enter into force by May 28, 2014, provides for prohibition of pyramid schemes in the following article:
"Pyramid schemes
Article 80 - (1) Pyramid scheme is an unrealistic or hardly practicable gain expectation system that gives its members a hope for gaining monetary or property gain by attaching further members to the
system with the same conditions, where each member's admission requires submission of a certain amount of money or property and the members receive the promised gain fully or partially conditional to other members' compliance with the terms.
(2) It is prohibited to establish, expand and recommend any pyramid scheme.
(3) Ministry [of Customs and Trade] is authorized to conduct necessary inquiries and take necessary measures regarding pyramid schemes, in cooperation with concerning public agencies and entities,
including but not limited to halting the electronic system, if any, within Turkey."
There is no doubt this provision provides for pyramid scheme, in the sense they are commonly described: (a) the scheme makes fraudulent promises (unrealistic or hardly practicable gain) and (b) the scheme is recruitment centered (requirement of attaching further members with same terms in order to make money).
As for multilevel marketing organizations, which are also called product-based pyramid scheme by some authors, the new law on protection of consumer is ambiguous as to whether it covers the multilevel organizations. With a view to the original draft of the law, we see that the lawmakers intended to handle
multilevel marketing organizations as a kind of door step sale organization. The draft provision was as follows:
“Contracts Made Out Of Office
Article 47
…..
(7) Mandatory content of a contract, excluded contracts, direct sales, multilevel gain systems, rights and obligations of consumer,seller and provides, right of withdrawal, information obligation,
delivery, qualities require for salespersons and other practical formalities and substantive rules shall be provided for in concerning by-laws.”
Upon a proposal by several members of the parliement, the wording “multilevel gain systems, ” was removed from the law. The explanation is as follows:
“Since multilevel gain systems has several difference in nature from door-step sales, the wording has been removed from article 47”
We see multilevel marketing was excluded from the scope of door-step sales. According to the legislative commission minutes, the wording was removed as a result of adding article 80 regarding pyramid schemes.
However, in the following negotiation, it was not agreed whether multilevel marketing schemes were a kind of pyramid scheme. Though it is debatable, in jurisprudence, whether multilevel marketing schemes,
also referred to as product-centered pyramid scheme, must be treated in the same way with recruitment-centered pyramid schemes, the negotiations concluded that multilevel marketing schemes must not be
expressly included in scope of the pyramid scheme saying:
“This sector [multilevel marketing] employing 700 thousand people by direct sale method, is prejudiced by being mistaken for chains of felicity (pyramid schemes) such as the commonly known organization called 'TITAN'”
Therefore, multilevel marketing schemes are included in scope of neither door-step sales nor pyramid schemes expressly. Classification and legality of multilevel marketing companies will depend on how the
courts will interpret the description of pyramid-scheme in article 80 of the law on protection of consumer.
The most outstanding differences between a ponzi/pyramid scheme and a multilevel marketing scheme, or
product-centered pyramid schemes as referred by some authors, are as follows:
- Product-centered schemes are based on gaining money by selling products, rather than recruiting people
- Product-centered schemes do not require a significant admission fee
- Product-centered schemes do not require its members to purchase certain inventory
According to the speech made by direct sale society's representative in the parliamentary negotiations, members of multilevel marketing schemes can gain money by selling products and not adding any new members at all and the admission fee is so low as TRY 60-70, which can be returned within the trial period. It is not clear whether members are required to purchase certain inventory, but the
right to get the admission money back implies that member can return the inventory in exchange.
Therefore, multilevel marketing companies, as presented in the legislative negotiations are legal under the new law on protection of consumer as well as the principles suggested by the jurisprudence. However, its ethical nature is still debatable.
The most criticized characteristics of multilevel marketing schemes are: (a) people can feel offended when their friend or relative tries to make a sale to him, because the customer-seller relation may in many cases contradict with friendship or family relationship (b) house parties can make it more difficult for guests
to refuse the offers, as it is more difficult to refuse an offer in a host-guest relation, than a seller-customer relation in a store.
In this viewpoint; though it is legal, multilevel marketing scheme as presented to Turkish parliamentary negotiations is still against ethics, because it requires the scheme's members to make sales to their friends, family or guests, or recruit them as member of the scheme with the same terms. In either way, multilevel marketing is a socially unethical method of sale.
