But this type of network always breaks down when the pool of new investors dries up. People joining the schemes will then lose their money.

Women are particularly vulnerable as there are a number of schemes targeted at them, such as "Women Empowering Women", or "Hearts".

Announcing the plan to outlaw these schemes, Tessa Jowell, Secretary of State for Culture, Media and Sport says: "These schemes are an absolute menace. The forthcoming Gambling Bill will make it illegal to organise, encourage others to participate in or receive benefits from such damaging gifting schemes. These laws will do more to truly empower women than these questionable pyramid cons have ever done."

Minister for Women Patricia Hewitt says: "Too many women have already been lured in by 'gifting' schemes and have lost thousands of pounds. It is good news for women that these rip-off ploys will be banned and that anyone caught trying to set one up could face a hefty fine and prison."

People who set up or profit from chain gifting schemes will face up to six months in jail or fines of £5,000.  Some could be both jailed and fined.

Today's announcement also includes plans to ensure that there is a clear distinction between lotteries and prize competitions. The key aim will be to protect lotteries that collect money for good causes, such as the National Lottery and charity lotteries. Where it is clear that payment is required for entry and the result depends completely on chance, good cause lotteries alone will be allowed. Purely commercial lotteries will be deemed unlawful. 

If a competition is run for gain then it must involve a degree of skill or knowledge to secure a prize, or offer a genuine free entry route to participants. Many prize competitions and prize draws currently employ so-called free entry routes. But in reality they do not involve the exercise of genuine skill but do require the participant to make a payment, such as by a premium rate telephone call. 

The Government will make these changes in its planned Gambling Bill. The new Gambling Commission, which the Bill will set up, will have responsibility for enforcing these laws.

 

 

1. The announcement was made via a written statement to the House of Commons.

2. Chain gifting schemes are like a chain letter, only with money. They ask participants to give money to another person in the scheme, whose name is at the top of a list, in order to get money back from other scheme members. The participant takes that person's name off the list and adds their own at the bottom, hoping to progress to the top of the list so that others will pay them.   
But that will only happen if the participant recruits others to join the scheme as well.  Generally, participants are asked to recruit two or more new members, all of whom will themselves be expecting to make money out of the scheme.     
Chain gifting schemes are always presented as money-makers, and the people who start them off and organise them can make money. But most people who go in for them lose out heavily. For everyone to make money, there would need to be an infinite number of new members – and that is impossible.

3. The Department for Culture, Media and Sport ran a public consultation exercise on the law on prize competitions last year. It issued a consultation letter in May 2002, seeking replies by 31st August. There were 70 substantive responses. Most of these came from interests in the media, product promotion and other advertising, and charity and other lotteries.

4. The Government will proceed with its Bill to reform the regulation of gambling – including lotteries and prize competitions – as soon as Parliamentary time permits.  It plans to lay a draft of the Bill before Parliament for formal pre-legislative scrutiny in the Autumn.

5. The Gambling Bill will propose the creation of a new body – the Gambling Commission – to act as the regulator of gambling throughout Great Britain. The Commission will :