Amway in hot water in Hyderabad over "business model" controversy

In a series of raids that ended recently, the Economic Offences Wing (EOW) of the Hyderabad Police shut down all offices of international multi level marketing firm Amway.

With it, the fate of 80,000 distributors of the company has been indefinitely sealed.

The enforcement said that the business model of the company is illegal, refusing to elaborate further.

"Gullible people enrol without understanding the viability of the scheme. We have told people that enrolling in such schemes is illiegal. The act is very clear, Police have the power to search and seize any time. So people should not enroll," the Superintendent of Police, CID, EOW, VC Sajjanar said.

According to police sources, a special team has been formed to further investigate the matter and more arrests of officials linked with the company are likely to be made.

The central economic enforcement agencies have also been brought in to investigate the matter, they said.

A representative of Amway told CNBC-TV18 that they will be contesting the CID claim.

For long, Amway has been dogged by controversy with many critics claiming that it has a cult-like following.

The organization, which is a multi-level marketing (MLM) scheme, has drawn frequent complaints, bad press and often-contentious litigation.

Nevertheless, Amway has made its two ruling families, the Devos and Van Andel clans, billionaires.

In recent years sales and recruitment for the company have slowed in the United States. In an apparent effort to improve its sagging situation Amway launched Quixtar on the Internet and also moved into international markets like China, Africa, Malaysia and India where details about its troubled history remain largely unknown.

Not very long ago, the Reserve Bank of India (RBI) had notified the police that Amway in India may be violating certain laws regarding a "money circulation scheme," SifyNews had reported.

However, Amway has continuously denied that its actions are in violation of Indian law.

Historically, many Amway distributors in the United States have lost money or barely made minimum wage for their time.

Some say that Amway is really more about making money from recruiting people to become distributors, as opposed to selling products.

Once, the Economic Times had asked Alticor's chairman, son of Amway co-founder Jay Van Andel, "What percentage of people who join [MLMs]…become really successful? Is it too miniscule a percentage?" Steve Van Andel never really answered the question. His closest response was, "Success is relative to the goals people set for themselves."

India is a developing country and many of its people are struggling to get by.

The Times seemed obliged to point out, "Direct marketing is often looked at with skepticism by the world at large...get-rich-quick schemes are what first springs to mind." Some seem to feel that this description is analogous to Amway. Rather than primarily focusing on the "great products" touted by Van Andel, the real emphasis at Amway, many claim, is actually recruiting others into the "plan" or "dream" - as ardent participants often call it.

Specifically, for many Amway distributors the organization becomes a way of life and joining the MLM represents the equivalent of an almost religious conversion experience.

Amway's faithful fellowship at constant meetings and conferences. They also listen to sales sermons through teaching tapes, which are often called "tools."

Conferences, "tools" and the commissions paid from "starter kits," frequently represent a large portion of the profits made by some MLM "plines."

There is no question that Amway has made a "miniscule percentage" "really successful."

Jay Van Andel is worth $ 1.5 billion dollars and owns a luxury resort island, reports Forbes. Amway co-founder Richard DeVos weighs in with $ 200 million more at $ 1.7 billion. These two men are like whales within the MLM ocean.

But it looks like the "little fish" "downline" in Amway have little hope of joining the elite and "miniscule...percentage" that make it really big.

Interestingly, right now there is proposed legislation that could weaken existing laws in the US, which protect the public from MLM "get rich quick schemes."

One former Amway distributor recently said, "I lost all I had, great job, my financial future, my wife, children, and soul."

If Amway is exploiting the citizens of India in some way, which is certainly not an affluent country, the company may have hit a new low.