SHARIA AGAINST FINANCIAL DECEPTION

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Sharia against financial deception: Ahmad Raza on pyramid, ponzi and fraudulent multi-level marketing schemes
MUHAMMA !"A# -UR-R$HMA%
Institute of Research on Raza (Idara-e Tahqiqat-e Imam Ahmad Raza International), 25 Japan Mansion Re al !addar, "arachi e-mail# rida$ian% mail&com

A&stract: Pyramid, ponzi and fraudu !n" mu "i# !$! mar%!"in& '()!m!' form a ( a'' of finan(ia '(am'* La+ma%!r' and finan(ia r!&u a"ory au")ori"i!' a(ro'' ")! +or d "a%! '"!p' "o (ur, 'u() '()!m!' and a 'o "o rai'! pu, i( a+ar!n!'' a,ou" ")!m* I' ami( La+ a 'o &i$!' ( !ar &uidan(! a,ou" ")!'! '()!m!' for pro"!("in& ")! +!a ") of i"' 'u,-!("'* A,ou" 1.. y!ar' from "oday, A a)azra" A)mad Raza ( arifi!d ")! !&a po'i"ion of ")! '()!m!' in I' ami( La+ in r!p y "o a /u!ry* Raza an'+!r' ")a" ")! '()!m! i' m!r! y a '"ra"a&!m for oo"in& pu, i(* H! ana y'i' ")a" 'u() a "ran'a("ion do!' no" m!!" ")! ,a'i( r!/uir!m!n" of a 'a ! (on"ra("* T)! '()!m! i' a form of &am, in& ")a" !0p oi"' p!op !' ")rou&) a""ra("in& &r!!d of profi" and (r!a"in& f!ar of o''* Som! ini"ia par"i(ipan"' ar! ")! on y ,!n!fi(iari!' in ")!'! '()!m!'* Raza ')o+' ")a" ")! /u!'"ion!d "ran'a("ion i' $oid* Hi' fa"+a i' (!r"ain y an !$id!n(! of pra&ma"i( approa() of S)aria !0p!r"' and ")! uni$!r'a of ")! app i(a"ion of S)aria !$!n in ")i' a&!* 'ey(ords: ,ri,!ry, ()ain !""!r', C)ar !' Ponzi, ()!a"in& ")rou&) po'", p)on! (a ' and "!0"', d!po'i" '()!m!, Dou, ! S)a), !#mai fraud', !mp oym!n" '(am', &am, in&, i-ara, o""!ry, mar%!"

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'a"ura"ion, 2L2 '()!m!, Ponzi '()!m!, Pyramid S()!m!, r!a !'"a"! d!po'i" and oan '()!m!', ri,a, 'a ! (on"ra(", Samad Dada,)oy, Ta- Company, $oid 'a !

#ntroduction
Looting or taking money illicitly from masses has a long history on the Earth. Over the centuries, looters have used new ways of fooling people to deprive masses of their wealth. The methods have become complex in the modern times. In akistan, cases of !ouble "hah, #$bdus% "amad !adabhoy and Old Ta& 'ompany are still remembered. (uge amounts of money are lost to such deceptive schemes every year across the globe. The money lost only to !ouble "hah sum over one billion, a newspaper has )uoted. * If this is the situation in a small country like ours, one can imagine the )uantum of wealth taken away by such scams in the entire world. yramid, pon+i and fraudulent multi,level marketing #-L-% schemes closely form a variety of financial frauds. $ pyramid scheme generally re)uires each new customer to bring in more customers in order to get a product or service. $lternatively, the scheme may offer a return for recruitment of new members. $ pon+i scheme is a variation of pyramid schemes in that it offers a product at a prepaid price significantly lower than its market value. The product is never delivered. on+i schemes have derived their name from 'harles on+i who carried a large fraudulent scheme during *./0. $ fraudulent multi,level marketing scheme attracts individuals to &oin it as salespersons to sell a product or service which is otherwise difficult to market. Each layer of &oiners attracts a new layer of marketers for a financial or material gain. 1ational legislatures in most of the countries have enacted laws to protect public from frauds of pyramid, pon+i and -L- schemes. 'entral banks and financial or trade regulatory authorities are generally responsible for enforcing such laws. In akistan, this function is &ointly performed by "tate 2ank of akistan #"2 % and "ecurities and Exchange 'ommission of akistan #"E' %. They periodically give public warnings in newspapers to caution about employment scams, lottery, real estate, deposit and loan schemes, pyramid, pon+i and -L- schemes, and cheating through post, e,mails, phone calls and texts #"-"%. $n excerpt explaining modus operandi of pyramid, pon+i and -L- schemes as published in a recent public warning from "2 and "E' is as follows3
*

'ail( Times, "aturday, $pril *4, /005, Lahore.

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6These are7 schemes re)uiring new customers to bring certain number of more members in geometric progression. The process of membership reaches a stage of saturation when the whole structure collapses and only a few people at the top of the scheme make money. "ome companies also use this techni)ue in the guise of sales strategy to sell otherwise unmarketable products at exorbitant price. rotection of wealth is also one of the Ob&ectives of "haria # Maqasid-e !haria%. 8rom the (oly 9uran and (adiths, :urists # fuqaha% have drawn principles and developed rules that show clear guidance to avoid being part or victim of any such scheme or business. "haria prohibits ri)a, qimar #gambling%, uncertainty and danger to one;s own wealth and that of others. The ob&ective of "haria behind prohibitions in Islamic commercial laws is protection of people;s wealth against methods declared illegal by "haria. $laha+rat $hmad <a+a #d.*=40>*./*% is the most prominent alim #pl. ulema% among $hl,us "unna wal :amaat in the twentieth,century "outh $sia. (e spent his lifetime in defending the sanctity of the rophet, $llah;s durud and salaam upon him, and issuing fatwas according to "haria. (is */,volume collection of fatwas includes replies to )uestions in four languages3 $rabic, ersian, ?rdu and English. -uslims across the world including those of the two (oly "anctuaries approached him on a large variety of issues throughout his life. This service to Islam has continued in his family since <a+a;s grandfather till today through his great grandson -uhammad $khtar <a+a, known as Ta&,ush "haria among $hl,us "unna. <a+a has given fatwa on pyramid, pon+i and -L- schemes. (a&i -uhammad $i+a+ (usain @han sahib from "hah&ahanpur #India% sent the )uestion on *A <abi,ul $wwal *=/0 #*.0/% to <a+a. This was about two decades before 'harles on+i carried his scheme. The )uestion posted to <a+a and his reply is included in 2ook of "ales #"ita)-ul *u(u% of AlAta(a-un +a)a$ia fil ,ata-a-ur Rida$ia .

)he *ase
Issue. $ person has given an ad in which he claims to give a #pocket% watch worth =0 dirhams #silver money% for one dirham. 2ut this is sub&ect to some conditions. The seller would send five tickets to the person who buys a ticket for one dirham. Bhen the buyer sells the five tickets for five dirhams and sends the five dirhams to the seller along with the names of the buyers, the seller would send five tickets to each of the five buyers. Bhen all the five persons sell their respective tickets and send /C dirhams to the seller, the seller would give the =0,dirham,worth watch to the first

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buyer. The advertiser would, then, send five tickets each to the later /C buyers. Bhen all of them sell their respective tickets and send the moneys #*/C dirhams% to the seller, the seller would give the watches, each worth =0 dirhams, to the five persons who bought tickets from the first buyer. In sum, as the =0,dirham tiers #C plus /C% continue to reach the seller in this manner, the seller would be giving the watches to each buyer in turn. $s a result, every buyer will get a watch for one dirham provided he sells tickets of =0 dirhams for the seller. The ticket is actually evidence or acknowledgement of the purchase because he has written #printed% the word DcouponE on the ticket that translates as Dundertaking of ribaE. This shows that the ticket is not the thing sold #mu)ai% but an undertaking that a thing worth =0 dirhams from the listed items, applied by the buyer, will be given for one dirham according to the above advertised conditions. Is it lawful according to "haria to obtain a thing through this arrangement or notF If lawful, is the nature of the contract is that of a sale or something elseF If it is a sale contract, does it include is any other contract, like agency, brokerage and i.ara #hire for wage%, or notF !oes the price consist of the one dirham or also include the stated excessF If the price includes the excess, would the sale be prohibited by "haria, as in case of the prevailing lottery sale, although the entire lottery is not drawn at a single time but at different times, or notF Bould the sale be lawful or not where it includes the said conditionsF $ reply with reference to valid evidence from "haria may please be given. $ copy of the advertisement is attached with this )uery for consideration. lease reply for $llahG may you be rewarded by $llah. Translation of the ticket that sells for one dirham3
COUPON Buyer of an item worth 30 dirhams only for one dirham will get this ticket with a certificate and five tickets each of which should be sold for one dirham. The sale proceeds, that is, the five dirhams received, should be sent to us through money order or cheque. The tickets should be distributed as written on the certificate.

The word used for the ticket is DcouponE, the dictionary meaning of which is Dundertaking of ribaE.

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$ copy of the advertisement is )uoted below for perusal3
Worth 30 dirhams for one dirham only !"#$"# W%T&' &"()%#* &ommercial Building, !ucknow. +olden, silver and metallic pocket watches, clocks, ,ewelry etc *ou will get this certificate for which you have only spent one dirham, and -you. need to sell the attached tickets honestly for one dirham each to your friends and visitors. /ell them as many as possible. When you send this certificate to us along with the sale proceeds you have received, we promise to give you an item from the above stated items according to your entitlement -look at our /ample &atalogue. provided the following detailed conditions are met. -0. *ou will send us the names and addresses of the persons to whom you have sold the tickets. -1. We will inquire from the persons in writing, for our satisfaction, whether you have sold them the tickets or not. -3. The persons will send us their certificates with the money collected by them from the sale of the tickets sent to them. 2f you or your friends are unable to sell all five tickets, you would still be entitled to one of our precious items where four, three, two or even one ticket is sold in compliance with the above conditions. Think it thoroughly that you are spending only one dirham from your pocket to become entitled to the watch or clock of pure gold worth 30 dirhams sub,ect to the above conditions. We work faithfully with you and believe that you would also be faithful to us. We trust you. *ou may have any item of our stocks, from the /ample &atalogue, checked in 2ndia -the subcontinent., Burma -(yanmar. and &eylon -/ri !anka. for your satisfaction.

<egards.

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Reply. The stated scheme is simply haram #forbidden% and )imar. It is the sum of million of haram acts. In fact, it involves an infinite series of haram acts, and is a stratagem given by "atan # i)lis or shetan%, the deceitful. $lmighty $llah says, DLikewise, we have created, for each -essenger #+a)i%, enemy humans and genies who lie to one another to deceive #and if your Hod wanted, they would not do soG so you should leave them with their lies% and to attract the hearts of those who do not believe on the Borld (ereafter #A/hira% towards the evil and start likening and earn through it what they want to earn.E / The earning in the Borld hereafter will be the trouble and punishment. $s in the )uested situation, the earning in this world would be few dirhams for some people, and watch, bracelet etc for some others whereas the remaining participants will get Dthe loss of this world and the Borld hereafterE= because they will loss dirhams and get nothing. D2elovedI $sk them if $llah has given permission to them or they lie about (im,E 4 announces the 9uran meaning that since there is no permission so it must be a lie. D!o they have some fabricated gods who have created that 'in #system of life% for them which $llah has not permittedFE C -ay $llah protect -uslims from the deception of "atan, ameenI $ brief detail of the above summary is as follows. If we look at the reality, from the point of ob&ective of the seller and the buyer of the ticket, the stated scheme is not a sale, purchase or any other "haria,recogni+ed contract. It is merely a trap for the masses in the game of greed to attract them showing the hope #of gain%. This is exactly what constitutes gambling. 'learly, neither there is any statement about the sale and purchase of the greed,catching watch, bracelet etc nor is the species of it determinate. On the contrary, the trader promises to give an item from the stated items where the given conditions are met. This is only a promise whereas sale is a contract, and there is significant difference between a promise and a contract. $s far as the certificate and the ticket are concerned, the seller demands the certificate back with the proceeds. $fter payment of the price, return of the thing sold is meaningless in sale. ?lema state as follows to identify a child having no sense of sale and purchase3 (e takes the thing bought and also demands the price backG this shows that he does not know the meaning of exchange whereas sale is nothing but exchange #of assets%. Jes, there is a statement about sale of the ticket. 2ut the
/ =

The (oly 9uran, "ura A3 $l,Inam, $yahs **/K=. The (oly 9uran, "ura //3 $l,(a&, $yah **. 4 The (oly 9uran, "ura *03 Junus, $yah C.. C The (oly 9uran, "ura 4/3 $sh,"hura, $yah /*.

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printed wording makes it clear that the ticket is not the thing sold but only an undertaking which a buyer would show to receive an item worth =0 dirhams for one dirham if the conditions have been met. If it were a sale of the ticket, the buyer would be a fool where he buys a two,inch,long useless paper for one dirham, which does not worth even two /oris #seashells as currency%. (ence, this is not a sale or any other valid contract. The trader has a plan to attract salespeople across the country for his stocks without affording any cost or effort. $s a result, he would be continuously receiving the tagged price in not time. "ervants work for wage and slaves work without wage whereas his customers would be trapped such that they would pay the price and also work for him. Effort for an act has two causes3 fear and hope. 2oth of them are present in this case. There is the hope of getting =0,dirham,worth thing for one dirham. One who gets a ticket would be forced to find five other fools. This will add up to six #* plus C% dirhams to the trader with no cost. Each of the five newly caught persons will try to trap five new ones for greed of =0 #dirhams% and for the fear of losing one dirham without any return. In this manner, the scheme will continue #to make a pyramid%, and the fool countrymen will become active in clearance # ni/asi% of his stocks. ?ntil the structure stops expanding, the trader would be making large sums and when it collapses, he would loss nothing. The losers would be the buyers of the ticket who bought a worthless thing. The trader would still be saving hundreds of dirhams easily, whereas the fools will be trapped in any case. This is the plan of the trader. On the other hand, the buyer would think that his maximum loss is one dirham whereas the possible gain is =0 dirhams, hence, the luck should be tried. To this extent, it is greed, and the fear of loss would also arise when he has sent the money. This will make him engage others to recover his dirham even if others loss their moneys. In this way, this hope,and,fear pattern would expand. 8ew initial participants will win some haram wealth whereas later entrants would suffer in large numbers. This is the unlawful ac)uisition of wealth that the (oly 9uran has stated as haram saying, DO believersI !o not ac)uire wealth of one another unlawfully.E A This is the uncertainly # harar%, risk #/hatar%, destruction #darrar% and danger #darar% caused to self and others that has been prohibited by !ahihs #a category of books% of (adiths. This stratagem is even worse than lottery. In lottery, every party engages itself in the gambling and sin whereas in the )uestioned scheme every earlier participant will lock later fives for his benefit. Lottery
A

The (oly 9uran, "ura 43 $n,1isa, $yah /..

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involves only risk whereas this scheme will carry risk, danger, destruction and malfeasance # hash% everything. The rophet has said, D$ malfeasant to us #-uslims% is not from usGE 5 Imam -uslim, Imam $hmad, $bu !awud, Ibn -a&ah have narrated this (adith from (adrat $bu (urera, and Tabrani has )uoted it in Mua.am "a)ir from (adrat Lamera, $llah be pleased with them. $nother (adith reads, D$ malfeasant or one who in&ures a -uslim is not from usGE M Imam <afai has narrated it from (adrat $li, $llah be pleased with him. (adiths on this topic are to the extent of ta-atur, and the acceptance of the said acts as haram is itself among necessities of Islam, as is not hidden #from one who knows "haria%. This is the real position of the issue whereas if the wording is considered, it is a sale and purchase of the ticket. In the first place, there is doubt whether the ticket is an asset. $n asset has attraction for people and can be stored for a needy time. The ticket is devoid both these attributes. "ashf-ul "a)ir, *ahr-ur Raiq, and Radd-ul Muhtar read, D$sset is anything that has attraction for people and can be stored for a needy time.E. In view of this definition, the sale will be void a) initio because Dsale is an exchange of one asset for another asset,E *0 as stated in "anz, Multaqi etc. Even if the ticket is assumed to be an asset, the sale would include numerous void conditions whereas the rophet has prohibited the sale with condition.** (ence, the contract would be void for many causes, and every void is a distinct haram. On the one hand, this chain of malfeasance, evil and haram will engage buyers in se)uence. On the other hand, neither the species of the =0, dirham,worth item is determinate nor will it be given for the act of the buyer only. (is action will finish when the five tickets #sent to him% have been sold whereas the entitlement to the item, under the promise will materiali+e when the five tickets are sold and the five dirhams along with five dirhams each from the five new participants are received #that each of them would get from sales of their five tickets%. This will not be the act of the person becoming entitled. <esultantly, if it were an i&ara, it would be void for this reason and also vitiate the sale based on the i&ara. In reality, the scheme is merely an attraction for greed and falls in the category of bribery #rish-at%.
5

!ahih Muslim, 2ook3 Iman, vol. *, p. 50, @arachi3 9adimi @utubkhanaG Musnad of Imam $hmad bin (anbal, -usnad $bi (urera, vol. /, p. 4*5, 2eirut3 !ar,ul 8ikrG !unan A)i 'a-ud, 2ook3 "ales, vol. /, p. *==, Lahore3 $ftab $lam ress. M "anz-ul 0mmal, (adith .C0/, vol. 4, p. A0, 2eirut3 -usat,ur <isala. . *ahr-ur Raiq, 2ook3 "ales, vol. C, p. /CA, @arachi3 (.-. "aeed N 'ompany. *0 Multaqi-ul A)har, 2ook3 "ales, vol. /, p. C, 2eirut3 -ussat,ur <isala. ** +as)-ur Ra(a, 2ook3 "ales, vol. 4, p. *5, <iyad3 $l,-aktabat,ul Islamiat,ur <iyad,ush "haikh.

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In sum, the evil of this compounded haram deal are numerous, and the most severe #sin% is the wording, DBe work faithfully with you.E 'alling such severely sinful acts and the stratagem DfaithfulE is a much severe sin than the sins actually involved where the advertiser is a -uslim. 2ecause then it would not only be an ac)uisition of haram #wealth% but also a praise of haram. Be seek protection of $llah from such evils. $nd $llah the Exalted knows better.

*onclusion
The )uestioned scheme is illegal according to the rules of "haria, and ac)uisition of a product or service is also not lawful by participating is such a scheme. "ub&ect matter of a sale must be an asset whereas the ticket used in the scheme is not an asset hence, the transaction will be void. The scheme will also be unlawful because it contains various vitiating conditions. It cannot be a valid i&ara too. Therefore, the contract underlying the scheme is neither a sale contract nor any other contract permitted by "haria. The scheme is even worse than a lottery because each participant would not only risk his own wealth but would also engage others posing a great risk to the wealth of many people including his friends, relatives, visitors. $hmad <a+a has presented six $yahs of the (oly 9uran, three (adiths and three citations from books of 8i)h to support the ruling. This methodology not only shows his excellent command over essential sciences for a "haria expert but also demonstrates his scientific approach to untangle complex problems of the modern age. (is fatwa provides clear guideline to determine the ruling of "haria about similar schemes. The fatwa also confirms his standing in the class of ulema who solved new problems of their times through foresight in the sciences of the 9uran, (adith and 8i)h, without knocking at the closed door of i.tihad. (e has also indirectly pointed to the issues of market saturation given the large number of salespersons, the pyramid structure hidden behind the selling strategy, and the moral and ethical ha+ards which are the conse)uences of such schemes. $dvent of computers has given such schemes a new shape. Instead of a ticket, as in the )uestioned scheme, an online software course or account is offered to an incoming participant. Likewise, the advertisement has adopted the channels of email, chain letters and even "hort -essaging "ervice #"-"%. (owever, the ruling of "haria remains clear for such schemes from the fatwa of $hmad <a+a. There is a need to populari+e his ruling about these schemes so that -uslims of different countries though

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out the world benefit from the in&unction of "haria of pyramid, pon+i and fraudulent multi,level marketing schemes.

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