Laws of the People's Republic of China

the State Council

Order of the State Council of the People's Republic of China

No. 444

The Regulation on Prohibition of Pyramid Selling,which was adopted at the 101st executive meeting of the State Council on August 10,2005,are hereby promulgated and shall go into effect as of November 1,2005.

Premier of the State Council,Wen Jiabao

August 23,2005

Regulation on Prohibition of Pyramid Selling

Chapter I General Provisions

Article 1

With a view to preventing frauds,protecting the legitimate rights and interests of citizens,legal persons and other organizations,maintaining the socialist market economic order and preserving social stability,this Regulation is formulated.

Article 2

The term"pyramid selling" as mentioned in this Regulation refers to such an act whereby an organizer or operator seeks for unlawful interests,disturbs the economic order and affects the social stability by recruiting persons,calculating and paying remunerations to recruiters on the basis of the number of persons a recruiter has directly or indirectly recruited or the sales performance,or asking the recruiters to pay a certain fee for obtaining the qualification for participation.

Article 3

The local people's government at or above the county level shall strengthen the leadership in investigating and handling the pyramid selling,support and urge all relevant departments to perform their administrative and supervisory duties according to law.

The local people's government at or above the county level shall,in light of actual needs,establish a coordinative mechanism for the investigation and handling of pyramid selling,and timely coordinate and solve those significant problems occurred in the work relating to the investigation and handling of pyramid selling.

Article 4

The department of industry and commerce administration and the public security organ shall,pursuant to this Regulation,investigate and handle the pyramid selling within their respective duties.

Article 5

When investigating and handling the pyramid selling,the department of industry and commerce administration and the public security organ shall,adhere to the principle of combining education with punishment,and shall instruct citizens,legal persons or other organizations to voluntarily abide by the law.

Article 6

All entities and individuals are entitled to report any pyramid selling to the department of industry and commerce administration or the public security organ,which shall,after receiving such a report,promptly carry out investigation and verification,handle it in accordance with the law and keep secret for the informer. Where the report is found to be true upon investigation,the informer shall be rewarded pursuant to the relevant state provisions.

Chapter II Types of Pyramid Selling and the Investigation and Handling Authority

Article 7

The following acts belong to the pyramid selling:

(1)

An organizer or operator seeks for unlawful interests by recruiting persons to participate in pyramid selling,asking the recruiters to persuade others to participate in pyramid selling,calculating and paying remunerations (including material awards and other economic interests,the same below) to the recruiters on the basis of the number of persons a recruiter has directly or indirectly recruited in a rotating way;

(2)

An organizer or operator seeks for unlawful interests by recruiting persons to participate in pyramid selling and asking the recruiters to pay fees explicitly or in any disguised form like purchasing commodities for obtaining the qualification for participating in pyramid selling or recruiting others to participate in pyramid selling; and

(3)

An organizer or operator seeks for unlawful interests by recruiting persons to participate in pyramid selling,asking the recruiters to persuade others to participate in pyramid selling so as to form a multi-level relationship,and calculating and paying the remuneration to an upper-level promoter on the basis of the sales performance of the promoters below.

Article 8

The department of industry and commerce administration shall,under this Regulation,be responsible for investigating and handling the pyramid selling as prescribed in Article 7 of this Regulation.

Article 9

The release of pyramid selling information as set out in Article 7 of this Regulation via the internet or any other public media shall be investigated and handled by the department of industry and commerce administration jointly with the telecommunication department in accordance with this Regulation.

Article 10

Where any organizer or operator deceives others into leaving their homes for unlawful gathering and restricts their liberties in the name of introducing jobs or engaging in business operations in pyramid selling,the public security organ shall make investigations and handle it in conjunction with the department of industry and commerce administration.

Article 11

The administrative departments or entities of commerce,education,civil affairs,public finance,labor security,telecommunication and taxation shall,in pursuance of their respective duties and the relevant laws and administrative regulations,cooperate with the department of industry and commerce administration and the public security organ in investigating and handling the pyramid selling cases.

Article 12

Such grassroots organizations as the rural villagers' committee or the urban residents' committee shall cooperate with the relevant administrative department in investigating and handling pyramid selling cases under the guidance of the local people's government.

Article 13

The department of industry and commerce administration shall investigate and handle any pyramid selling,and shall,if it may constitute a crime,transfer it to the public security organ for placing the case on file for investigation. The public security organ shall place the case on file for investigation and shall,if the pyramid selling does not constitute a crime upon investigation,transfer it to the department of industry and commerce administration for investigation and handling.

Chapter III Measures and Procedures of Investigation and Handling

Article 14

The department of industry and commerce administration at or above the county level may,when investigating and handling the suspected pyramid selling,take the following measures:

(1)

Ordering the violator to cease pertinent activities;

(2)

Making investigations against the organizer,operator or individual suspected of being involved in pyramid selling and making inquiries;

(3)

Carrying out on-the-spot inspections by entering into the business,training gathering places suspected of being involved in pyramid selling;

(4)

Consulting,copying,sealing up or seizing the relevant contracts,bills,account books or other materials suspected of being involved in pyramid selling;

(5)

Sealing up or seizing the products (commodities),tools,equipment,raw materials and properties that are suspected of being involved in pyramid selling;

(6)

sealing up business places suspected of being involved in pyramid selling;

(7)

Consulting accounts,accounting vouchers,account books and statements of account regarding the deposits of the organizer or operator suspected of being involved in pyramid selling; and

(8)

Applying to the judicial organ for freezing the unlawful funds if there is evidence showing that they are to be transferred or concealed.

In case the department of industry and commerce administration adopts any of the measures as prescribed in the preceding paragraph,it shall report it,in speech or writing,to the principal leader of the department of industry and commerce administration at or above the county level for approval. Where it is necessary to adopt any of the measures as prescribed in the preceding paragraph under emergency conditions,the department of industry and commerce administration shall report it promptly and make up the relevant formalities afterwards. In particular,the implementation of seal-up or seizure or any measure as prescribed in Item (7) or (8) shall be subject to obtaining a written approval of the principal leader of the department of industry and commerce administration at or above the county level in advance.

Article 15

When the department of industry and commerce administration investigates and handles any suspected pyramid selling,there shall not be less than 2 law enforcers.

Any law enforcer that has a direct interest with the party involved shall withdraw.

Article 16

When investigating and handling a suspected pyramid selling,the law enforcer of the department of industry and commerce administration shall produce his identity documents to the parties involved or the relevant persons.

Article 17

When the department of industry and commerce administration seals up or seizes properties and materials,it shall deliver to the parties involved on the spot a written decision on the seal-up or seizure and a list of properties and materials to be sealed up or seized.

Where it is in an inconvenient area or the investigation and handling of the case will be affected if the seal-up or seizure is not timely carried out,the seal-up or seizure may be carried out in advance and the decision on seal-up or seizure shall be made up within 24 hours and be delivered to the parties involved.

Article 18

The period for the department of industry and commerce administration to carry out the seal-up or seizure may not be more than 30 days as is a general rule; if the case is complicated,it may be extended for another 15 days upon the approval of the principal leader of the department of industry and commerce administration at or above the county level.

The department of industry and commerce administration shall properly keep properties that are sealed up or seized,and may not use or destroy them. It shall be liable for any loss incurred unless the loss is caused by force majeure.

Article 19

When the department of industry and commerce administration carries out a seal-up or seizure,it shall ascertain the facts in a timely manner,and make a handling decision during the period of seal-up or seizure.

Where the pyramid selling case is verified upon investigation,the illegal properties that are sealed up or seized shall be confiscated in accordance with the law. Where,upon investigation and verification,there is no pyramid selling activity or the seal-up or seizure is no longer required,the seal-up shall be canceled and the seized properties shall be promptly returned in a prompt manner upon the handling decision.

If the department of industry and commerce administration fails to make a handling decision within the prescribed time limit,the properties sealed up shall be regarded as having been unsealed and the seized properties shall be returned. If the department of industry and commerce administration refuses to return them,the party involved may file an administrative litigation in the people's court.

Article 20

If the department of industry and commerce administration or any of its functionaries violates this Regulation by using or destroying any of the properties sealed up or seized and causes economic losses to the parties involved,it/he shall assume the responsibility for compensation .

Article 21

When the department of industry and commerce administration investigates and handles a suspected pyramid selling case,the party involved has the right to make statements and defend himself.

Article 22

When the department of industry and commerce administration investigates and handles a suspected pyramid selling case,it shall make records on the spot.

The records made on the spot and the list of properties and materials sealed up or seized shall be signed or stamped by the parties involved,witnesses and law enforcers. In case the party involved is absent or the party involved or the witness refuses to sign or seal,the enforcers shall indicate it down in the on-the-spot records.

Article 23

As for the verified pyramid selling case,the department of industry and commerce administration and the public security organ may promulgate a warning or a notice to remind the general public.

The release of a warning or notice to the general public shall be subject to the approval of the principal leader of the department of industry and commerce administration or the principal leader of the public security organ at or above the county level.

Chapter IV Legal Liabilities

Article 24

Where an individual commits any act as prescribed in Article 7 of this Regulation and organizes and contrives pyramid selling,the department of industry and commerce administration shall confiscate his illegal properties and gains and impose upon him a fine of 500,000 yuan up to 2 million yuan,and if a crime is constituted,he shall be investigated for criminal liabilities according to law.

Where an individual commits any act as prescribed in Article 7 of this Regulation and introduces,induces or coerces any other person to participate in pyramid selling,the department of industry and commerce administration shall order him to cease the illegal act,confiscate his unlawful properties and gains and impose upon him a fine of 100,000 Yuan up to 500,000 Yuan; and if a crime is constituted,he shall be investigated for criminal liabilities according to law.

Where an individual commits any act as prescribed in Article 7 of this Regulation and participates in pyramid selling,the department of industry and commerce administration shall order him to cease the illegal act and impose upon him a fine of less than 2,000 Yuan.

Article 25

When the department of industry and commerce administration imposes punishments under Article 24 of this Regulation,it can order the violator to suspend operations for rectification or revoke its/his business license in accordance with the relevant laws and administrative regulations.

Article 26

Where an entity or individual provides such conditions as business or training places,goods,custodian or storage service and so on,for pyramid selling as prescribed in Article 7 of this Regulation,the department of industry and commerce administration shall order it/him to cease the unlawful act,confiscate its/his unlawful gains and impose upon it/him a fine of 50,000 Yuan up to 500,000 Yuan.

Where an entity or individual provides internet information services for pyramid selling as prescribed in Article 7 of this Regulation,the department of industry and commerce administration shall order it/him to cease the illegal act and inform the relevant department to mete out punishments according to the Measures for the Administration of Internet Information Services.

Article 27

Where a party involved illegally puts to use,replaces,transfers or destroys the properties sealed up or seized,the department of industry and commerce administration shall order him to cease the illegal act and impose upon him a fine of 5% to 20% of the value of the properties used,replaced,transferred or destroyed. If he refuses to make corrections,a fine of one to three times the value of the properties used,replaced,transferred or destroyed shall be imposed.

Article 28

Where anyone commits any act as prescribed in Article 10 of this Regulation and refuses or impedes the enforcers of the department of industry and commerce administration to make investigations and handle the case and thus violates the regulations on public security administration,the public security organ shall impose punishments on him in pursuance of the laws and administrative regulations on public security administration; if a crime is constituted,he shall be investigated for criminal liabilities according to law.

Article 29

Where the department of industry and commerce administration,the public security organ and their functionaries abuse their power,neglect their duties or practice favoritism and fail to investigate or handle pyramid selling cases according to the duties and procedures as prescribed in this Regulation,or fail to investigate or handle the pyramid selling found,or support,harbor or connive any pyramid selling,and a crime is thus constituted,the person-in-charge and other persons directly responsible shall be investigated for criminal liabilities according to law; if no crime is constituted,the person-in-charge and other persons directly responsible shall be subject to administrative sanctions.

Chapter V Supplementary Provisions

Article 30

This Regulation shall go into effect as of November 1,2005.