As various ponzi schemes and illegal Multi Level Marketing (MLM) activities continue to defraud investors, the government is considering setting up a central agency to probe such cases and to coordinate with other central and state-level enforcement agencies.
The Department of Financial Services (DFS) has circulated draft amendments to the Prize Chits and Money Circulation Schemes (Banning) Act, 1978, to various law and enforcement agencies for their views, while suggestions from various agencies are now being considered, official sources said.
Stressing on the need for a central agency, the Central Economic Intelligence Bureau (CEIB) has said these schemes manifest themselves in violation of various regulations and therefore, a central agency was required to coordinate with various agencies working under different statutes.
The CEIB has also suggested empowering the proposed agency to take up for investigation those cases that may have taken place in different states and even outside the country.
The CEIB, nodal agency in the Finance Ministry for gathering and disseminating intelligence related to financial crimes, has also recommended having a provision to declare offences related to ponzi schemes under the Prevention of Money Laundering Act (PMLA).
These and other suggestions by law and enforcement agencies are being vetted by the Department of Financial Services, they said. The matter to check multi-level marketing scheme had come up for discussion in a recent meeting of Economic Intelligence Council, a high-level panel headed by Finance Minister P Chidambaram to discuss intelligence sharing and other issues related to financial crimes.
The move to create a central agency to check MLM or ponzi schemes assumes significance in the wake of multi-crore Saradha scam and other such cases.
A typical 'ponzi' scheme involves the operator collecting a large amount of money from investors and paying them returns from their own money or the money collected from subsequent investors, rather than from profit earned by the person or entity operating such a scheme.
Such activities came to be known as 'ponzi' schemes after Charles Ponzi, who became notorious in the US in the 1920s for deploying this technique while promising 50 per cent return on investments in 45 days and 100 per cent within 90 days.
A large number of such schemes have come to the fore in India as well and many of them are currently being probed by various agencies, including Securities and Exchange Board of India (SEBI) and Serious Fraud Investigation Office (SFIO).
Besides, the Financial Intelligence Unit (FIU) has red-flagged at least 272 suspicious banking transactions, most of them related to Multi Level Marketing (MLM) or ponzi schemes, between January and March this year and has alerted agencies concerned and state governments on them.
The FIU, tasked with analysing and disseminating information relating to dubious financial transactions to enforcement agencies, has sent these suspicious banking transactions to CEIB for further probe.
The government has also set up an inter-ministerial group to suggest ways to tackle fraudulent money pooling activities and protect the interests of investors.