GuoFa [1998] No.10 April 18, 1998

The Government of all provinces, autonomous regions, municipalities directly under the Central Government; the ministeries and commissions of the State Council, all the institutions directly under the State Council:

The State Council has decided to ban the operational activities of pyramid sales to protect the legitimate rights and interests of consumers, promote fair competition and maintain economic order of markets and social stability. The relevant questions are hereby notified as follows:

I. Pyramid sales operation which is not in line with the state of the nation of China at the present stage has resulted in serious damage. Pyramid selling as a mode of operation, due to its characteristics of organizational closeness, concealed nature in transactions and the scattered nature of sales persons, in addition, the level of market growth in China at present is still low, the means of control is comparatively backward, consumption mentality of the masses has yet to mature, lawless elements have taken advantage of pyramid sales to conduct such activities as spreading heretical beliefs, ganging up, superstition and hooliganism which seriously deviate from the requirements of building of spiritual civilization and affect social stability in China; taking advantage of pyramid selling to admit cadres of organs of the Party and government, active-duty service personnel and students in full-time schools to participate in business has seriously disrupted the normal order in work and teaching; and taking advantage of pyramid selling to indulge in price fraud and extortion of money and property, promotion of the sales of imitated, fake and inferior quality products and smuggled products to gain exorbitant profits and evade taxes has seriously harmed the interests of consumers and interfered with the normal economic order. Therefore, operational activities of pyramid sales must be firmly banned.

II. Operational activities of pyramid sales in any form shall be banned as of the date of issuance of this Circular. The enterprises in operation of pyramid sales the registration of which had been approved prior to it shall all stop forthwith the operational activities of pyramid selling, earnestly complete the rehabilitation work of pyramid sales persons, settle creditor's rights and liabilities on their own, convert to other modes of operation and should go through the formalities of change in registration or nullification of the registration at organs of industry and commerce administration before October 31, 1998 at the latest. Whoever fails to go through the formalities on expiry of the specified date shall be revoked of the business license by the organ of industry and commerce administration. Those engaging in operational activities of pyramid sales on their own without approval and registration shall be banned forthwith and investigated and handled in all seriousness according to law.

III. Intensifying efforts in law enforcement to sternly investigate and ban all kinds of acts of pyramid sales and pyramid sales in disguised forms. As of the date of issuance of this Circular, people's governments at all levels and the department of industry and commerce administration and the department of public security and other departments concerned must adopt strong measures to firmly impose the ban and handle in all seriousness upon discovery of any of the following acts:

(1) that of turning pyramid selling from the open into underground;

(2) that of conducting pyramid selling in the form of double-win system, computer networking and framework sales;

(3) that of conducting pyramid selling in disguised forms in the name of monopoly, agency, franchise membership operation, direct sales, chains and network sales;

(4) that of conducting pyramid selling or pyramid selling in disguised forms by employing such means as membership cards, savings cards, lotteries and vocational training to gain membership fees, franchise membership fees, licensing fees and training fees by cheating; and

(5) other acts of pyramid selling and pyramid selling in disguised forms. The acts of pyramid selling and pyramid selling in disguised forms shall be established and penalized by organs of industry and commerce administration in pursuance of the relevant state provisions. The acts of making use of pyramid selling to indulge in fraud, promote the sales of imitated, fake and inferior quality products, smuggled products and to conduct activities of spreading heresy, ganging up, superstition and hooliganism shall be investigated and handled by the departments concerned; where a crime has been constituted, the case shall be transferred to a judicial organ for investigation of criminal liability according to law.

IV. People's governments at all levels must strengthen leadership and the departments concerned must closely cooperate with each other in firmly yet safely carrying out the work of banning pyramid sales operation. Banning the operational activities of pyramid selling is a policy-intensive difficult work involving many aspects to which people's governments at all levels must attach great importance and step up coordination under the command of a major comrade-in-charge in person. The departments concerned must seriously perform their functions and responsibilities, step up coordination and cooperation. Organs of industry and commerce administration must sternly investigate and handle acts of pyramid sales operation in contravention of the spirit of this Circular; departments of public security must firmly ban illegal activities endangering social order of making use of pyramid selling or pyramid selling in disguised forms and cooperate with the departments concerned in doing a good job in the maintenance of social stability and social order; commercial banks concerned must support and cooperate with organs of industry and commerce administration and public security in the work of investigation and handling; information and publicity departments must intensify their efforts in publicity, extensively publicize the harm of pyramid selling, openly expose the fraudulent acts of pyramid selling and timely expose typical illegal cases of pyramid selling to educate the broad masses to raise their awareness and consciously boycott the operational activities of pyramid selling and make timely reports on the progress made by the departments concerned in banning the operational activities of pyramid selling.

People's governments at all levels and the relevant departments must be firm in attitude and active in action and at the same time must be painstaking in organization and safe in implementation when banning the operational activities of pyramid selling so as to maintain normal economic order and social stability.

Promulgated by The State Council on 1998-4-18