Longrich ordered to cease operations
15 April 2019 | Banking
A statement issued by the BoN on Friday said its assessment found that the Longrich business model contravened section 55A of the Banking Institutions Act.
“The BoN hereby declares Longrich as an illegal financial scheme exhibiting undesirable practices in terms of the Act.”
The BoN added that the promoters of Longrich were directed to cease their operations immediately. Failing that, the bank would take appropriate action against them as stipulated by the Act.
The bank warned the public not to engage in business activities with Longrich.
“Those who have joined with the aim of earning profits through the recruitment of new members are urged to stop their membership of Longrich with immediate effect.”
The BoN found that the business model's reliance on money paid in by new recruits rendered the scheme “unsustainable and will result in participants, especially those at the bottom of the scheme, losing their money”.
The BoN concluded that “it is impossible for Longrich to deliver on the promised rewards and operate successfully without the regular inflow of joining fees obtained from newly recruited members.”
Namibian Sun reported in January that Longrich was a Chinese company that required new members to pay a minimum of
N$1 000 into a local business account. They were then encouraged to recruit other people to join the scheme.
Members were promised free trips, car, cellphone and house allowances, as well as study opportunities for up to four of their children in China.
Members were further encouraged to buy and sell Longrich products.
The BoN's assessment found that commission for members was not paid on products sold, but was based on the number of people directly recruited and those who subsequently joined under their recruits. As more people joined under the initiator, a participant moved up the hierarchy and earned more “commission”, which was payable every Friday to qualifying members.
The BoN said the business practice of Longrich requiring people to recruit others with a promise of earning commission contravened the Banking Institutions Act.
The bank also found that the sale of Longrich products was not mandatory.
“The marketing strategy focuses mainly on the recruitment of new members as the primary source of income, as opposed to the sale of Longrich products. As a result, the promoters of Longrich mainly focus on recruiting new members.'
The bank said should Longrich and its promoters wish to continue with the sale of products, these products should be sold directly to customers.
Products for sale should be the primary source of income, which means commission should be paid based on the products sold. The business practice should be sustainable without the recruitment of new promoters.