Egypt’s Greatest ‘Pyramid Scheme’

THIS POST HAS BEEN UPDATED TO INCLUDE A STATEMENT FROM QNET

A new craze is gripping Egyptians with promises of untold wealth, but lawyers say it could be a big scam.

[caption id="attachment_546" align="alignright" width="300"] Egypt’s latest pyramid, like a visit to the real ones, could empty your pockets[/caption]

On the surface QNet is a sales company that relies on foot soldiers to sell its products and recruit more sales people.  But the company has raised suspicions among some Egyptians that it is a pyramid scheme defrauding thousands of people.

QNet has already been banned from operating in several countries under its different names, including the United Arab Emirates, Afghanistan, Syria, Iran, Sudan, Nepal, Sri Lanka and Indonesia.

Just last month, the company was banned in Saudi Arabia.

In some cases, such as in Sudan, the public protested for the company to be banned, while in Afghanistan, people marched on the presidential palace in Kabul calling for the ban to be lifted.

The company, which was founded in Hong Kong in 1998, has attempted to distance itself from its chequered past and changed its name several times.  It has been known as GoldQuest, Qi Limited and most recently QuestNet.

But the firm’s popularity is still spreading in Egypt, and shows no signs of slowing down.  The closest Egypt has come to banning QNet was earlier this year when Egypt’s Dar Al-Ifta, the country’s highest official religious authority, issued a decree or fatwa ruling the company’s activities as haram.

So far, according to a spokeswoman for QNet in Egypt, at least 20,000 people have been recruited to the company. 

“With the state of the economy after the revolution, people don’t have jobs anymore, single income households are struggling and employment doesn’t pay as much anymore.  [QNet] is definitely good for extra-income,” said Lamia Kamel, the public relations director for QNet Egypt.

The firm promotes itself as a sales company offering a variety of products including watches, jewelry, vacation packages, energy and nutrition products, but lawyers and a growing number of disgruntled customers say it is a product-based pyramid scheme and want it shut down.

A pyramid scheme is defined as a company that makes the majority of its profit from recruiting new members rather than selling products.  So, people do not lose their money because of normal market forces, but because the system requires them to lose so that a few at the top will win.

The products, which include a bizarre Chi Pendant that costs up to $580 and claims to energize your body and protect from harmful mobile phone waves, are merely a disguise for the get-quick-rich system. The so-called “Amezcua Straw Tube” claims to make water more “hydratious” [Yes, I Googled it and it’s a made-up word].

There are two problems with pyramid schemes (apart from being illegal in most countries), which ultimately lead to failure.  HowStuffWorks explains it in layman terms:

A) The products themselves don’t sell very well, or have very slim profit margins so the only way to make money is to find more recruits. Eventually (and surprisingly quickly), the market becomes saturated. There are too many people trying to sell the same unattractive product and there’s no one left to be recruited.

B) Pyramid schemes don’t work unless somebody loses. Those at the bottom of the pyramid are essentially defrauded by those on top. It’s a mathematical fact that no matter how many people join a pyramid scheme, 88% of the members will be on the bottom level and will lose their money.  

There is no specific law against pyramid schemes in Egypt, according to lawyers at Al Kamel law firm in Cairo.  However, several regulations prohibit this type of activity, the lawyers said.

Hussein Azmy, an associate at Egypt’s Hegazy & Associates law firm said under Egyptian commercial law, this company is “definitely fraudulent” but authorities will face problems shutting it down because it does not legally exist in Egypt.   It is unclear whether Egyptian financial and criminal authorities are aware of QNet’s existence.

“They don’t have a legal presence here and they aren’t registered with any authorities, like the tax authority,” Mr Azmy said, who has also been approached by a QNet member to join.

“Even if you shut down the website you will have difficulty tracking down the operatives”.

Ms Kamel, the spokeswoman, denied the allegations against the company, saying QNet is a legitimate business that bases its success on product sales.  Any complaints were down to consumers misunderstanding the company’s concept, Ms Kamel said.

“For you to get involved in QNet, you have to buy a product.  For you to invest in the company, and become an independent representative for the company you either have to buy a product because you like it or because you also want to participate in the business,” she said.

“We have good representatives and we also have others who are so excited to get the other people on that they misperceive the company.  You should not make people pay for something they don’t want to buy, and QNet is definitely not responsible for these people,” Ms Kamel said.

I received a further statement from Ms Kamel in response to emailed questions regarding the allegations that QNet is a pyramid scheme: 

I want to assure you QNet is not a Fraudulent company.
QNet has been in business for over 14 years now. The company’s Compensation and Business Plan is a tried and tested model that is currently accepted in over 100 countries. We are members of the Direct Selling Association of Malaysia, the Direct Selling Association of Singapore, Direct Selling Association of Philippines, the Hong Kong Health Food Association and the Health Supplements Industry Association of Singapore.

We have had some issues rising in Egypt but that is solely due to people not understanding the idea of direct selling or e-commerce in general. Our platform is online based and this is quite new in Egypt and in some parts of the Arab world. Like any successful business we have those who are totally loyal to our products and company and those who may have misunderstood the concept and built  a negative perception of it.

They get upset and initiate rumors and build negative publicity.

There are those who did their job right, worked hard, understood the value of our company and products and made money along the way and those who didn’t. The latter may be upset. The lawyers you have spoken to may be giving you information based on what they heard.
Further, there are anti QNet groups mostly led by competing companies or those who were once an Independent Representative (IR) but failed to make any money.

We have not received anything that indicate or hints that we will shut down in Egypt.

QNet’s independent representatives, or IRs, are mostly made up of recruited members from across the globe, whose job is to recruit more members and theoretically sell products.   Some of them use Skype to extend their reach.

Rebel Economy spoke with an IR in India, who had been recruiting people in Egypt.  The company operates out of several countries including India and Malaysia.

However, the discussion revealed that QNet members are told the fastest way to make money isn’t by selling products, but by recruiting more people.

[caption id="attachment_544" align="aligncenter" width="608"] QNet’s business plan revealed during a Skype conference call with a company representative[/caption]

After investing $700 to join, the company takes $10 for “maintenance”, while the rest is distributed to sales people up the pyramid.

For every recruit that the new member signs on, he gets some money.  He also gets money for the recruits that his recruits sign on, and so on.  The representatives that I spoke to suggested this could earn $780,000 a year.

For most people that would ring alarm bells, but the representatives use a series of psychological techniques that encourage people to go with the plan, including repeated mantras that suggest you are imprisoned by daily working life and could gain financial freedom through QNet.

This type of scheme has been remarkably successful all over the world, thriving on economic insecurity.

At one point, I thought I should invest some money even though I knew that the company was suspicious.

“The real product is that you get an opportunity to be financially free. What is more important to you a watch or vacation worth $700 or a lifetime of financial freedom which is worth your life?” the QNet recruiter asked me during the conversation.

“I did not bother to even see the product. I just parked it in my wardrobe,” the recruiter said.  “To me the real product was the opportunity. I paid to make a life of true freedom only for $700.”

Now, with as many as 20,000 Egyptians involved with the scam, some people have began lobbying against the company calling for it to be closed down.

Omar Gaafar, a graduate at the German University in Cairo, spent months researching and speaking QNet members after several of his close friends became involved in the company and tried to recruit him. He has produced a detailed video documenting the problems that some new QNet members have come across (the video is posted below).

“I was never convinced with it in the first place.  I knew from the start that even it works it’s not from me; it’s not the way I’d like to make money,” Mr Gaafar told Rebel Economy, accusing the company of using “psychological techniques to brainwash people”.    

He said QNet members often exaggerate about how much they earn, with a close friend of his suggesting he made 37,000 Egyptian pounds a week.  This unrealistic sum of money showed how desperate QNet members have become to recruit more people and sustain the pyramid, said Mr Gaafar.

“It is banned in many other countries. So it makes me wonder why is it banned? And why are they keeping it in Egypt?  If my friend really earned that much, I would have seen his BMW in the garage by now.”




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