16/09/2010 Prohibition of Pyramid Selling Regulatio…

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Prohibition of Pyramid Selling Regulations

2005-08-23 From: The State Council

（Promulgated by the State Council on 23 August 2005 and effective as of 1 November 2005.）

PART ONE　GENERAL PROVISIONS

Article 1　These Regulations have been formulated in order to prevent fraud， protect the lawful rights and interests
of citizens， legal persons and other organizations， safeguard the economic order of the socialist market and
maintain social stability.

Article 2　For the purposes of these Regulations， the term “pyramid selling” means acts that interfere economic
order and affect social stability by which an organizer or operator recruits personnel and seeks illegal benefits by
means of calculating and paying remuneration to the recruited personnel on the basis of the number of personnel
directly or indirectly recruited by them or their sales performance， or requiring the recruited personnel to pay
certain fees as a condition of being qualified for participation.

Article 3　Local people‘s governments at and above the county level shall strengthen their leadership in investigating
and handling pyramid selling， and support and urge the relevant departments to perform their regulatory duties in
accordance with the law.

Local people‘s governments at and above the county level shall set up such mechanisms as required for
coordination in investigating and dealing with pyramid selling and provide timely coordination and solution to major
issues that arise in investigating and handling pyramid selling.

Article 4　The administration for industry and commerce and the public security authority shall investigate and
handle pyramid selling within their respective scope of responsibilities in accordance with the provisions hereof.

Article 5　While investigating and handling pyramid selling in accordance with the law， the administration for
industry and commerce and the public security authority shall adhere to the principle of integrating education with
punishment， and educate citizens， legal persons and other organizations to conscientiously abide by the law.

Article 6　Every work unit and individual has the right to report pyramid selling act to the administration for industry
and commerce and the public security authority. Upon receipt of such report， the administration for industry and
commerce and the public security authority shall immediately investigate and verify the case and handle it in
accordance with the law， and shall keep the identity of the informant confidential. If a report is proven to be true
upon investigation， the informant shall be granted a reward in accordance with the relevant State provisions.

PART TWO　TYPES OF PYRAMID SELLING AND THE INVESTIGATION AND HANDLING AUTHORITY

Article 7　The following acts are pyramid selling acts：

1. an organizer or operator seeks illegal benefits by recruiting personnel， requiring the recruited personnel to
recruit other personnel to participate， and calculating and paying remuneration （here and hereinafter including
material rewards and other economic benefits） to the recruited personnel on the basis of the number of personnel
directly or indirectly recruited by them through rolling recruitment；
2. an organizer or operator seeks illegal benefits by recruiting personnel and requiring the recruited personnel to pay
fees， or fees in disguised forms such as order of commodities， as a condition to being qualified for participation or
recruiting other personnel to participate； and
3. an organizer or operator seeks illegal benefits by recruiting personnel and requiring the recruited personnel to
recruit other personnel so that an upline-downline relationship is formed， and calculating and paying remunerations

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to an upline personnel on the basis of the sales performance of his downline personnel.

Article 8　The administration industry and commerce shall be responsible for investigating and handling the pyramid
selling acts specified in Article 7 hereof in accordance with the provisions hereof.

Article 9　Where media such as the internet are utilized to disseminate information of pyramid selling specified in
Article 7 hereof， such case shall be investigated and handled by the administration for industry and commerce in
conjunction with other relevant authorities such as the telecommunications authority in accordance with the
provisions hereof.

Article 10　If anyone in pyramid selling deceitfully lures other personnel in the name of job referral and engagement
in business activities， etc. to leave their place of residence to illegally gather in another place and restrict their
personal freedom， such case shall be investigated and handled by the public security authority in conjunction with
the administration for industry and commerce.

Article 11　The relevant authorities and work units such as those in charge of commerce， education， civil affairs，
finance， labour security， telecommunications and taxation shall， pursuant to their respective responsibilities and
the provisions of the relevant laws and administrative regulations， cooperate with the administration for industry and
commerce and the public security authority in their investigation and handling of pyramid selling acts.

Article 12　Grass-root organizations such as rural villagers committees and urban residents committees shall，
under the guidance of the local people‘s government， assist the relevant authorities in investigating and handling
pyramid selling conduct.

Article 13　If， in investigating and handling pyramid selling acts， the administration for industry and commerce
suspects that an act may constitute a criminal offence， it shall transfer the case to the public security authority to be
put on file for police investigation. If a case of pyramid selling put on file for police investigation by the public security
authority is found after police investigation not constituting a criminal offence， the case shall be transferred to the
administration for industry and commerce for investigation and handling.

PART THREE　MEASURES AND PROCEDURES FOR INVESTIGATION AND HANDLING PYRAMID SELLING

Article 14　Administrations for industry and commerce at the county level or above may adopt the following
measures when investigating and handling suspected pyramid selling acts：
1. order the cessation of the relevant activities；
2. investigate and understand relevant circumstances from the suspected pyramid selling organizer， operator and
individual；
3. enter the business premises and venues for training and assembly activities that are suspected to be involved in
pyramid selling to conduct on-site inspection；
4. inspect， reproduce， seal up or distrain materials such as contracts， instruments and account books that are
suspected to be related to pyramid selling；
5. seal up or distrain property such as products （commodities）， tools， equipment and raw materials that are
suspected to be used specifically for pyramid selling；
6. seal up the business premises that are suspected to be involved in pyramid selling；
7. inquire the accounts of the suspect pyramid selling organizer or operator and the accounting vouchers， books
and statements relating to their deposits； and
8. apply to the judicial authority for freezing the illegal funds where there is evidence in support of the transfer or
concealment of such funds.

To adopt the measures stipulated in the preceding paragraph， the administration for industry and commerce shall
report in writing or verbally to and obtain approval from the principal person in charge of the administration for
industry and commerce at the county level or above. In emergencies that require adoption of the measures set out in
the preceding paragraph on-the-spot， a report shall be made and the relevant procedures shall be completed
immediately after the incident. If sealing up or distrainment stipulated in the preceding paragraph or the measures
stipulated in Items （7） and （8） above are to be enforced， prior written approval shall be obtained from the
principal person in charge of the administration for industry and commerce at the county level or above.

Article 15　When the administration for industry and commerce investigates and handles suspected pyramid selling

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acts， there shall be no less than two enforcement officers.

Enforcement officers that have direct interests with the party concerned shall withdraw.

Article 16　When investigating and handling suspected pyramid selling acts， the enforcement officers of the
administration for industry and commerce shall produce their identity documents to the party or the relevant
personnel.

Article 17　When enforcing sealing up or distrainment， the administration for industry and commerce shall deliver
on-site to the party the seal-up or distrainment warrant and a list of the property and materials sealed up or
distrained.

In places where transport is inconvenient or where the investigation and handling of the case may be affected if seal-
up or distrainment is not enforced in time， the seal-up or distrainment may first be enforced， and the seal-up or
distrainment warrant shall be obtained and served on the party within 24 hours thereafter.

Article 18　The time limit of seal-up or distrainment enforced by the administration for industry and commerce may
not exceed 30 days. If the case is complicated， the time limit may be extended for 15 days upon the approval of the
principal person in charge of the administration for industry and commerce at the county level or above.

The administration for industry and commerce shall keep safe the property sealed up or distrained， and may not
use or destroy them. If it causes any loss to such property， it shall be liable for compensation unless such loss is
caused by events of force majeure.

Article 19　If the administration for industry and commerce has enforced seal-up or distrainment， it shall find out the
facts in a timely manner and make a decision on the case during the time limit of the seal-up or distrainment.

If an act is found to be pyramid selling upon investigation and verification， the illegal property sealed up or
distrained shall be confiscated in accordance with the law. If， upon investigation and verification， no pyramid
selling act is found or there is no need for sealing up or distrainment， the seal-up shall be removed and the
distrained property shall be returned immediately after a handling decision is made.

If the administration for industry and commerce fails to make a decision on the case within the time limit， the items
sealed up shall be deemed unsealed and the distrained property shall be returned. If the administration refuses to
return the property， the party may institute an administrative action at the people‘s court.

Article 20　If the administration for industry and commerce and its working personnel use or destroy the sealed or
distrained property， thereby causing economic losses to the party， they shall be bear the liability for
compensation.

Article 21　When the administration for industry and commerce investigates and handles suspected pyramid selling
acts， the party has the right to present his statement and defence.

Article 22　The administration for industry and commerce shall make on-site written records when investigating and
handling suspected pyramid selling acts.

On-site written records and the list of property sealed up or distrained shall be signed by or affixed with the seals of
the party， the witness and the enforcement officers. If the party is not present， or if the party or the witness
refuses to sign or affix his seal， the enforcement officers shall make a note in the on-site written records.

Article 23　If an act is found to be pyramid selling upon investigation and verification， the administration for industry
and commerce and the public security authority may issue a warning or reminder to the public.

Issuance of warning or reminder to the public shall be approved by the principal person in charge of the
administration for industry and commerce at the county level or above or the public security authority.

PART FOUR　LEGAL LIABILITY

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Article 24　If anyone has an act specified in Article 7 hereof such as organizing and planning pyramid selling， the
administration for industry and commerce shall confiscate his illegal property and illegal gains， and impose a fine of
not less than Rmb 500，000 and not more than Rmb 2 million. If the case constitutes a criminal offence， criminal
liability shall be pursued in accordance with the law.

If anyone has an act specified in Article 7 hereof such as referring， luring or forcing other people to participate in
pyramid selling， the administration for industry and commerce shall order him to cease the illegal act， confiscate
his illegal property and illegal gains， and impose a fine of not less than Rmb 100，000 and not more than Rmb
500，000. If the case constitutes a criminal offence， criminal liability shall be pursued in accordance with the law.

If anyone has an act specified in Article 7 hereof such as participating in pyramid selling， the administration for
industry and commerce shall order him to cease the illegal act， and may impose a fine of not more than Rmb 2，
000.

Article 25　When imposing penalty in accordance with Article 24 hereof， the administration for industry and
commerce may order the suspension of business operation for rectification or revoke the business licence in
accordance with the provisions of the relevant laws or administrative regulations.

Article 26　If anyone provides business premises， training venue， sources of goods， safekeeping，
warehousing or other conditions for the pyramid selling acts specified in Article 7 hereof， the administration for
industry and commerce shall order the party to cease the illegal act， confiscate his illegal gains and impose a fine of
not less than Rmb 50，000 and not more than Rmb 500，000.

If anyone provides internet information services for the pyramid selling acts specified in Article 7 hereof， the
administration for industry and commerce shall order the party to cease the illegal act and notify the relevant
authority to impose penalty in accordance with the Administration of Internet Information Services Procedures.

Article 27　If the party uses， replaces， transfers or destroys any sealed or distrained property without
authorization， the administration for industry and commerce shall order the party to cease the illegal act and impose
a fine of not less than 5% and not more than 20% of the value of the property used， replaced， transferred or
destroyed. If the party refuses to carry out rectification， a fine of not less than one time and not more than three
times the value of the property used， replaced， transferred or destroyed shall be imposed.

Article 28　If anyone has any acts specified in Article 10 hereof or refuses or obstructs the investigation and
handling of pyramid selling acts in accordance with the law by the enforcement officers of the administration for
industry and commerce， and such act constitutes a violation of security administration， the public security
authority shall impose penalty in accordance with the provisions of the laws and administrative regulations on security
administration. If the act constitutes a criminal offence， criminal liability shall be pursued in accordance with the law.

Article 29　Where the administration for industry and commerce， the public security authority and their working
personnel abuse their power， are derelict in their duties or practise graft， and fail to investigate and handle
pyramid selling acts in accordance with the responsibilities and procedures stipulated herein， or fail to investigate
and handle the pyramid selling acts discovered， or support， shield or connive pyramid selling acts， if the case
constitutes a criminal offence， the criminal liability of the person in charge that is directly responsible and other
directly responsible persons shall be pursued in accordance with the law. If the case does not constitute a criminal
offence， administrative penalty shall be imposed in accordance with the law.

PART FIVE　SUPPLEMENTARY PROVISIONS

Article 30　These Regulations shall be implemented as of 1 November 2005.

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