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What is a Pyramid Scheme?

A pyramid scheme is not a way to seek wealth. It is a prohibited scheme under Section 83C of the Banking Act, No. 30 of 1988, as amended.

A scheme that falls within the prohibition where participants are required to pay money or provide monetary value to join, and the promised income or benefits largely depends on:

• Recruiting new participants; or
• Increasing the money or contributions brought in by participants.

In Sri Lanka, the law applies not only to the people who establish such schemes. A person who initiates, offers, promotes, advertises, conducts, finances, manages, or directs a prohibited scheme may also commit an offence. Remember: A scheme does not become legitimate simply because it has a company name, a website, a mobile application, products, or business registration

How Does a Pyramid Scheme Work?

It often begins with an attractive promise:

• “Earn quickly.”
• “Make money online.”
• “Build your network and earn commissions.”
• “Join now before the opportunity closes.”

Regular promotional activities may include approaching Close friends or family members, Using celebrities to promote the scheme, Sharing testimonies of people who have supposedly succeeded by joining the particular scheme, and Using reputed professionals to promote the scheme.

•  You are invited to join as an intern without any charge.
•  Sometimes, you are given a small amount of money after completing an easy task as an intern.
•  After that, you are asked to pay money or provide monetary value to enter the scheme as a participant.
•  Then comes the crucial step: you are required to bring in new participants.
•  The money entering from new participants is used to generate commissions or benefits for people higher in the structure.

As more people join, the pyramid grows:
One person → several recruits → more recruits → many more recruits

But a scheme that depends on continuous recruitment cannot be sustained indefinitely. Once the recruitment of new participants slows down or stops, the flow of funds required to sustain the scheme is disrupted, ultimately leading to its collapse.

Law identifies recruitment-based earnings and increasing contributions from participants as key characteristics of prohibited pyramid schemes. (FAQs on Prohibited schemes)

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Common Forms of Pyramid Schemes

Pyramid schemes can appear in different forms. The appearance may change, but the underlying recruitment mechanism can remain the same.

• Naked Pyramid Scheme
• Participants pay an entry fee or contribute money primarily for the opportunity to recruit others and earn from their participation.
• Product-Based Pyramid Scheme
• The scheme uses products or services as part of the structure, but the principal source of promised earnings may still be the recruitment of new participants rather than genuine sales to customers.
• Online or App-Based Scheme
• The scheme may operate through websites, mobile applications, social media or messaging platforms and may use terms such as “online investment,” “digital business,” “trading,” “crypto,” or “passive income.”

Recruitment Disguised as Training or Business Opportunities

A scheme may present itself as a business programme, training opportunity or entrepreneurship model while the financial benefits depend substantially on bringing in new participants. 

Important: 

The name, product, technology or business model used by promoters does not determine legality by itself. The actual structure and operation of the scheme must be considered. CBSL has specifically warned that pyramid schemes may be disguised as legitimate businesses, MLM programmes, online opportunities and other activities. (News Survey publication - Pyramid schemes)

Warning Signs: STOP AND CHECK

Before handing over your money, watch for these warning signs:

• Guaranteed or unrealistic income with little effort.
• Pressure to join quickly — “Join today or lose the opportunity.”
• Recruitment is prioritized over genuine business activities.
• Your income mainly depends on recruiting new participants.
• You must make an entry payment or contribution before receiving benefits.
• Expensive products, services or employment opportunities are offered mainly as a way to recruit participants. Pyramid schemes may also be promoted using themes such as cryptocurrency, plantation opportunities, ad-click activities, online investment or other digital business opportunities.
• The product or service has little genuine market demand.
• You are encouraged to increase your contribution to earn more.
• The business location, responsible persons or contact details are difficult to verify.
• The scheme operates through websites, social media, messaging applications mobile Apps while promising extraordinary returns.
• Testimonials and promotional events are used to create trust, urgency or excitement.
• You are told “don't ask questions — just trust the system.”

Even one warning sign is enough to stop and verify the scheme carefully before paying any money.

(FAQs on Prohibited schemes)

Protect Yourself Before You Pay

Before joining any money-making opportunity:

• Understand exactly how money is generated.
• Ask: “Where does my promised income actually come from?”
• Check whether recruitment is necessary to earn.
• Do not be influenced by urgency or emotional pressure.
• Verify the company, promoters and business activities independently.
• Check information published by the Central Bank of Sri Lanka concerning prohibited pyramid schemes.
• Do not rely solely on social-media posts, testimonials or recommendations from friends and relatives.
• Do not assume that company registration makes a scheme lawful.
• Be especially cautious about promises of high or quick returns with little effort.
• Discuss the opportunity with someone you trust before transferring money.

Most importantly:

Do not pay simply because others are already participating.

Your friend's participation is not proof that a scheme is legitimate.

Your money deserves verification — not pressure.

CBSL advises the public to understand how a scheme generates its income, distinguish prohibited pyramid features from legitimate business activities, and verify the reality of promised benefits before joining. (FAQs on Prohibited schemes)

Think You Have Been Caught in a Pyramid Scheme?

Act quickly. Do not make the situation worse.

WHAT YOU SHOULD DO

• Stop making further payments until you have verified the situation.
• Do not recruit other people to try to recover your own money.
• Keep evidence — payment records, bank statements, receipts, screenshots, advertisements, messages, emails, telephone numbers, website addresses, application details and names of promoters.
• Record what happened — how you were introduced to the scheme, how much you paid, where you paid it and what you were promised.
• Report the suspected scheme to the appropriate authorities.

Suspected prohibited pyramid schemes can be reported to the nearest Police Station or to the Financial Consumer Relations Department of the Central Bank of Sri Lanka (CBSL). (FAQs on Prohibited schemes)

WHAT YOU SHOULD NOT DO

• Do not pay additional money simply because someone promises that another payment will release your funds.
• Do not provide further personal or financial information without verification.
• Do not delete messages, receipts or other evidence.
• Do not promote, advertise or recruit others into the scheme.
• Do not assume that you can recover your money by bringing in more people.

Remember:

Being a participant does not make it safe to recruit another person.

Section 83C of the Banking Act also applies persons who promote, advertise, finance, manage or direct prohibited schemes. 

STOP. VERIFY. REPORT.

Protect your money. Protect your family. Protect your community.