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Hong Kong: Law on Pyramid Schemes to Be Updated

(Oct. 28, 2010) On October 25, 2010, Hong Kong's Secretary for Commerce and Economic Development, Rita Lau Ng Wai-lan, set forth a proposal to a panel of lawmakers to update the law on pyramid schemes. The current Hong Kong law states that such schemes “must involve the selling of goods or services by a participant,” whereas an updated law would cover “any scheme in which new participants must make a payment and attract new members …, whether or not it involves the sale of goods or services.” (Adrian Wan, Pyramid Law Update to Cast a Wider Net, SOUTH CHINA MORNING POST, Oct. 26, 2010,
[registration required].) Those who establish, manage or promote this kind of scheme would commit an offense punishable by a maximum penalty of seven years of imprisonment and fine of HK$1 million. At present, the punishment on conviction is up to three years' imprisonment and a HK$100,000 fine. (Id.; Pyramid Selling Prohibition Ordinance (Sept. 1, 1980), Law No. 196 of 1980, Cap 355, LAWS OF HONG KONG, Bilingual Laws Information System [BLIS] online database,
(last visited Oct. 26, 2010)).

Under a pyramid scheme, participants pay a fee “in return for the right to receive commissions on fees when they introduce new members, and when those new members introduce more, and so on.” However, the potential for gain often “tempts recruits to borrow money to join, and then they fall into financial difficulty or bankruptcy when they fail to find new members.” (Wan, supra.)

Secretary Lau solicited comments from the lawmakers on the issue of whether scheme participants, not just their promoters, should be held liable for commission of a criminal offense. In her view, “[s]ince a pyramid scheme cannot be sustained if no new participants join, therefore participants, in fact, have a huge impact on it … . I believe many would wonder about the effectiveness of the law if participants are exempted from liability.” (Id.) Although most of the lawmakers supported the proposed stricter measures, some questioned whether persons ignorant of the law who fall prey to a pyramid scheme should be punished. Lau's response was that “their innocence or guilt would be a matter for the courts, but public education on the subject should be stepped up.” (Id.)

Lau indicated that solicitation of public comment on the proposal would be launched soon, so that the bill could be passed by the Legislative Council in the first half of 2011. (Id.)