This week, The Ministry of Civil Affairs released an alert regarding Shanxinhui, a charity supposedly utilizing pyramid-scheme business models to misappropriate funds. The announcement by the Ministry read, “ALERT: National crackdown on Shanxinhui. Please exercise caution!” The Ponzi-scheme reminiscent business approach that the charity has taken allowed them to trick people across China, but the Ministry states that this will not continue. According to reports, departments across the nation have taken steps to put a halt to the charity’s activities. Below is CDB’s abridged translation of a report on the incident.
Leaders of Liaoning’s illegal pyramid-scheme management organization have begun an investigation of Shanxinhui’s charity operations after they received a tip-off from a certain source that other municipal governments in northeast and southwest China were beginning to crack down on the charity. In Guizhou province, the Liupanshui’s municipal government website posted an announcement about the incident, urging those involved with the charity to conduct reports about the incident instead of losing money and becoming victims. Liupanshui’s municipal website openly denounced the charity as having carried out “pyramid-scheme activities,” while another municipal website in Liaoning directly called the charity a “Ponzi scheme.”
What these towns in Liaoning and Guizhou have in common is that they are all second- or third-tier cities, places where it is easier to trick people in the name of charity. In comparison, it would be more difficult for a charity like Shanxinhui to swindle people in first-tier cities in Beijing or Shanghai. Estimates reveal that by May of 2016, the charity had already attracted around one hundred thousand members, most of whom come from low-income backgrounds.
Worst of all, the charity’s slogan claimed to work towards poverty alleviation and wealth equality for all. In the process of setting up their pyramid-scheme, Shanxinhui registered various companies across the country. What these companies all had in common however, is that they did not conduct capital verification upon registering, which constituted as false investment behavior. Moreover, representatives of these registered companies were working on charity business development and financial management, both of which were not in their legal scope of operations.
Early reports estimate that Shanxinhui made away with hundreds of thousands of yuan that investors will never be able to recover. Officials in cities across China are reminding Shanxinhui victims to hold onto any evidence they may have and to seek legal help in confronting the charity.