Pyramid schemes and abusive multi-level marketing (MLM) models promise fast money but rely on recruiting new members rather than genuine product sales. Nepal has legislated against pyramid models and enforces penalties because these networks have caused massive losses for ordinary people — the most notorious being Unity Life International, which collected billions of rupees from hundreds of thousands of Nepalis. The government now requires licensing and transparency for legitimate direct-selling businesses and actively investigates fraud.
1. What’s the difference: MLM, direct selling, pyramid scheme?
- Direct selling: Legitimate companies sell real products or services directly to consumers (door-to-door, online, parties). Income comes mainly from product sales.
- MLM (multi-level marketing): A legitimate MLM focuses on product sales but pays commissions to sellers and, sometimes, small overrides to recruiters. It becomes problematic when recruiting—not product sales—is the primary way to make money.
- Pyramid scheme: A fraudulent model where participants pay to join and earn mostly by recruiting new members. There’s little or no genuine product or sustainable revenue — growth must be exponential and always fails, so late entrants lose money. (Clear definitions and legal distinctions are used by regulators worldwide.)
2. Why Nepal has a strict law against pyramid structures
Nepal’s law on direct selling and pyramid schemes (and related regulatory guidance) requires companies that do direct selling to obtain licenses, disclose compensation and commission plans, and operate on product sales rather than upfront joining fees. The law explicitly prohibits pyramid-structured businesses because of their history of causing large-scale financial harm. Violations can lead to fines, license cancellation, and imprisonment under Nepal’s regulatory framework.
3.Scams in Nepal — case studies and consequences
Unity Life International (2009–2010 and legal fallout)
One of Nepal’s largest pyramid scams, Unity Life International (ULI), sold “assurance” and “health” plans and built a pyramid-style network that reportedly collected billions of rupees from hundreds of thousands of people. Unity offered unrealistic guarantees (for example, lifelong benefits and high returns) without proper registration with financial or insurance regulators. Investigations and court cases stretched for years; victims numbered in the hundreds of thousands and the financial damage ran into billions of rupees. In 2025 the Supreme Court reinstated convictions for key managers, reversing earlier acquittals — showing the long legal tail that follows major pyramid operations. Why Unity mattered: it combined social-security/insurance promises with a recruitment network, used the trust of local communities, and exposed gaps in oversight at the time — prompting stronger legal and enforcement responses.
Current trends: crypto, impersonation & digital payment abuse
In recent years, regulators and police in Nepal have also linked pyramid/MLM tactics with crypto investment scams, impersonation scams (where fraudsters pose as officials or company reps), and digital wallet laundering. Authorities, sometimes with international cooperation, have investigated fraud rings that used online platforms and mobile payment channels to recruit victims and move funds — showing the modern evolution of pyramid-style fraud. In 2025, a major CIB crackdown exposed large illegal financial operations that included money-laundering and misuse of digital wallets worth huge sums, illustrating how sophisticated fraud networks can be.
4. Patterns scammers use (how they trap people)
- Big promises, small entry fee: “Invest a small amount now; earn huge returns later.”
- Social-proof & pressure: Use community leaders or friends to recruit people you trust.
- Complex commission tables: Overly complicated rewards that hide the fact earnings depend on recruiting.
- Fake product cover: A low-value product is used as a pretext for an otherwise recruitment-driven scheme.
- Urgency & secrecy: “Limited time offer” or “don’t tell others” to avoid scrutiny.
- Upfront costs for training/levels/activation: Extra purchases required to qualify for commissions.
5. How to spot a pyramid or abusive MLM — a checklist
If a company checks any of the following, be careful:
- You must pay a joining fee or buy an expensive starter kit to earn.
- Most income is from recruiting others, not retail sales to third-party customers.
- The product is poor quality or secondary to the recruitment pitch.
- The company’s income disclosures are vague or nonexistent.
- Promises of guaranteed or unusually high returns with “no risk.”
- Pressure to buy more inventory or upgrades to earn commissions.
6. Legal protections and what the law requires in Nepal
- Licensing: Direct-selling businesses must register and obtain a license to operate legally. They must declare product prices, refund policies, and commission structures.
- Ban on pyramid models: Pyramid and Ponzi-type operations are explicitly banned. Regulators can cancel licenses, fine, and pursue criminal charges against operators.
- Enforcement: Major cases have been prosecuted, sometimes with international cooperation — and high-profile convictions (or reopened trials) show ongoing enforcement. Victims can file complaints with police and consumer bodies.
7. If you or your family are victims — practical steps
- Stop sending money. Don’t make further payments or recruit others.
- Gather evidence. Keep receipts, chats, bank transfers, contracts, and screenshots.
- File a complaint. Report to local police, District Administration Office, or consumer protection agencies. Provide copies of evidence.
- Contact your bank. Ask if transfers can be frozen or traced.
- Warn your network. Help stop further recruiting by sharing the facts with people who might be approached.
- Seek legal help. If losses are large, ask a lawyer experienced in financial fraud.
8. How to evaluate a legitimate direct-selling company
- Is the company licensed in Nepal? (Ask for license number and verify.)
- Are product sales to real external customers documented and verifiable?
- Are refund and return policies clear?
- Is the commission plan transparent and tied to product sales, not recruitment?
- Is the company registered with tax authorities and following consumer-protection rules?
9. The bigger lesson for Nepal: stronger rules + public awareness
Nepal’s painful experience with Unity and other frauds underlined two things: first, laws and licensing are necessary but not sufficient; second, public education is crucial. Regulators are tightening rules, and police now coordinate with prosecutors and international partners to trace complex fraud networks. But the best defense remains informed citizens: if an opportunity sounds too good to be true, it usually is.
Krishna Paksha Thapa, (with a stage name KanxeY) is an author, artist and a storyteller from Nepal Based in Israel with a passion for design, art and illustration. Discover his artworks, stories, and creative journey at Kanxey.com.
(Blog - www.krishnathapa.com)
