China plans to crack down on pyramid schemes and illegal banking services more severely as the nation's senior legislators on Monday began to discuss a law draft targeting such scams.

The draft of an amendment to the Criminal Law more strictly defines what constitutes a pyramid scheme. This definition will enable law enforcers to deal with money-defrauding activities, according to a bi-monthly session of the National People's Congress (NPC) Standing Committee, the country's top legislature.

The draft said pyramid selling should be defined as deeds to "defraud scheme participants of money" by organizing business activities in the name of selling commodities or providing services.

Pyramid selling often involves the exchange of money for enrolling other people into the scheme. People who want to participate are required to pay fees or to buy products or services in exchange for membership. They are then promised profits for recruiting more. Eventually, multi-level model is formed.

Although pyramid selling is sometimes disguised as a smart marketing method, most participants at the bottom of the pyramid often end up losing money for not being able to recruit more members.

In China, such scams have led to social and security problems including robbery, kidnapping, theft and illegal detention.

The State Council, China's Cabinet, in 2005 issued regulations to ban pyramid selling. However, law enforcement departments said the regulations were not as powerful as a law to punish scam organizers.

According to the draft amendment, the penalty on "serious cases" should be a minimum of five years in prison, in addition to fines.

Also under the revised amendment, financial services involving securities deals, futures and insurance products without official permits will be illegal.

Transfers of large amounts of money between unauthorized financial institutes -- such as pawn shops and financial consulting firms -- will also be banned.

The Criminal Law's previous version did not specify these activities as illegal, but they have disturbed the government's management of financial services.

Between September 2007 and September 2008, bank authorities and the police uncovered 42 cases of so-called "underground banks," which in total involved 84.4 billion yuan (US$12.3 billion).

(Xinhua News Agency December 23, 2008)