by Wing Commander Udith Pathirana
Published on Ceylon Today on 11th October 2023
The Central Bank of Sri Lanka (CBSL) issued a red notice to the public on 24 August 2023 by banning nine pyramid businesses in Sri Lanka (CBSL, 2023; Pathirana, 2023). However, legal action against the respective alleged perpetrators has been delayed to date and it is evident that most of the perpetrators in the upper tiers of the pyramid business are fleeing the country to abscond from legal proceedings. Moreover, delays would cause the prosecutors to recognise the illegal gains and assets of the leading characters of the pyramids which ultimately affect the lower-tier majority who have been victimised in losing their hard-earned money.
Further, in a pyramid business, most of the top-tier characters have acquired an unbelievable wealth of gains through the high-arched ladder which ultimately drained the money of the public in the lower-level tiers. Accordingly, delaying the confiscation of such illegal gains would directly restrict the recovery of the money of the victimised majority in the long term. This issue has created numerous socioeconomic problems in the country such as suicide attempts, family issues, increased divorce cases, disruption of children’s education etc. This exploration delves into the multifaceted social issues created by pyramid businesses, shedding light on the human costs, emotional toll, and broader societal impact by leaving a trail of victims grappling with financial ruin and emotional distress.
Existing issue
Delaying legal action against perpetrators would result in difficulty in disclosing the illegal gains of the perpetrators in higher tiers of the pyramids who have gained the wealth to live their opulent lifestyles through looting the money of the lower-level majority. Moreover, most pyramid businesses presently use cryptocurrency as a mode of their illegal business to disguise the Counter Financial Fraud Mechanism in Sri Lanka and to recruit new members. Hence, transactions through cryptocurrency are banned by the CBSL which makes both investors and business officials commit an offence under the financial act of Sri Lanka. However, the same reason causes the victims to restrain from taking legal action against perpetrators which ultimately ends up in creating numerous social issues. Nevertheless, very few investors have gone to the legal authorities to complain about victimised pyramid businesses, but a larger portion has refrained from complaining by accepting the loss or trying to sort out the matter through illegal means with the personnel in the upper tiers.
Most importantly, banning the pyramids by the CBSL would not suffice to serve justice to the public to mitigate the social issues where it requires stern action to be taken by the legislative authorities to prosecute perpetrators and confiscate their illegal gains without delay. Without such measures, banning one pyramid business merely paves the way for perpetrators to resurface under different names, perpetuating the cycle of defrauding the public to sustain their luxurious lifestyles.
Discussion
The propagation of pyramid schemes in various parts of the world, including Sri Lanka, has not only raised concerns regarding financial security but also caused major anxiety over the social fabric of affected communities which directly affects national security. Even though the negative implications of pyramid schemes are well-documented and researched by scholars and financial experts globally, the lack of knowledge and the technique of using psychological manipulation to entice new members by promising rewards or benefits rather than offering legitimate investment opportunities (Pathirana, 2023). Hence, the social consequence stemming from these fake enterprises is highly significant to consider as a national security issue that ultimately affects the economic security, human security and the social well-being of the people.
Further, social issues created from illicit pyramid scheme victimisation could be considered wide- ranging while having long-term consequences for victimised individuals, families and their communities. Therefore, preventing the public from pyramid schemes and providing recovery assistance to victims is crucial in mitigating the undermentioned social issues created through illicit pyramid schemes.
Financial Hardships of Victims Victims lose considerable amounts of money/wealth due to pyramid schemes which lead to domestic financial instability, debt, and even bankruptcy. Sometimes, this situation can lead to an inability to acquire basic needs for the sustainability of victims’ domestic fronts, creating numerous issues.
Emotional Distress of Victims Losing hard-earned financial assets could lead to different psychological issues such as stress, anxiety and depression. Further, these victims may experience different psychological statuses such as a sense of betrayal, shame and guilt for being Straining the Family Relationship. It is evident that financial difficulties could strain relationships and pull families apart. Moreover, victims would be unable to share their predicament amongst themselves and would face isolation even within households.
Social Isolation
Victims may have used to enjoy any social lifestyle, but the new normal of lack of financial capabilities would create shame or embarrassment in dealing with society.
Loss of Trust
Losing the trust in financial mechanisms, government regulations, law and order and victims’ own ability to make profound financial decisions could cause long-term implications on their financial well-being.
Legal Consequences
Some victims may face legal repercussions if they unknowingly participated in illegal activities as part of the scheme. Legal issues can further compound their challenges.
The responsibility of safeguarding Sri Lanka against financial corruption lies jointly with the Government and the Central Bank of Sri Lanka (CBSL), which serves as the primary regulatory authority. In a notable move, CBSL banned nine pyramid schemes on 24 August 2023 in accordance with Section 83C of the Banking Act No. 30 of 1988 for conducting and/or having conducted pyramid schemes, emphasising the recognition of the gravity of the issue. However, what raises concerns is the common delay in legislative authorities to take profound legal action against the masterminds behind these pyramid schemes in Sri Lanka.
Undoubtedly, these pyramid schemes did not materialise overnight where some had established their presence in Sri Lanka for extended periods. Evidently, as revealed by (Fonseka, 2021) and (Pathirana, 2023) even after the detection of pyramid businesses by the banking sector in the year 2008 a pyramid business named ‘Best Life International (Pvt) Ltd’ was in active operations until prohibition in 2023 by CBSL which accounted for a calculated period of approximately 15 years. Consequently, the leaders at the upper tiers of these schemes have collected substantial wealth by exploiting the financial resources of individuals at the lower levels. Thereby, the delay in initiating legal action not only raises questions about the possibility of these perpetrators escaping the grasp of justice but also underscores the urgency of prompt and decisive measures to protect the public and curb financial corruption through the anti-corruption mechanism of the Government.
Indeed, it is the foremost responsibility of the Government to swiftly and effectively safeguard the social well-being of its citizens. However, the absence of timely prosecutions against identified pyramid scheme masterminds has increased the legitimate concerns regarding the effectiveness and credibility of Sri Lanka’s anti-corruption mechanisms. Nevertheless, this lack of decisive action not only jeopardises the financial security of the public but also creates an environment conducive to more financial crimes. Therefore, it is essential that the Government, in collaboration with regulatory bodies and law enforcement agencies, takes robust steps to address this issue comprehensively, thereby fortifying the nation’s financial system and ensuring the protection of its citizens from the perils of pyramid schemes and other financial fraud. Finally, it is required to take proactive steps to prevent pyramid schemes and concurrently offer assistance to victims by the respective authorities of Sri Lanka to mitigate the deep-seated social issues created by pyramid schemes. Therefore, this comprehensive approach seeks not only to curb financial fraud but alsoto heal the damaged social fabric by the distressing effects of pyramid schemes.
Way forward
Combatting pyramid schemes and safeguarding the social well-being of citizens necessitates robust legislative action. Therefore, executing the following could protect the affected community in due course.
Immediate Legal Action against Masterminds
By streamlining the legal process and reducing delays in prosecuting pyramid scheme cases, authorities can send a strong message that such fraudulent activities will not be tolerated. This, in turn, can act as a deterrent to potential perpetrators while providing much-needed closure and restitution to the victims of these schemes.
Global Approach to Confiscation of Assets
Cooperate with global financial regulatory bodies and take necessary measures to seize assets purchased from foreign countries with illicit gains from pyramid schemes.
Utilisation of Mass Media to Expose Pyramid Businesses
It is required to use mass media, NEWS, and other available modes of communication to highlight the identified pyramid schemes and create awareness campaigns for the public for protection.
Swift Confiscation of Assets
Authorities can interrupt the financial incentives for engaging in pyramid schemes by expediting the confiscation of illicit gains. As a result, it significantly preserves the financial well-being of the affected individuals and communities while reinforcing the message that pyramid schemes will not go unpunished.
Protection of Whistleblowers
Whistleblower protection is essential to expose perpetrators of these fraudulent schemes. Further, it would directly augment the early detection and prevention mechanism while safeguarding the public trust.
Link to the original source : Click here
* Wing Commander Udith Pathirana is a Military Research Officer at the Institute of National Security Studies (INSS), the premier think tank on National Security established under the Ministry of Defence. The opinions expressed are his own and not necessarily reflective of the institute or the Ministry of Defence.