Harsh penalties for pyramid scheme thugs

Alex Ndegwa

A new Bill proposes tough penalties to curb bogus get-rich-quick pyramid schemes.

This follows a report released after an inquiry in 2010 unearthed how thousands of Kenyans lost Sh8.2 billion in pyramid scheme thefts.

Any person convicted of promoting or participating in pyramid schemes will be liable to a fine of Sh10 million or imprisonment for 10 years, or both, if Parliament enacts the Bill.

Ikolomani MP Boni Khalwale is sponsoring the Prohibition of Pyramid Schemes Bill 2012. The draft law also empowers the court to order a convict to pay compensation to the victims.

Ikolomani MP Boni Khalwale. He has sponsored the Prohibition of Pyramid Schemes Bill 2012. Photo: File/Standard

It follows an investigative report tabled in Parliament that detailed nearly 148,784 investors lost Sh8.2 billion in two years to the profiteers, some of whom were claimed to be prominent individuals in society.

The 10 most egregious swindlers took away Sh7.3 billion, according to the Task Force report presented to the House by Co-operatives Minister Joseph Nyagah.

Re-emergence

Last week when he appeared before the parliamentary committee on Agriculture, Nyagah raised the red flag over the re-emergence of the phony schemes.

The minister warned Kenyans against involving themselves in such schemes especially given politicians are seeking to raise campaign funds.

Committee chairman John Mututho claimed he had received a text message from unknown persons requesting him to mobilise people to join the scheme.

The Bill states a person commits an offence if he or she knowingly promotes a pyramid scheme.

It is also an offence to participate in a pyramid scheme or induce another person to participate in it knowing that any benefit gained is entirely or substantially derived from the introduction to the scheme of new participants.

"A person who commits an offence under subsection (1) or (2) is liable on conviction to a fine not exceeding ten million shillings or to imprisonment for a term not exceeding ten years, or both," the Bill states.

Directors and partners of illegal firms fleecing Kenyans will also have no excuse that they were in the dark about the activities.

The Bill provides for the liability of a relevant person of a body corporate or unincorporated body the firm or a person as a member of the unincorporated body commits an offence.

The draft law proposes perpetrators of the schemes are further made to pay compensation, which is recoverable as a civil debt.

"If a person is convicted of an offence under this Act, the court may, in addition to passing any sentence that may otherwise be passed by law, order the person to pay an amount of compensation that it thinks reasonable to any person who has suffered financial loss resulting from that offence," the Bill says.

The proposed law will not interfere with pending claims filed by victims against owners of pyramid schemes that have since collapsed.

"This Act does not limit, restrict or otherwise affect any rights or claims a person would have had if this Act had not been enacted," it notes.

Attorney General

Attorney General Githu Muigai has since intervened to help victims trace their lost billions. The AG directed individuals, groups or organisations that have filed claims in court to forward written submissions and all supporting documents to his office.

Some Sh5 billion is reportedly held by the Central Bank of Kenya and other commercial banks in ‘frozen’ accounts, according to the Taskforce report.

The Director of Public Prosecutions is prosecuting 35 directors of various pyramid schemes in some five cases in court.

The Bill also outlines characteristics that define a pyramid scheme.

It states to participate in the scheme a new participant must provide a financial or non-financial benefit.

Further the making of the participation payment is entirely or substantially induced by the prospect held out to the new participant that they will be entitled to a financial or non-financial benefit.

Finally, the recruitment payment is entirely or substantially derived from the introduction to the scheme of a further new participant.

It provides that a scheme may be a pyramid scheme regardless of who holds out to a new participant the prospect of entitlement to a recruitment payment.

It is also deemed a pyramid scheme irrespective of who is to make a recruitment payment to a new participant and who is to introduce a further new participant to the scheme.

The draft law provides the consideration by the court when determining whether a participation payment under a scheme involving the marketing of goods or services is entirely or substantially induced by the prospect held out to a new participant of entitlement to a recruitment payment.

The Bill is to take effect on such date as may be appointed by the Cabinet Secretary by notice in the Gazette.

Presidential assent

To ensure authorities do not put it on ice, the Bill provides that such date shall not be later than three months from the date the President assents to the Act.

The report named key directors of these schemes and identifies some properties and assets derived from theft.

When the noose began to tighten, some directors converted 17 of the pyramid schemes into co-operative societies to avoid investigation.

Parliament recommended the property and assets owned by collapsed pyramid scheme directors seized to repay investors.

Apart from recommending criminal prosecution of all directors of collapsed pyramid schemes, the task force identified hundreds of bank accounts in local and foreign banks traceable to these schemes.

The taskforce recommended that the government enlist the services of foreign missions and governments where the perpetrators may have invested proceeds from the phony schemes to help recover the funds.