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Coming down heavily on shady operations of fraudulent multi-level marketing companies, Reserve Bank of India has alerted banks to be careful while opening accounts of the marketing/trading agencies.
Many such firms pose as MLM agencies for consumer goods and services and manage to mobilise large amount of deposits from the unsuspecting public with promises of ridiculously high returns.
With MLM companies, operating ponzi schemes mushrooming all over the country, RBI has urged banks to be extremely careful before issuing large number of cheque books to these firms.
Also cautioning the general public from falling prey to such schemes, RBI has named seven MLM companies:
"These firms and their agents had reportedly promised very high returns on deposits and lured common people to part with funds in the name of certain investment/deposit schemes," the RBI said in a circular.
How these MLM companies function:
The representatives of the above firms open accounts at various bank branches at different locations and make numerous small cash deposits in those accounts.
These funds, running into crores of rupees, after being pooled at the Principal Accounts of the MLM firms, were eventually allowed to flow out for purposes apparently illegal or highly risky.
These firms get large number of cheque books issued from the banks, where they have their accounts and issue post dated cheques, of small amounts representing future interest dues and deposit payments, to the investors.
Interesting, investors deposited their money in the accounts of MLMs at places far away from where the accounts were actually opened. This was facilitated by Core Banking Solution offered by the banks.
Since the operations of the firms involve unusually high returns, ongoing repayments of interest and deposit amounts depend on continuous and uninterrupted flow of fresh deposits.
Therefore, at some stage, the flow of deposits get stifled and post dated cheques start bouncing.
Some dubious Websites:
RBI, also published the names of two Websites that some of these MLM firms used to advertise their deposit schemes:
http://www.alaskaindia.net/business_plan.html
http://www.fineindia.net/
A word of caution for banks:
RBI said, banks, while opening accounts of the marketing/trading agencies, should strictly comply with 'know your customer' and anti-money laundering guidelines.