Baku, Azerbaijan, Jan. 15
By Elena Kosolapova - Trend: What experience and history teaches us is that people and governments have never learned anything from history, or acted on principles deduced from it.
This phrase said by German philosopher Georg Wilhelm Friedrich Hegel about 200 years ago exactly describes current situation regarding financial pyramids in the former Soviet Union's countries.
Such structures were very popular in Russia and other CIS countries in 1990s when people accustomed to planned economy were very badly informed of market rules. Several millions of people became easy prey to financial pyramids' organizers and lost all their savings as a result.
The financial pyramids promised to give easy money with hefty returns in a short time to their investors. Credulous people sold all their property from houses and jewelry to personal things to buy financial pyramids' shares. Some people even sold their gold teeth to get money to invest.
The overwhelming majority of investors lost their money for ever. Hundreds of people became homeless and even committed suicide following the bankruptcy of the financial pyramids. In particular over 30 people took their own life following the devaluation of shares of one of the most popular Russian financial pyramid, MMM, which also extended its activity to other CIS countries, according to official data.
One would imagine that after such bad experiences people would be more careful about where they invest their money. However a number of new financial pyramids are thriving in the post Soviet territory in the early 2010s. For example the notorious MMM pyramid was reinitiated in 2011 when its head Sergei Mavrodi was released after four and a half years in a penal colony for financial crimes. Mavrodi frankly described the new project as a pyramid this time, adding "It is a naked scheme, nothing more ... People interact with each other and give each other money. For no reason!" In spite of MMM's bad history people in Russia, Kazakhstan, Ukraine and other countries entrusted their money to it. The depositors of MMM-2011 fortunately less numerous than before repeated the mistakes of their predecessors and faced the same fate. In May 2012 Mavrodi froze the operation and announced there would be no more payouts.
Over 60 cases relating to pyramid schemes were filed in Kazakhstan from 2010 to 2013, according to Prosecutor General's office. About 4,000 people became victims of such pyramids. The total damage from their activity exceeded 767 million tenge (about $5 million). In particular a fraud case was filed concerning MMM-2011 activity.
After all Kazakh parliament initiated a law imposing criminal liability for creators and head of financial pyramids to prevent their functioning. The law also envisages criminal liability for advertisement of pyramids. On Jan, 14 the law was signed by Kazakh president Nursultan Nazarbayev.
"The law should improve the level of protection of Kazakh citizens' constitutional rights and freedoms, interest of legal entities and increase the efficiency of the prosecuting bodies, prosecutors and courts," the law developers said earlier.
The new law undoubtedly pursues good intentions, however not all experts are optimistic about it.
"Even banks' credit systems may be ranked as a financial pyramid. It will be very difficult to prove involvement in a fraud," famous Kazakh economist Kanat Berentayev told Total.kz when the law was under discussion.
The government should improve the financial literacy of t people first of all to keep them from the pyramids, Berentayev said.
"Flat ban will likely provoke the situation when financial pyramids go into the shadows," he warned.
Time will tell how successful the lawmaker's initiative is. However heaven helps those who take care of themselves. And it will be better to think twice before get involved into any suspicious financial project.
Kazakhstan’s authorities start to struggle against financial pyramids
Baku, Azerbaijan, Jan. 15