The journalistic investigation into the activities of Dubai Investment, which raised suspicions that the company could be a veiled pyramid scheme, has highlighted the deficiencies of Bulgaria’s legislation in controlling and fighting white-collar crime. Although dozens of job adverts on Bulgarian classifieds websites can be traced back at least two months, it was not until Dnevnik daily ran a story about the company on August 25 that Bulgarian institutions launched a probe into its activity.

Dubai Investment claims that it would start issuing fixed-rate loans with an annual interest rate of 6.9 per cent in October and is looking to hire credit consultants for its operations in the country. Prospective consultants have to pay a fee of 120 leva and are promised commissions from future activity, and also if they recruit new representatives. The advertised interest rate of the future loans is significantly lower than the annual rates charged by Bulgarian banks, which fall in the 10-12 per cent range. The same adverts, quoted by Dnevnik, said that loan applicants would not be asked to show any proof creditworthiness or mortgage properties.

Doubts about the sustainability of such a business and the uncertainty surrounding the company’s exact terms of service, as well as the exclusive focus on recruitment, tick the boxes of a pyramid scheme, although the company says that it is operating as a multi-level marketing (MLM) firm. The difference between the two is that in a MLM endeavour, recruits sell a product with an inherent value, while pyramids rely solely on the money “invested” by the latest recruits to generate profits for individuals higher up in the hierarchy. In Dubai Investment’s case, the only product being sold right now is registration as a credit consultant, which has no inherent value.

Dubai Investment operates, according to Dnevnik, in the Czech Republic, Slovakia, Poland, Hungary and Ukraine through its Czech unit CFU Services. A Bulgarian-language version of the website cannot be accessed without a login and password. A different Bulgarian website, whose address was included in several classifieds for further reading, could not be accessed on August 26, a day after Dnevnik ran the story. Other classifieds, ranging from Montana to Yambol and from Stara Zagora to Plovdiv, listed the contact information of consultants already in the network, but no direct link to the company itself. Registration data for new recruits is sent through a text message from phone numbers that no one answers when called, Dnevnik said, but the newspaper estimated the number of people in the Dubai Investment network at several hundred.

After Dnevnik published the story, Bulgaria’s Financial Supervision Commission (FSC) said that it had launched an investigation, although it was not aimed at Dubai Investment directly; rather, it was meant to ascertain whether the company’s operations fell into the regulatory scope of the FSC. Bulgarian National Bank said in a statement that it had no regulatory powers over the company, since Dubai Investment did not collect deposits, which is the exclusive prerogative of banks. Furthermore, as a non-banking financial institution registered in another European Union member state, Dubai Investment does not require Bulgarian registration.

The latest institution to launch its probe was the Commission for Protection of Competition (CPC). CPC is the regulatory body overseeing the implementation of the Consumer Protection Act and the Consumer Lending Act, which require all companies that give loans to meet a number of conditions that will ensure that consumers have full information about lending products. “We are verifying the adverts and the data in this case, but our first impression is that the company is using unfair practices and is misleading consumers,” Dnevnik quoted CPC chairperson Damyan Lazarov as saying.

Thousands of Bulgarians lost their savings in get-rich-quick pyramid schemes in the 1990s, some of which resulted in successful prosecutions, although others did not. Among the few pyramid scheme masterminds that did serve prison time was Canadian citizen Michael Kapoustin, released in July, five years before the end of his 17-year sentence. Although he denied the charges, Kapoustin was found guilty of setting up a pyramid scheme, offering investments in unsponsored depository receipts (UDR) and American depository receipt (ADR) in his company LifeChoice. He fled Bulgaria in 1996 but was extradited from Germany at the request of Bulgarian authorities. In one of the longest trials in Bulgaria’s post-communist history, he was found to have embezzled more than $4 million from 2800 people.