MLM and Pyramid Selling Under Chinese Criminal Law: Where the Line Falls
China aggressively prosecutes pyramid schemes and certain multi-level marketing arrangements under both the Criminal Law and specialised regulations. Foreign nationals working in sales, recruitment, or investment promotion can be caught up in these investigations — sometimes without understanding that the business model was illegal. This article explains the relevant offences and how investigations unfold.
Pyramid selling (chuan xiao) is criminalised under Article 224bis of the PRC Criminal Law, added in the 2009 amendment. The offence targets schemes that require participants to pay fees or purchase goods to join, compensate participants primarily for recruiting others rather than for product sales, and involve a hierarchical structure of three or more levels. The organising or leading role carries a penalty of up to 5 years; aggravating circumstances — large numbers of participants or substantial amounts involved — attract 5 years to life.
How Chinese Law Defines and Prosecutes Pyramid Selling
China has waged aggressive enforcement campaigns against pyramid selling operations, with joint task forces from the PSB and the Administration for Market Regulation conducting regular raids. Foreign nationals may become involved in chuan xiao schemes in several ways: as knowing organisers or recruiters; as participants who were themselves deceived into joining and then encouraged to recruit others; or as employees of companies that operate at the blurred boundary between legitimate multi-level marketing and illegal pyramid selling. The distinction between organiser and ordinary participant is critical — organisers face severe penalties, while ordinary participants may be released without criminal charge, subject to administrative penalties. For a foreign national under investigation, counsel will seek to establish the defendant's level of knowledge, role in the hierarchy, and whether they were themselves a victim of the scheme.
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Primary legislation: Criminal Law [CN official]; Criminal Procedure Law [CN official]
Also relevant: PSAPL [CN official]; Exit and Entry Administration Law [CN official]
Official sources: Criminal Law (CN)
Key interpretation: SPC & SPP Guiding Opinions on Plea Leniency (2019)
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