Punishment Provisions for Fraud Conspirators Are Weak... Direct Sales Act Needs Amendment [Coin Fraud Republic]

Special Project <Coin Scam Republic - They Were Meticulous>

④-⑶ Seoul Gangnam Teheran-ro 'Coin Pyramid Scheme Scam' Hotbed
Need to Include Punishment Clause for Pyramid Scheme Sellers in Door-to-Door Sales Act
Current Law Only Punishes Pyramid Scheme Operators and Organizers
Amendment Proposed in 21st National Assembly but Discarded

That was true. The stories that the Teheran-ro area in Gangnam-gu, Seoul, is a hotbed for virtual asset (coin) pyramid scheme scams, and that scam organizations secretly conduct business activities by frequenting nearby cafes, were not mere rumors.

On the 8th, the reporter visited a certain cafe near Seolleung Station in Gangnam-gu, Seoul. At the cafe entrance, a signboard stated, "Business activities inside the store are prohibited." The cafe warned through the signboard that "if business activities are confirmed, forced eviction and reporting for business obstruction may occur." This suggests that the cafe had long been troubled by indiscriminate pyramid scheme business activities.

Entering deeper into the cafe where the staff's gaze did not reach, six elderly people estimated to be over 60 were huddled around two tables pushed together. The documents they spread out had "BTC" written at the top, and they were making phone calls while following the documents with their eyes. Soon, another elderly man appeared, and one of the elderly men stood up abruptly and led him to a seat with a partition. "If you give me an ID and put in 200,000 won, you can get 800,000 won. You just need to put it in first." This business activity disguised as a meeting lasted for nearly two hours that day.

In the legal community, it is pointed out that to eradicate such pyramid scheme scams, punishment regulations should be newly established to allow criminal penalties for salespeople who join the sales organization and conduct business activities. The current law limits the scope of punishment to those who "establish, manage, or operate" pyramid sales organizations, so many engage in illegal business activities without being punished. As a result, accomplices who have escaped legal judgment repeatedly commit similar fraud crimes, continuously producing victims.

Kim Ju-yeon, head of the Korea Fraud Prevention National Association, said, "There are many scam organizations that set up offices around Teheran-ro to recruit elderly people who are clumsy with phone manipulation and have poor eyesight, inducing investments there or conducting business in cafes," adding, "Only the main perpetrators of large-scale fraud cases are barely punished, so one person may conspire in 3 to 4 fraud cases."

At the entrance of Cafe A on Teheran-ro, Gangnam-gu, Seoul, a signboard stating "Multi-level marketing activities are prohibited" is erected. Photo by Kim Minyoung

Pyramid Scheme Participants Escape Legal Net Citing Non-Applicability of Door-to-Door Sales Act... Related Law Amendment Failed in 21st National Assembly

To address this issue, former lawmaker Jeon Bong-min of the People Power Party proposed a revision to the "Door-to-Door Sales Act" in February 2021, aiming to allow criminal punishment for salespeople who register with unregistered pyramid sales companies and conduct business activities.

Regarding the background of the bill, former lawmaker Jeon Bong-min explained, "As seen in large-scale investment fraud cases caused by unregistered pyramid sales organizations, there are salespeople who knowingly participate in fraudulent acts, but due to the limitations of the current law's scope of punishment, participating salespeople are not punished. Therefore, the bill aims to expand the scope of punishment by stipulating punishment for those who join such organizations and perform sales duties." However, the bill did not pass due to the chaotic situation in the National Assembly after the general election and political conflicts, despite reaching the subcommittee of the standing committee.

Typically, pyramid organizations have three or more levels of membership, where upper-level members recruit lower-level members and receive referral commissions. If no actual goods are traded and only money under the name of investment funds is exchanged, violations of the Door-to-Door Sales Act apply. A Fair Trade Commission official from the Special Transaction Policy Division said, "When we receive reports of unregistered pyramid coin companies and investigate, most are highly fraudulent, so we immediately request police investigations," adding, "Although coins are not goods, Article 24 of the Door-to-Door Sales Act prohibits fraudulent acts using pyramid sales organizations or similar organizations, so illegal pyramid business activities using coins violate the law."

However, as former lawmaker Jeon pointed out, the current Door-to-Door Sales Act (Article 58, Paragraph 1, Items 1-2) only punishes those who establish, manage, or operate unregistered or falsely registered pyramid sales organizations or sponsor door-to-door sales organizations with imprisonment of up to seven years or fines up to 200 million won. Moreover, Article 13, Paragraph 1 of the Door-to-Door Sales Act stipulates punishment for major operators, but it is difficult to arrest and punish major operators of overseas pyramid organizations, and participants such as upper-level sellers cannot be punished under the Door-to-Door Sales Act.

This is why many who actively collude in pyramid coin fraud crimes often play the "victim cosplay." Kim and Son, named in the complaint as fund managers and upper-level recruiters of Intercoin Capital (ICC), consistently responded in a phone interview with the reporter, "Do you have evidence that I committed fraud? I also ended up penniless because I put in all the money I earned until the end. I am also a victim."

The multi-level coin scam organization conducted investment solicitation activities together with the main perpetrators and recruiters. Photo by Hanguk Sagip Yebang Gukminhoe

Office of Assemblyman Kim Sang-wook Plans to Propose Door-to-Door Sales Act Amendment... Additional Legislative Measures Needed for Coin Fraud

When prosecutors indict participants, they may apply charges of "aiding and abetting violation of the Door-to-Door Sales Act" for supporting the pyramid organization's crimes, but fundamentally, there are calls to establish punishment provisions for participants who knowingly join the organization and perform door-to-door sales activities.

In particular, in large-scale fraud cases, it is rare for only some top recruiters to be punished, or members of small-scale fraud organizations receive light punishments such as "aiding and abetting," but it is difficult to find cases where they were punished through voluntary investigations by investigative agencies. Two operators in Gangneung, Gangwon Province, indicted for unregistered pyramid fraud crimes under the guise of the Malaysian company MBI, are representative cases. During the trial, the prosecutor pointed out, "Mr. A was in charge of overall management in Gangneung, and Mr. B handled office operations," adding, "The defendants conspired with executives of the Malaysian headquarters from 2016 to 2019, claiming that 'if you purchase social network service (SNS) advertising rights, virtual currency proportional to the investment will be given,' and raised about 19.6 billion won."

Mr. A and Mr. B were sentenced to two years and one year in prison respectively in the first trial. The first trial court recognized their guilt as joint perpetrators who established and managed the pyramid sales organization, stating, "They gained huge exchange profits, maintained influence over other lower-level team leaders, and conducted promotions to attract new investors."

However, in the appeal trial, the Door-to-Door Sales Act charges were acquitted, and Mr. A and Mr. B's sentences were reduced to one year imprisonment and one year imprisonment with two years probation. The appellate court stated, "Even if the defendants were called chairman or president by lower salespeople, when they set up offices for pyramid sales, they called each other center chief or president," adding, "Even if they received and delivered payment for advertising rights from lower salespeople, the defendants did not receive support or management from the headquarters while explaining or promoting the business. They also did not have the authority to distribute or execute investment funds."

The court further added, "As pyramid salespeople, their advertising or sales activities were for their own performance, and it is difficult to see that they were involved in establishing, managing, or operating the headquarters' sales organization by systematically organizing lower salespeople."

Fortunately, after the 22nd National Assembly convened, Assemblyman Kim Sang-wook of the People Power Party took over and is reviewing amendments to the Door-to-Door Sales Act. A representative from Assemblyman Kim's office told Asia Economy on the 11th, "We feel the seriousness that fraud damage is not eradicated because there are no punishment provisions for salespeople involved in pyramid schemes, and we plan to proceed with bill proposals."

Professor Kim Yoo-sung of Yonsei University Law School said, "In cases where salespeople participate in unregistered pyramid activities, they are both perpetrators and victims, so even if tried for violating the Door-to-Door Sales Act, they may be acquitted or not prosecuted. Given the recent increase in coin fraud crimes, additional legislative measures are needed," adding, "After legislation, considering prosecution practices and conviction rates, areas with limitations in the criminal justice system should be supplemented with administrative sanctions to regulate pyramid coin crimes." He further explained, "Even if punishment provisions for salespeople are included, carefully examining the intent behind fraudulent acts will prevent abuse of the law."

We plan to conduct in-depth investigative reporting on 'virtual asset investment fraud.' We will strive to establish comprehensive countermeasures to eradicate coin crimes. Please send tips to (lsa@asiae.co.kr). We will investigate and report thoroughly.

▲Team Leader Lee Seon-ae, Manager △Kim Min-young, Cha Min-young, Kim Dae-hyun, Hwang Yoon-joo Reporters