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Wednesday, 4 December 2002
Page: 9620


Mr CAMERON THOMPSON (5:07 PM) —I rise to speak in response to the Trade Practices Amendment Bill (No. 1) 2002. This bill is designed to address concerns about pyramid schemes. It is an effort by the government to put the legislation in plain English so that pyramid schemes are more readily understood—what they involve, the kind of threat they pose and the kinds of steps the public can take in response to them. The Office of Consumer and Business Affairs in South Australia has listed 61 examples of pyramid schemes. It is instructive to look at the kinds of schemes and scams being proposed in an effort to con consumers in Australia. There are all kinds of options among the schemes.

There is the Cash Club in Victoria, in which people are asked to stake as much as $5,000 in order to be involved in a pyramid scheme. There is Club Equitynet, an interesting example in which people are told that they can qualify for a home loan but in fact they are enlisting in a pyramid scheme. There are other projects, such as Goldquest International, a Hong Kong based scheme. There is Joker 88, which is based in Germany. There is Lotto Master, which parades itself as some kind of lotto advisory game, and the OzPower scheme in Queensland, which is based on the Powerball game. Another one—which I think probably takes the cake in terms of pyramid schemes—is Pentagono, based in Italy, in which people not only pay $150 to join the scheme but also are asked to send their bank details. There is Pray for World Peace; you can get involved in a pyramid scheme and pray for world peace at the same time. There is the World Aid Sponsorship Program International.

Obviously, people are shameless in proposing this kind of nonsense. The economics and financial aspects of these schemes, although they can appear superficially attractive to people who may like to have a bit of a flutter now and then, just do not add up. For example, in one pyramid scheme you might be asked to send off 10 letters to 10 people, and they might be asked to send 10 letters to 10 other people. By the time you are down to only the eighth level, you supposedly have 10 million people involved in the scheme. You have half the population of Australia involved in a pyramid selling scheme by the time you have got only to the eighth generation of the scheme. So what happens as a matter of course is that the schemes collapse in on themselves. The only people who ever stand to gain anything are those who arranged the scheme.

However, in Australia these schemes are actively sought out by governments at all levels. Prosecutions are undertaken as effectively as possible, and as much as possible is done. I commend the South Australian government for their efforts in highlighting the types of scams, bringing them to people's attention and urging people to report them as soon as they hear of them. People also hear about chain letters. They are a similar type of thing, involving sending money or gifts to the person at the top of the list and require you to add your name to the bottom. Of course, that is just another type of pyramid scheme.

By contrast, there is multilevel marketing. A good example of that is Amway. It is a reputable business that involves a lot of people in selling cleaning products, clothing, cosmetics and perfume. These sorts of things are marketed through multilevel schemes. The difference is that those schemes present genuine business and income earning opportunities through repeat sales to customers. It is entirely the opposite with pyramid schemes: they often involve no product all and do not generate regular income through repeat sales. The problem with pyramid selling is that there is really no substance to it. At the end of it all, people who invest are likely to be ripped off.

The ACCC are also directly concerned with issues to do with pyramid selling. They provide the following advice for people who think they have found a pyramid selling scheme:

Ask for proof of claims.

Check with your local enforcement agency to see if any action has been taken against the scheme.

Get legal advice.

Never give out your credit card details or financial or personal information.

If you are concerned about the site—tell us about it.

Do not purchase large amounts of inventory up front.

Do not agree to anything at high pressure meetings or seminars.

That last one is not just involved in pyramid selling; we have seen some other shonky business activities that have involved high pressure meetings and seminars in the past, and as a result people have been stung. Heavy penalties can be imposed by the Federal Court, including fines of up to $40,000 for individuals and $200,000 for companies involved in those schemes. Orders for restitution of moneys received by people participating in the schemes can be made.

I turn to the impact of this bill. It is proposed to put the legislation concerning pyramid selling into plain English. As I have noted, even the opposition have welcomed that. I think it is welcome news to all Australians that we are breaking down some of the excess legislative wordage that has been involved in the past. There is a serious undertaking beneath all that. It concerns the way a person can defend themselves against a charge in relation to pyramid selling on the grounds that they have been mistakenly advised as to a fact. That is called a mistake of fact defence. When the Standing Committee of Officials of Consumer Affairs met in December 1999, they discussed concerns over recent cases in which legal advice had been taken and in which people had been advised incorrectly. The defence in relation to a mistake of fact is that a person has been incorrectly advised in relation to what is or is not a pyramid selling scheme. The mistake of fact argument is that you were advised incorrectly and you were acting otherwise in good faith. That is the argument in your defence. Personally, I had not thought that ignorance of the law was ever an excuse, but there is an example: the mistake of fact aspects in relation to this law. The problem is that there have been a couple of cases in which not only has there been a mistake of fact but there have also been instances in which it has been interpreted legally that people have received legal advice. So it has not just been a mistake of fact but a mistake of law. This measure undertakes to clarify that and to make it clear that if you have experienced a mistake of fact then you have a defence, but not if it is a mistake of law.

However, despite the best efforts of the government to come to grips with that, some difficulties remain. There have been cases concerning mistake of fact versus mistake of law where the waters have been muddied still further. I am indebted to the Bills Digest, in which the case of Palmer v. Ostrowski is highlighted. This case concerns a commercial fisherman who was given a package of information from the Department of Fisheries in Western Australia in relation to lobster fishing. While the majority of judges in the High Court looking at the case found that that was a mistake of fact, one of the judges, Styetler J., held that the mistake that the appellant made was a mistake of law. So it is not a clear point as to what is a mistake of fact and what is a mistake of law. Given that this is a defence that is used in relation to cases of pyramid selling and this whole question that we are addressing concerns how clear the law is and how easy the law is to understand, obviously the question about the way in which you are advised is a core issue to be addressed. Some difficulties remain in relation to these questions and it is something that people need to be informed about.

Courtesy of the government of South Australia, I went through some of the typical schemes and scams that can be put forward as pyramid selling. There have been some exotic examples and, once again, I am indebted to the Bills Digest because it highlights the case of Giraffe World Australia. Mr Deputy Speaker, you would not believe this but it is actually a pyramid selling scheme. Giraffe World were selling a mattress which, when connected to a source of electricity, emitted negative ions which would allegedly benefit the health of the person who slept on it—that was the hook. Who would line up for a mattress like that? I do not know, but apparently they did. On top of that, they had the Giraffe Club and the Grow Rich System under which members who wanted to join the Grow Rich System of Giraffe World would pay the Giraffe Club an amount of money. Once again, that was a pyramid selling scheme.

These kinds of scams are causing a lot of trouble because they are wrapped up in such a way that the essential nature of the scam is hidden by something as stupid as a mattress that you plug into the wall—and heavens knows what value you would find in that. But when it is hidden in that form people are sometimes not sure about whether they are getting involved in a pyramid selling scheme or not. So clarifying this legislation is absolutely essential. Under the changes that are being made, the legislation does not actually prohibit the schemes but they are clearly prohibited by state legislation, and by the way in which it is locked together. Although it does not actually prohibit the schemes, it means that a corporation is not permitted to promote a scheme. It also means that a corporation faces a criminal offence punishable by a fine not exceeding $1.1 million and, of course, people who have suffered loss as a result of the operation of the scheme may claim damages under section 82 of the Trade Practices Act. There have been enforcement problems created by the difficulties within the wording of the act as it stands, and I hope that the changes will address those difficulties.

I spoke earlier about this defence of mistake of fact, and I would like to return to it. There has been another case in which this has been considered at some length and it is known as the Poole-Blunden case. In that case they were promoting two very typical types of pyramid selling schemes: the Concorde and the Golden Galaxy schemes. A lot of the schemes like to tell people that what they are doing is buying tickets on a fantasy plane; in this case it is a Concorde, and when you start off you are a passenger. You gradually get promoted up the levels until you become a copilot, then a pilot and then, theoretically—according to the promotional bumph—you walk off with the results of the pyramid selling.

Of course, once again it fails; it does not produce the outcome. But the people involved in it, those who promote the scheme, claim to have carried out their own research and to have read a number of independent opinions which stated that the schemes would not breach the relevant provisions of the Trade Practices Act. They were able to do that and, quite clearly, we need to respond to that. We cannot have a situation where people can claim in any way to believe that such a scheme is valid; these schemes are not valid. As the opposition spokesman said, the trend for these types of schemes to surface in greater number and with greater frequency—for example on the Internet—only highlights the fact that more and more people can be addressed and drawn into such schemes more quickly. The opportunity for proponents to make a quick buck and get away with it is there, and so it is important that the law and their obligations under it be very clear.

I said before that the various state regimes all oppose pyramid selling ventures. The cooperation between those governments is highlighted by the involvement of the officers in the meeting in December 1999 that laid out the proposal for these changes. The federal government has acted to respond to that. The problem of mistake of fact versus mistake of law will probably have to be addressed over time in greater detail because it is something in which those flaws that I pointed out will remain. If it is presented that there is a mistake of law and people claim they have had some kind of legal advice, then the question remains: is that a mistake of fact or a mistake of law? Quite clearly, we have to get the point across that in no sense can any advice be given that would justify involvement in a scheme that, on the face of it, is not a multilevel marketing scheme. In other words, it does not have genuine products to sell and there is no real value in what it offers. Basically, all it does is charge an admission fee and claim commission back through that system to allegedly provide a benefit. With all the different options that are out there, it is important that over time we continue to monitor this. The propensity of people to post scams and schemes on the Internet is well known, so we will continue to face that difficulty.

I commend the government for tackling this issue head-on. It is important that people know about the dangers of pyramid selling and just how impossible it is to expect a realistic return from something as shonky as one of these schemes. I certainly support the efforts that the government has gone to in this regard and I commend the bill to the House.