Evelyn Pringle January 10, 2005
Apparently, the IRS has decided that Amway distributors are having too much fun listening to tapes, reading books, and attending the same training seminars year after year after year.
In July, 2004, the United States Tax Court issued a ruling that barred 2 distributors from claiming business related tax deductions for the cost of these items.
The husband and wife distributors, Randall and Kay Ollett, have been in Amway since 1996, and have listed thousands of dollars in Amway-related business expenses on their tax returns each and every year, even though they have never showed one dime of profit.
The Tax Court has evidently decided that partying with the Amway crowd is no longer going to be funded at the tax payers expense, because when it was asked to determine whether the Olletts engaged in their Amway activity with the intent of making a profit in 1999 and 2000, it concluded that the Olletts did not have an actual and honest objective of making a profit from their distributorship, and therefore, could not deduct Amway-related expenses on their Federal Tax Return.
Olletts Kept Their Day Jobs
The Olletts began to operate a distributorship under the name of Ollett Enterprises in 1996. They were recruited into Amway by upline sponsors, David and Carole Marzke. However, both couples were ultimately members of a larger distributor network established by Bill Florence, known as the Florence organization.
The Olletts filed joint Federal income tax returns for 1999 and 2000. On their 1999 return, they listed Amway business expenses in the amount of $17,384, and a net loss of income of $1,450; in 2000 they listed expenses of $23,001, and a net loss of $3,235.
In addition to being Amway distributors, the Olletts remained employed in their regular jobs, with a combined income of $96,389 in 1999 and $98,949 in 2000. Until the court determined otherwise in 2004, they had been able to use their losses from Amway to offset the income they earned from their regular employment.
Olletts Become Their Own Best Customers
A distributor earns money by selling products and recruiting new downline distributors. Under Amway’s system, a distributor earns a performance bonus based not only on the sales volume generated by the distributor himself, but also on the sales volume generated by the distributor’s downline.
Generally speaking, the only distributors who earn large bonuses for the sale of products, are those who have built-up a large network of downline distributors. (For details on Amway's compensation method, go to the web site of Eric Scheileber, author of Merchant's of Deception, www.merchantsofdeception.com)
Like just about every other distributor in Amway, the Olletts focused most of their efforts on building their downline rather than developing a customer base and selling products. They testified that they spent 15 to 20 hours a week “prospecting, contacting, and showing the plan, and attending local meetings."
After 3 or 4 years, the Olletts still only had 5 distributors in their downline. Yet in the words of a true Amway diehard, they testified that they believed the key to success was “to meet [people] * * * and get them into this business” and that “the profit comes when you have enough people, when you’ve registered enough people."
As for selling efforts, Kay claimed she regularly spoke to prospects about ordering products. But when it came time to get honest about actual sales, she had to admit that 70-75% of the sales were for products they themselves purchased for their own use.
The Olletts became their own best customers. They purchased every kind of product imaginable, including soap, shampoo, deodorant, dish-washing liquid, detergent, facial products and a water treatment system. They even ordered food items such as health food bars and energy drinks, and clothing such as men’s socks, slacks, and sport shirts.
IRS Bans Tax Payer Funded Amway Roadtrips
For 1999 and 2000, the Olletts claimed $15,122 in tax deductions for travel expenses to attend training seminars hosted by the Florence organization. They claimed that they attended the functions in order to learn how to build a successful distributor network.
They testified that by 1999 they had decided they were going to spend “whatever it took to go to those meetings." And they meant it, because in 1999, they listed a deduction of $6000 for a Cadillac to drive to functions because Kay didn't like to fly. They also claimed travel expenses for hotels, meals, and the cost of tickets for the events.
In 1999, they listed expenses for seminars like: Dream Weekend in Birmingham, AL; Florence Spring Leadership Conference in Chattanooga, TN; Weekend of the Diamonds in Charlotte, NC; Florence Family Reunion in Tampa City, FL; a training on cosmetics sponsored by Florence Enterprises in Columbia, SC; a free enterprise celebration in St Louis, MO; and Florence Fall Leadership conference in Knoxville, TN.
In addition, the Olletts listed travel expenses for trips allegedly made to “show the plan” to prospective recruits, even though they enlisted no recruits during any of the trips.
They continued their business-related travel in 2000 and attended training seminars in Atlanta, GA; Knoxville, TN; Greensboro, NC; a Renaissance hotel at an unspecified location; Columbia, SC; and a seminar in Atlanta, GA a second time.
The Olletts continued to travel all over the country to attend the training seminars long after it became evident that the training had not improved their ability to sell products or recruit their own network of distributors. The court noted that losses incurred in the initial stages of a business may be expected, but losses that continue without explanation beyond that period typically indicate a lack of a profit objective.
The court wanted to know why the trips were always to events where the Olletts met up with the same people year after year, and why they still found it necessary to attend so many training seminars during their third and fourth years in Amway. It decided the answer was that the Olletts were enjoying the social aspects of the trips, and using Amway as a device to deduct personal expenses as business expenses.
For instance, the court noted that on two occasions, the Olletts drove to Champaign, Ill, where their daughter attended college and tried to claim the trips as a business expense: Randall testified: "The fact that I was going to use my business car to transport [personal] effects down there meant I made sure that I would have somebody to show the plan to."
They again tried to claim a deduction in 1999, for a trip they took to Chattanooga, TN, where their parents lived. Randall testified that the expense was justified: "Because I used my business car, I made sure that I prospected and tried to--made contacts with people in Chattanooga." The court didn't buy it.
In 1999 and 2000, the Olletts also listed a $4,081 deduction for books, tapes, and other materials. They claimed these items were part of Amway’s training program and that they were instructed to purchase them by their upline.
The Olletts offered no indication of how long they expected the IRS to allow them to claim tax deductions for a business that was clearly never going to turn a profit. When the court asked Randall how he intended to turn their losses into profits, his response was basically keep on truckin: "The only way I can solve it is to talk to more people. And there, in essence, is the challenge that I have, which is finding those people," he said.
What Constitutes A Legitimate Business-Related Expense?
Under rules in the Federal Tax Code, Section 162 provides that a taxpayer who is carrying on a trade or business may deduct ordinary and necessary expenses incurred in connection with the operation of the business. The Olletts had the burden of proving entitlement to a business expense deduction. The deductibility of their Amway expenses depended on whether their activity was engaged in for profit.
In determining whether an activity is engaged in for profit, Section 183 provides a list of factors for the court to consider: (1) The manner in which the taxpayer carried on the activity; (2) the expertise of the taxpayer or his advisers; (3) the time and effort expended by the taxpayer in carrying on the activity; (4) the expectation that the assets used in the activity may appreciate in value; (5) the success of the taxpayer in carrying on other similar or dissimilar activities; (6) the taxpayer’s history of income or losses with respect to the activity; (7) the amount of occasional profits, if any, which are earned; (8) the financial status of the taxpayer; and (9) elements of personal pleasure or recreation.
After considering these factors, the court determined that the Olletts did not have an actual and honest objective of making a profit, in part because: (1) they did not have any sales experience prior to becoming distributors and yet they relied solely on their upline for advice and training; (2) they did not seek independent business advice at the beginning of their venture to assess its potential for success; and (3) they did not seek advice on turning around years of operating losses.
But most importantly, the court said, the Olletts reported no significant revenue from their Amway activity and no reason for them to believe they ever were going to have any significant revenue from this activity.
Pay The Tab -- The Party's Over
In its final ruling, the court determined that the Olletts "repeatedly used their Amway activity as an attempt to mask obviously personal expenses as deductible business expenses. In effect they attempted to live a deductible lifestyle. The conferences at times of the year associated with vacation and recreation are consistent with this same mindset."
Because of the manner in which the Olletts carried on their Amway activity, the lack of revenue, and the size and persistence of the continuing losses, the court ruled that their activity was not carried on for profit, and therefore, they could not deduct their losses from that activity from income earned through their regular employment
This ruling may turn out to be a blessing in disguise for the millions of distributors who only survive in Amway because they can deduct their Amway losses (aka expenses) from the income earned in their real jobs. If the IRS bars these deductions once and for all, the victims of Amway will be forced to face fact that they will never make a dime off this pyramid scheme.
Showing posts with label 2005. Show all posts
Showing posts with label 2005. Show all posts
Wednesday, August 4, 2010
Amway - Modern Day Teflon Don
Evelyn Pringle January 13, 2005
The paperwork involved in the endless stream of lawsuits filed against Amway and its Kingpin distributors over the past 2 decades would probably fill a 10 story office building. The complaints and discovery documents filed in these actions, which Amway has fought so hard to keep hidden, outline 20 years of fraud perpetrated on millions of unwitting and vulnerable recruits all over the world.
There have been so many suits filed, that the company's attorneys can't even come up with an exact number. In 1985, Amway Diamond Rick Setzer sued Amway. During the discovery process, in a request for production of documents, Setzer's attorneys asked for:
"Copies of all lawsuits filed against Amway corporation and or Richard DeVos and or Jay VanAndel for the past 10 years."
This was Amway's response, in part:
"The request imposes an undue burden in that the number of lawsuits filed against Amway Corporation and/or Richard DeVos and/or Jay Van Andel for the past ten years represents literally thousands of lawsuits, with the file on each lawsuit varying from several pages to entire rooms filled with documentation." Affidavit in Support of Defendants' Objections to Plaintiffs' First Request For Production of Documents.
Even if "thousands" only means 2000, over 10 years that means 200 law suits were filed each year. That number is astronomical when you consider that the number of distributors who actually go so far as to file a lawsuit is but a small percentage of the actual number of distributors who fall victim to Amway each year.
If people took the time to read the records contained in these lawsuits, they would find a common theme: Amway is a pyramid scheme; the tools business is a pyramid scheme; recruits are lured in by exaggerated income claims and flamboyant displays of wealth; retail selling is ignored in favor of self-consumption of Amway products; distributors and potential distributors are pressured to buy tools and tickets to motivational rallies.
Founder Jay Van Andel's former speechwriter, Don Gregory, described how Amway preys on new recruits. "Recruits are brainwashed into spending a fortune on peripherals while consuming Amway products. They either lose their shirts or begin making money by getting enough people underneath to do the same," he said.
Eric Scheibeler is a former Amway insider turned whistleblower and FBI witness who has written a book about his experiences in Amway, entitled Merchants of Deception. (A free advance copy of the book, Merchant's of Deception, may be downloaded for a limited time at www.merchantsofdeception.com).
According to Eric, the 1970 FTC ruling requires that the majority of products going through a MLM must be sold to an end consumer (a non distributor) in order to not be considered an illegal pyramid scheme. This is referred to as the retail sales rule. Yet Eric says that he and his wife were taught to build a business that relied almost entirely on self consumption, which he has since learned is illegal.
A prime example of this excessive sales for self-consumption is still going on today, 30 years after the FTC issued its ruling, is the July, 2004, IRS case against Amway distributors, Kay and Randall Ollett. When testifying, Kay told the court that about 70-75% of their sales were a result of products purchased by her and her husband for their own use. The Olletts purchased almost all of their household products through their distributorship, including soap, shampoo, deodorant, dish-washing liquid, detergent, facial products, food items such as health food bars and energy drinks, a water treatment system, and even clothing such as men’s socks, slacks, and sport shirts.
The Tax Court ruled against the Olletts and would not allow the couple to claim tax deductions for expenses related to their Amway activity.
Eric also explains how the "tools" business of selling books, tapes, and videos is also an illegal pyramid because it is a closed system and no product is ever sold at retail to a consumer outside the group. Which means recruits unknowingly become involved in not one, but two illegal pyramids, when they join Amway, according to Eric.
The downline distributors are never told that their upline is making as much or more from the sale of tools as they are from the sale of products. The distributors assume that the lifestyles of their upline are attributable to their Amway businesses, and buy more tools hoping to achieve the same success.
So it becomes a never-ending cycle: the more tools the downline distributors buy, the more successful upline distributors appear; which in turn motivates downline distributors to buy more tools. Over 99% of low level distributors eventually quit, or go broke trying to hang on long enough reach a level where they too can get a cut of the tools profits.
In the 1998 New Hampshire case of Lavoie v Yager, Ruby directs alleged that their upline cut them off from the tools profits, and also alleged unfair trade practices, illegal chain distribution scheme, interference with advantageous relations, securities fraud, under the RICO Act. The complaint in this case is unique in that it contains details on the inner working of Kingpin Dexter Yager's system, and it also follows the progression of a distributor through the system.
Another wealth of insider information can be found in the 1998 Morrison v Amway suit. 29 distributors filed a lawsuit and revealed many of Amway's best-kept secrets. The suit alleges that the distributors make the majority of their income selling tools rather than products and that distributors in the downlines are coerced into spending money on tapes and functions by being told that they have no chance of success unless they do. It also alleges that tools profits are used to control and coerce downline distributors, and that those who ask questions or refuse to play the game risk having their businesses destroyed
The 1998 Vernon v Amway case seems to substantiate Eric Scheileber's claim that Amway recruits unknowingly become part of 2 illegal schemes when they join Amway. This case sought damages incurred by: fraudulent inducement in causing plaintiffs to participate in an illegal scheme to purchase and sell motivational tapes and tickets to Amway events; and conspiracy to fraudulently induce them to enter into an agreement to execute what they believed to be an Amway Sales Plan.
Teflon Amway
In addition to all the schemes described in the 1000s of complaints filed in civil suits, Amway’s long history of illegal activity is also well documented in criminal court files. In fact, one particularly scathing report compared the Amway business structure to the business structure of organized crime groups and found them nearly identical.
The report was submitted by an expert witness in a lawsuit filed back 1998, but Amway was able to keep it hidden until early 2004 when it suddenly began showing up on the internet. Here's what Amway does not want you to know. After an in-depth study of Amway business practices, the nation’s foremost organized crime expert, Professor G Robert Blakey, reached the following conclusion:
“It is my opinion that the Amway business is run in a manner that is parallel to that of major organized crime groups, in particular the Mafia. The structure and function of major organized crime groups, generally consisting of associated enterprises engaging in patterns of legal and illegal activity, was the prototype forming the basis for federal and state racketeering legislation that I have been involved in drafting. The same structure and function, with associated enterprises engaging in patterns of legal and illegal activity, is found in the Amway business.”
It should be noted that Blakey has impeccable credentials as an authority on organized crime. His legislative drafting experience resulted in the passage of the Organized Crime Control Act of 1970 (RICO). He was also directly involved in drafting and implementing RICO-type legislation in 22 of the more than 30 states that enacted racketeering laws.
Wisconsin Attorney General Takes On Amway
As far back as the early 1980s, Amway was warned that the media and law enforcement agents were monitoring its conduct in a number of states. One internal memo that surfaced in a lawsuit, dated December, 1982, to Jay Van Andel, from Casey Wondergen, was titled: Subject: Distributor Activities Drawing Legal and Media Heat On Amway.
The memo specifically notified Amway leaders that the company was being investigated by Attorneys General in Wisconsin, California, Oregon, Minnesota, New York, and possibly New Jersey and Connecticut.
The state with the most active investigation was Wisconsin. The attorney general’s office conducted an in-depth investigation and determined that Amway: (1) Did not accurately portray the income experience of persons who had participated in the business under the current Compensation Plan, and (2) Did not indicate the percentage of persons who had actually achieved the earnings levels being used as illustrations, and therefore, Amway had violated Wisconsin’s trade practices law.
The attorney general determined that the actual average annual adjusted gross income for each of the approximately 20,000 Wisconsin distributorships was $267, or 2.2% of the projected $12,000 income. During 1979-1980, only about 139, or less than 1%, had an adjusted gross income in excess of $12,000. In fact, the average net income (after expenses) was a net loss of $918. (State of Wisconsin v Amway Corporation et al, 7/82).
In response to his findings, the attorney general obtained a consent agreement requiring Amway to disclose actual sales and actual income or profit experiences of active Representatives when it used hypothetical examples. The agreement required Amway to disclose the percentage of Representatives who actually had achieved any level of performance which was being used for illustrative purposes.
Amway was further required to disclose the percentage of active Representatives versus those who had become inactive. A number of distributors were also fined for illegal misrepresentation of income.
FTC Takes On Amway
In 1979, the FTC rendered a determination in response to charges that Amway's claims about the amount of money distributors earned had the capacity to deceive potential distributors. As a result, an order was issued that prohibited Amway from misrepresenting the amount of profit, earnings or sales its distributors were likely to achieve. The order also required that whenever Amway made above-average earnings or sales claims, it had to also disclose clearly and conspicuously either the average earnings of all distributors or the percent of distributors who actually earn the amount claimed.
In 1983, the FTC took Amway back to court after it determined that the company had violated the 1979 order by placing an ad in major newspapers that represented the earnings of distributors without the required disclosures. The FTC complaint charged that the ad contained earnings and sales claims that were higher than the average income earned in any recent year. In addition, it charged Amway with violating the 1979 order for failing to include a clear and conspicuous disclosures in the ad of the average earnings or sales of all distributors or the percent of distributors who actually achieved the results claimed. Amway was $100,000.
Canada Takes On Amway
In 1983, Amway was involved in another criminal case in Canada. Canadian authorities charged that Amway set up dummy companies and created fictitious trade between them to get customs to accept a lower value for goods. The company was charged with evading duties and taxes by using false invoices to misrepresent the value of products it shipped across the border.
Key documents used in the fraud were provided to Canadian authorities by whistle blower, Dorothy Edgar, who was an executive secretary to Edward Engel, Amway's then vice-president of finance. Engel learned of the fraud in late 1977, and urged Amway to disclose it to Revenue Canada. When Amway refused, Engel and Edgar resigned.
In response to the charges, Amway and Amway Canada Ltd agreed to plead guilty to charges of defrauding the Canadian Government and were fined $20 million. As part of the plea bargain, Amway was required to sign a statement acknowledging that the allegations by the Canadian government were "substantially correct.” All total, Canada billed Amway $148 million in back customs, duties, taxes and penalties.
In 1989, the Canadian authorities took Amway back to court to collect the back duties, fees, and fines that the company had agreed to pay in the 1983 settlement agreement. Although the Canadian department of Revenue claimed Amway owed $148 million, the case was finally settled for $45 million.
Eight years later in 1996, the Canadian government took on Amway again to challenged its attempt to claim a tax deduction for fines it paid for the 1983 criminal conviction on tax fraud. The court ruled that Amway could not treat the fines paid for tax evasion as a tax deductible expense.
When considering the validity of the 20-year stream of lawsuits against Amway, a person surely has to wonder why thousands upon thousands of people would make up the same lie.
The paperwork involved in the endless stream of lawsuits filed against Amway and its Kingpin distributors over the past 2 decades would probably fill a 10 story office building. The complaints and discovery documents filed in these actions, which Amway has fought so hard to keep hidden, outline 20 years of fraud perpetrated on millions of unwitting and vulnerable recruits all over the world.
There have been so many suits filed, that the company's attorneys can't even come up with an exact number. In 1985, Amway Diamond Rick Setzer sued Amway. During the discovery process, in a request for production of documents, Setzer's attorneys asked for:
"Copies of all lawsuits filed against Amway corporation and or Richard DeVos and or Jay VanAndel for the past 10 years."
This was Amway's response, in part:
"The request imposes an undue burden in that the number of lawsuits filed against Amway Corporation and/or Richard DeVos and/or Jay Van Andel for the past ten years represents literally thousands of lawsuits, with the file on each lawsuit varying from several pages to entire rooms filled with documentation." Affidavit in Support of Defendants' Objections to Plaintiffs' First Request For Production of Documents.
Even if "thousands" only means 2000, over 10 years that means 200 law suits were filed each year. That number is astronomical when you consider that the number of distributors who actually go so far as to file a lawsuit is but a small percentage of the actual number of distributors who fall victim to Amway each year.
If people took the time to read the records contained in these lawsuits, they would find a common theme: Amway is a pyramid scheme; the tools business is a pyramid scheme; recruits are lured in by exaggerated income claims and flamboyant displays of wealth; retail selling is ignored in favor of self-consumption of Amway products; distributors and potential distributors are pressured to buy tools and tickets to motivational rallies.
Founder Jay Van Andel's former speechwriter, Don Gregory, described how Amway preys on new recruits. "Recruits are brainwashed into spending a fortune on peripherals while consuming Amway products. They either lose their shirts or begin making money by getting enough people underneath to do the same," he said.
Eric Scheibeler is a former Amway insider turned whistleblower and FBI witness who has written a book about his experiences in Amway, entitled Merchants of Deception. (A free advance copy of the book, Merchant's of Deception, may be downloaded for a limited time at www.merchantsofdeception.com).
According to Eric, the 1970 FTC ruling requires that the majority of products going through a MLM must be sold to an end consumer (a non distributor) in order to not be considered an illegal pyramid scheme. This is referred to as the retail sales rule. Yet Eric says that he and his wife were taught to build a business that relied almost entirely on self consumption, which he has since learned is illegal.
A prime example of this excessive sales for self-consumption is still going on today, 30 years after the FTC issued its ruling, is the July, 2004, IRS case against Amway distributors, Kay and Randall Ollett. When testifying, Kay told the court that about 70-75% of their sales were a result of products purchased by her and her husband for their own use. The Olletts purchased almost all of their household products through their distributorship, including soap, shampoo, deodorant, dish-washing liquid, detergent, facial products, food items such as health food bars and energy drinks, a water treatment system, and even clothing such as men’s socks, slacks, and sport shirts.
The Tax Court ruled against the Olletts and would not allow the couple to claim tax deductions for expenses related to their Amway activity.
Eric also explains how the "tools" business of selling books, tapes, and videos is also an illegal pyramid because it is a closed system and no product is ever sold at retail to a consumer outside the group. Which means recruits unknowingly become involved in not one, but two illegal pyramids, when they join Amway, according to Eric.
The downline distributors are never told that their upline is making as much or more from the sale of tools as they are from the sale of products. The distributors assume that the lifestyles of their upline are attributable to their Amway businesses, and buy more tools hoping to achieve the same success.
So it becomes a never-ending cycle: the more tools the downline distributors buy, the more successful upline distributors appear; which in turn motivates downline distributors to buy more tools. Over 99% of low level distributors eventually quit, or go broke trying to hang on long enough reach a level where they too can get a cut of the tools profits.
In the 1998 New Hampshire case of Lavoie v Yager, Ruby directs alleged that their upline cut them off from the tools profits, and also alleged unfair trade practices, illegal chain distribution scheme, interference with advantageous relations, securities fraud, under the RICO Act. The complaint in this case is unique in that it contains details on the inner working of Kingpin Dexter Yager's system, and it also follows the progression of a distributor through the system.
Another wealth of insider information can be found in the 1998 Morrison v Amway suit. 29 distributors filed a lawsuit and revealed many of Amway's best-kept secrets. The suit alleges that the distributors make the majority of their income selling tools rather than products and that distributors in the downlines are coerced into spending money on tapes and functions by being told that they have no chance of success unless they do. It also alleges that tools profits are used to control and coerce downline distributors, and that those who ask questions or refuse to play the game risk having their businesses destroyed
The 1998 Vernon v Amway case seems to substantiate Eric Scheileber's claim that Amway recruits unknowingly become part of 2 illegal schemes when they join Amway. This case sought damages incurred by: fraudulent inducement in causing plaintiffs to participate in an illegal scheme to purchase and sell motivational tapes and tickets to Amway events; and conspiracy to fraudulently induce them to enter into an agreement to execute what they believed to be an Amway Sales Plan.
Teflon Amway
In addition to all the schemes described in the 1000s of complaints filed in civil suits, Amway’s long history of illegal activity is also well documented in criminal court files. In fact, one particularly scathing report compared the Amway business structure to the business structure of organized crime groups and found them nearly identical.
The report was submitted by an expert witness in a lawsuit filed back 1998, but Amway was able to keep it hidden until early 2004 when it suddenly began showing up on the internet. Here's what Amway does not want you to know. After an in-depth study of Amway business practices, the nation’s foremost organized crime expert, Professor G Robert Blakey, reached the following conclusion:
“It is my opinion that the Amway business is run in a manner that is parallel to that of major organized crime groups, in particular the Mafia. The structure and function of major organized crime groups, generally consisting of associated enterprises engaging in patterns of legal and illegal activity, was the prototype forming the basis for federal and state racketeering legislation that I have been involved in drafting. The same structure and function, with associated enterprises engaging in patterns of legal and illegal activity, is found in the Amway business.”
It should be noted that Blakey has impeccable credentials as an authority on organized crime. His legislative drafting experience resulted in the passage of the Organized Crime Control Act of 1970 (RICO). He was also directly involved in drafting and implementing RICO-type legislation in 22 of the more than 30 states that enacted racketeering laws.
Wisconsin Attorney General Takes On Amway
As far back as the early 1980s, Amway was warned that the media and law enforcement agents were monitoring its conduct in a number of states. One internal memo that surfaced in a lawsuit, dated December, 1982, to Jay Van Andel, from Casey Wondergen, was titled: Subject: Distributor Activities Drawing Legal and Media Heat On Amway.
The memo specifically notified Amway leaders that the company was being investigated by Attorneys General in Wisconsin, California, Oregon, Minnesota, New York, and possibly New Jersey and Connecticut.
The state with the most active investigation was Wisconsin. The attorney general’s office conducted an in-depth investigation and determined that Amway: (1) Did not accurately portray the income experience of persons who had participated in the business under the current Compensation Plan, and (2) Did not indicate the percentage of persons who had actually achieved the earnings levels being used as illustrations, and therefore, Amway had violated Wisconsin’s trade practices law.
The attorney general determined that the actual average annual adjusted gross income for each of the approximately 20,000 Wisconsin distributorships was $267, or 2.2% of the projected $12,000 income. During 1979-1980, only about 139, or less than 1%, had an adjusted gross income in excess of $12,000. In fact, the average net income (after expenses) was a net loss of $918. (State of Wisconsin v Amway Corporation et al, 7/82).
In response to his findings, the attorney general obtained a consent agreement requiring Amway to disclose actual sales and actual income or profit experiences of active Representatives when it used hypothetical examples. The agreement required Amway to disclose the percentage of Representatives who actually had achieved any level of performance which was being used for illustrative purposes.
Amway was further required to disclose the percentage of active Representatives versus those who had become inactive. A number of distributors were also fined for illegal misrepresentation of income.
FTC Takes On Amway
In 1979, the FTC rendered a determination in response to charges that Amway's claims about the amount of money distributors earned had the capacity to deceive potential distributors. As a result, an order was issued that prohibited Amway from misrepresenting the amount of profit, earnings or sales its distributors were likely to achieve. The order also required that whenever Amway made above-average earnings or sales claims, it had to also disclose clearly and conspicuously either the average earnings of all distributors or the percent of distributors who actually earn the amount claimed.
In 1983, the FTC took Amway back to court after it determined that the company had violated the 1979 order by placing an ad in major newspapers that represented the earnings of distributors without the required disclosures. The FTC complaint charged that the ad contained earnings and sales claims that were higher than the average income earned in any recent year. In addition, it charged Amway with violating the 1979 order for failing to include a clear and conspicuous disclosures in the ad of the average earnings or sales of all distributors or the percent of distributors who actually achieved the results claimed. Amway was $100,000.
Canada Takes On Amway
In 1983, Amway was involved in another criminal case in Canada. Canadian authorities charged that Amway set up dummy companies and created fictitious trade between them to get customs to accept a lower value for goods. The company was charged with evading duties and taxes by using false invoices to misrepresent the value of products it shipped across the border.
Key documents used in the fraud were provided to Canadian authorities by whistle blower, Dorothy Edgar, who was an executive secretary to Edward Engel, Amway's then vice-president of finance. Engel learned of the fraud in late 1977, and urged Amway to disclose it to Revenue Canada. When Amway refused, Engel and Edgar resigned.
In response to the charges, Amway and Amway Canada Ltd agreed to plead guilty to charges of defrauding the Canadian Government and were fined $20 million. As part of the plea bargain, Amway was required to sign a statement acknowledging that the allegations by the Canadian government were "substantially correct.” All total, Canada billed Amway $148 million in back customs, duties, taxes and penalties.
In 1989, the Canadian authorities took Amway back to court to collect the back duties, fees, and fines that the company had agreed to pay in the 1983 settlement agreement. Although the Canadian department of Revenue claimed Amway owed $148 million, the case was finally settled for $45 million.
Eight years later in 1996, the Canadian government took on Amway again to challenged its attempt to claim a tax deduction for fines it paid for the 1983 criminal conviction on tax fraud. The court ruled that Amway could not treat the fines paid for tax evasion as a tax deductible expense.
When considering the validity of the 20-year stream of lawsuits against Amway, a person surely has to wonder why thousands upon thousands of people would make up the same lie.
Bush Controls FTC While Amway Rips Off Millions
Evelyn Pringle January 17, 2005
Every year, Amway rips of millions of people all over the world through a secret pyramid scheme that will no doubt continue for as long as Bush is in office and controls the Federal Trade Commission.
The scheme was the subject of the May 7, 2004, edition of NBC's Dateline, when it aired an expose that revealed that the main income of the Amway kingpins does not come from the sale of products, that it comes from the sale of books, tapes and seminars tickets (also known as "tools"), in a secret program operating under the cover of the Amway sales organization.
Dateline determined that about 20 high level distributors are part of an exclusive club that has "run hugely profitable businesses, selling all those books, tapes and seminars -- things the rank and file distributors can't sell themselves, but are told over and over again they need to buy in order to succeed," it reported.
Its easy to understand how people get roped in. They are told they can make millions of dollars by working part-time. Dateline reporters took hidden cameras to an Amway recruitment meeting and the first thing they heard was how easy it was to make big money in Amway. Dateline's Producer, Tim Sandler, posed as a member of the audience, and listed as speaker Greg Fredericks, said:
“If you're somewhat serious, all I mean by somewhat serious -- if you invest maybe, say, 10 to 15 hours a week in your business. This is your own business -- you could generate in the next 12 to 18 months, an extra quarter of a million.”
Sandler asked, “How much?” And Fredericks repeated, “A quarter million.”
Sandler again asked, “You're making more than $250,000 -- quarter of a million?” And Fredericks said, “Umm hmm.”
Former high-level distributor turned whistle-blower, Eric Scheileber, tells how he listened to the claims of the Amway kingpins and took the bait - hook, line and sinker. “I thought if I could create a six figure income and spend time with my family, I'd do anything for that,” he told Dateline.
"But instead of a life of leisure and more time with his family, he says he worked day and night, buying the tapes, attending the rallies. Still, he made nowhere near the six figure salary ... in his best year he made $34,000 and even that didn't last," Dateline reported.
(Eric has launched the website www.merchantsofdeception.com, and written the book, Merchants of Deception, which reveals the details of the secret tool business. A free advance copy of the book is available for a limited time on his website).
Vicki and Lindy Mack had a similar tale, "they not only didn't make money, they lost more than $35,000 over a five year period. Much of it on books, tapes, and traveling to rallies."
How Does The Scheme Work?
First off, new recruits are told to quit shopping at stores; to use Amway products only. According to Eric, the company assigns a point value (PV) to all products and the average distributor's household is expected to personally self-consume 100 PV, or between $175-$450. Now keep in mind, that Amway convinces hundreds of thousands of people to do this each year.
Which brings us to the next step. The new distributors are then sent out to recruit other people to do the same thing. But the sale of products is not the source of the large income. The sale of the so-called "tools" is. Upon joining the company, a recruit is given a list of hundreds of books and tapes, which is described as the motivational system that is the key to success in Amway.
The next step to become a distributor, is to develop a goal sheet with the emphasis on selling more and more tools each month. However, in order to sell tools, the recruit must convince other people to join and create a downline group to buy the tools, because they can only be sold to other Amway distributors.
How many people will he have to recruit? Well for starters, if the goal is 4000 PV a month, he would need 50 people in his group. But if he set his sights on becoming a Profit Sharing Direct (Direct), that requires doing 7500 PV ($15,000) for 6 months in a row. As a Direct, Eric says a distributor is told he will be making over $50,000 a year in a business structured 9-4-2; which means, you sponsor 9 people, who each sponsor four people, who each sponsor two, all of whom do a monthly volume of 100 PV.
To give you an idea of what this would entail, to reach this goal, a distributor would need 80 people in his downline. But there's much more to it than simply getting 80 people to join Amway. To move 7500 PV, the distributor would need to sell the tape of the week to 40 people - every week. He would also need to sell 200 more tapes, 75 books, and 16 kits, and 25 boards and easels.
And on top of all that, according to Eric, he would have to get 40 distributorships to buy tickets to monthly seminars, which translates into 80 tickets, since the distributorships are usually run by married couples. After hearing all this, its not hard to figure out why 99% of all Amway recruits never make a dime.
But it gets worse. In order to move up to the next level and become a Pearl, a distributor has to help 3 separate groups do 7500 in volume in one month. This is no small feat; 22,500 PV amounts to about $50,000.
However, here's the kicker, this is the level a distributor must reach, before he receives a bonus based on the tools sold to his downline each month. The bonus is usually between 2 and 4% of the total BV in the group. Very few distributors ever make it to this level.
The month the Scheilebers went Pearl, their downline moved nearly $70,000 in goods. "This was where "the big money" was to kick in," Eric said, "We could not wait to get the check that month. ... we carried the mail in to our kitchen and opened the envelope together. We were shocked at what we saw. Our bonus ... amounted to about $64 dollars.
At this level, distributors are led to believe they will be making $80-100,000. However, even though the Scheilebers were working a combined 100 hours most weeks, their income was still only about $20,000 for that year.
Isn't There A Law Against Pyramid Schemes?
There is supposed to be a law against pyramid schemes. But its rarely enforced against its namesake, which happens to be Amway. In 1979, as a result of a case against Amway, the FTC issued 3 rules that companies had to follow as a guard against pyramid scheme fraud: (1) 70% of the products sold had to be sold to retail customers; (2) distributors had to maintain a base of 10 retail customers; and (3) if a distributor quit, the company had to buy back its inventory.
However, as the FTC prosecuted new pyramid cases in the 1990's, the law became refined, after many defendants claimed innocence by stating that they had adopted the inventory buy-back policy, the 70% rule, and the 10 customer rule deemed acceptable in Amway. This prompted the appellate court in Webster v Omnitrition Int'l, Inc, to point out that the "70% rule" and "10 customer rule" are meaningless if commissions are paid based on a distributor's wholesale sales (which are only sales to new recruits), and not based on actual retail sales. (Statement of Debra Valentine, General Counsel for the FTC, on Pyramid Schemes, May 13, 1998)
As it stands now, although the law's namesake remains the number one culprit when it comes to pyramid schemes, the company is allowed to flourish in blatant violation of every rule set forth in the 1979 FTC Amway law.
What Did Amway Know and When Did It Know It?
The various documents that have surfaced during discovery in lawsuits against Amway over the past 25 years, reveal that by the early '80s, Amway knew about the tool pyramids and knew they were illegal. An internal memo from the District Court in Cincinnati, entitled Amway Distributor Compliance With The Code Of Ethics And Rules Of Conduct warned the Amway hierarchy about the illegal systems when it reported:
"Widespread illegalities inherent in Amway distributor designed "systems" of tapes, books, and rallies. While most of these "systems" were conceived in the late 1960's and early 1970's as genuine "support" programs ... entrepreneurial "higher pins" discovered and developed programs for substantial, separate, additional income, under the Amway "umbrella,"" it said.
Another 1982 memo, to the Amway Policy Committee, entitled Challenge of the 80s, warned "how these "support systems" escalated to what we believe is now a threat to the future security of Amway Corporation, at least in the United States." It specifically stated, "... these "tools/systems" are illegal, per se, under several U.S. federal and state laws."
The Challenge memo, in part, listed the following problems: (1) That operating and/or participating in a ... scheme involving only non-consumer items - particularly motivational tapes - violates state pyramid/chain distribution laws, and could lead to Amway distributors being indicted and/or convicted of criminal fraud. (2) That regulatory agencies, particularly state Attorneys Generals, are increasingly sensitive to the ongoing emergence of such programs. ... (5) That Federal Trade Commission and Anti-Trust Laws are being violated through price fixing and collusion."
It advised that corrective statements should be made immediately to correct misleading statements being made by the diamond distributors to new recruits such as: "No Selling" "Not Amway" "Must Have Tape of the Week" "Must Attend Rallies to Succeed"
In yet another 1983 memo, from the Heckert v Amways lawsuit, Ed Postma, then Amway business conduct manager, warned the leaders about the personal agendas of the kingpins.
"If there are any discussions of any length with the Diamonds utilizing this system, it becomes clear that although they realize that they are Amway distributors, they consider their personal business to be the motivation business. I think there is little question that that is where the big money is made. The motivation business is also where their primary allegiance lies," Postma wrote.
The memo called the system illegal because: It is a pyramid; it sells only to those who are involved in its structure; it may violate tax laws; there is no buyback rule; there is a danger of inventory loading; and it could be construed as an employer/employee relationship.
Postma also noted the huge amount of money being made off seminars. "It is not uncommon for the profits on these functions to exceed $25,000 to $50,000 for a weekend or $250,000 for a Free Enterprise night," he said.
He described the phony displays of wealth being used to entice recruits to join Amway, "...accessories (jewelry, clothing, and automobiles) are made available to distributors so that they may appear successful. It is considered extremely important for Diamonds to show material success in the business," he said.
At about the same time that this flurry of memos was taking place, it appears that Amway did try to get the kingpins to knock it off. In a 1983 taped speech entitled “Directly Speaking,” (never supposed to be heard in public), Amway co-founder, Rich DeVos, told the Diamonds that their tool businesses were illegal:
"Let me talk to you about the legal side ... that deals with the illegal operation of a business that does not have an end consumer, where the product is not retailed. That would include all books and tapes. ... when those things go out that way ... beyond my ten or 20% theoretical guideline ... then it becomes an out and out illegal pyramid."
DeVos explained that the priority on the sale of tools instead of products was hurting Amway, "... all the tape business does is take money out of the organization, and because the final person can’t retail it, it never brings money into the organization. ... motivation is important ... But, it must be motivation that builds the business – not become a business in itself. And some of you have made it a business in itself ... I am imploring all of you to do two things. Number one, clean up your act. And number two, if you know people who are continuing to do things improperly ... just tell us who’s doing it."
Here's what DeVos said about ripping off downline distributors by having them buy tools and self-consume products: "if I'd been told ... you don't have to sell the product, all you have to do is wholesale it to people ... maybe I wouldn't pay any attention to pricing, either. But that's an illegal business. And those of you that ... foster it and talk about it are operating illegally."
He even barked about the bogus income claims the Diamonds were making to bring in new recruits without disclosing the profits they planned to make off the tools. "You present wonderful numbers on the blackboard about all the money they can make. Maybe you ought to tell them about all you're going to take from them before they make any. Maybe that would be the rest of the story," DeVos said.
DeVos made that statement in 1983, but according to former long-time distributor, Bo Short, nothing has changed. Bo says we rarely get the whole story when people talk about how much they make in Amway. "I heard people say countless times, "We made $250 last month!" What many of them did not say is that they spent $500 in books, tapes and seminars that same month. This is a net loss of $250," Short reports.
On the tape, DeVos, himself, as much as admits the tool systems are a farce, "achievement numbers haven't changed at all with this tremendous burden of systems. I and you cannot prove an any higher ratio of achievement than you had before," he claimed.
If tools were the key to success, DeVos, wanted to know, "Why don't I have a hundred thousand Diamonds if all it takes is the tapes? Why, it's so easy. Just give 'em the tapes, and they're Diamonds next week. ... Who you kidding? ... Do the tapes help? Sure, they help. Do meetings help? Sure, they help. Are they the answer between winning and losing? No, they are not," he said.
20 years later, Bo Short makes the same point. He tells distributors who stay in Amway for years, naively believing the system will eventually work, to "Look around the room at your next convention. How many new diamonds do you see being recognized? Where are all the new diamonds? Why are the same faces on stage while the ones in the audience seem to change periodically? ... If the system was working so well, ... there should be a steady flow of diamonds convention after convention, year after year," he said. The fact is the system does not work.
If You Can't Beat Em, Join Em
In 1983, Amway apparently gave up the fight, and decided to compete with the kingpins instead, by putting PV on tools, and allowing the downline distributors to participate in the profits. The uproar over this decision prompted DeVos to record another "Directly Speaking" tape.
On the second tape, he explained the company's decision. "Amway has been working for three years on the matter of how to cope with the tape business. Should the company get in it, should it stay out of it ... we are going to put BV on tapes. ... we will pay full BV..." he said. ... "it awards everybody fairly in relationship to what they do in it, it protects the upline, it protects the downline ... we have a little hooker in there ... the BV on tapes can never exceed 20% of your total Business Volume," he advised.
For what its worth, DeVos did specifically tell the diamonds not to try and force people to buy tools. "... they will always be presented on a voluntary basis. No strings, no pressure, and no force, and by 'force' I mean such as saying to somebody ... "You must take ten tickets. You must take a hundred tickets. Here's your hundred tickets. Pay me for 'em. You better get rid of 'em. We're going to fill this hall. Or saying, "You must subscribe to Tape of the Week, or I won't work with you."
That's force, he said.
But no matter what good intentions DeVos may have had, they did not last because in the end Amway joined forces with the kingpins and they became mutually dependent on one another for survival.
To help stifle any competition from the downlines and maintain their monopoly on the tool business, Amway implemented a rule that required all new motivational materials to be sent to the company for prior approval before any sale or use was permitted. In addition, the Amway Sales and Marketing Plan began openly encouraging new recruits to buy tools and attend functions regularly by stating:
"To assist you with your own training and motivation, as well as training and motivating others, some distributors produce and distribute Business Support Materials and support services independently of Amway ... These may include books, magazines, and other printed materials, audiotapes, videotapes, rallies, meetings and educational seminars. While these BSMs are not required ... you may decide that they can play a useful role in building a profitable Amway business...
"As your business begins to grow ... You will also want to attend motivational and business-building meetings. Typically, you may attend one distributor meeting a week," the manual advises.
The continuation of the scheme stop low-level distributors from earning any profits from the tool pyramid was verified by yet another document that surfaced in a law suit, which quotes Amway attorney, John Pierce, in a March 25, 2002, telephone conference, saying:
"98% of the IBOs (Independent Business Owners), should not participate in the income nor should they even be aware that there is an opportunity."
The fact is, absolutely nothing has changed in Amway. Every problem that downline distributors experienced in 1983, still exists today.
Why Doesn't The Media Expose This Fraud?
The media often refuses to take Amway whistle-blowers seriously due to a belief that a scheme as deceptive and illegal as what they describe would never be allowed to continue for so long. And that's the exact same point that Eric Scheibeler raises in his book, Merchants of Deception. How could a world-wide consumer fraud scheme of this magnitude be allowed to continue for over 20 years?
The answer, Eric says, is that our government allows it to continue. Amway stays in business because Bush controls the FTC and he refuses to allow the agency to enforce the anti-pyramid laws. In effect, Amway's political influence within the Republican party provides the company with insurance against prosecution for fraud.
The cost of this insurance is paid for by large political contributions, with 100% going to Republicans. For instance, Amway was the second largest contributor of soft money to the RNP in 2000. In 2004, company founders, DeVos and Van Andel, gave $2 million to the Republican 527 group, "Progress for America." (Newsweek, “The Secret Money War,” Sep 20, 2004).
It really is that simple. As long as Amway pays the premiums, the insurance coverage for the largest consumer fraud scheme in the history of this nation will remain in effect.
Every year, Amway rips of millions of people all over the world through a secret pyramid scheme that will no doubt continue for as long as Bush is in office and controls the Federal Trade Commission.
The scheme was the subject of the May 7, 2004, edition of NBC's Dateline, when it aired an expose that revealed that the main income of the Amway kingpins does not come from the sale of products, that it comes from the sale of books, tapes and seminars tickets (also known as "tools"), in a secret program operating under the cover of the Amway sales organization.
Dateline determined that about 20 high level distributors are part of an exclusive club that has "run hugely profitable businesses, selling all those books, tapes and seminars -- things the rank and file distributors can't sell themselves, but are told over and over again they need to buy in order to succeed," it reported.
Its easy to understand how people get roped in. They are told they can make millions of dollars by working part-time. Dateline reporters took hidden cameras to an Amway recruitment meeting and the first thing they heard was how easy it was to make big money in Amway. Dateline's Producer, Tim Sandler, posed as a member of the audience, and listed as speaker Greg Fredericks, said:
“If you're somewhat serious, all I mean by somewhat serious -- if you invest maybe, say, 10 to 15 hours a week in your business. This is your own business -- you could generate in the next 12 to 18 months, an extra quarter of a million.”
Sandler asked, “How much?” And Fredericks repeated, “A quarter million.”
Sandler again asked, “You're making more than $250,000 -- quarter of a million?” And Fredericks said, “Umm hmm.”
Former high-level distributor turned whistle-blower, Eric Scheileber, tells how he listened to the claims of the Amway kingpins and took the bait - hook, line and sinker. “I thought if I could create a six figure income and spend time with my family, I'd do anything for that,” he told Dateline.
"But instead of a life of leisure and more time with his family, he says he worked day and night, buying the tapes, attending the rallies. Still, he made nowhere near the six figure salary ... in his best year he made $34,000 and even that didn't last," Dateline reported.
(Eric has launched the website www.merchantsofdeception.com, and written the book, Merchants of Deception, which reveals the details of the secret tool business. A free advance copy of the book is available for a limited time on his website).
Vicki and Lindy Mack had a similar tale, "they not only didn't make money, they lost more than $35,000 over a five year period. Much of it on books, tapes, and traveling to rallies."
How Does The Scheme Work?
First off, new recruits are told to quit shopping at stores; to use Amway products only. According to Eric, the company assigns a point value (PV) to all products and the average distributor's household is expected to personally self-consume 100 PV, or between $175-$450. Now keep in mind, that Amway convinces hundreds of thousands of people to do this each year.
Which brings us to the next step. The new distributors are then sent out to recruit other people to do the same thing. But the sale of products is not the source of the large income. The sale of the so-called "tools" is. Upon joining the company, a recruit is given a list of hundreds of books and tapes, which is described as the motivational system that is the key to success in Amway.
The next step to become a distributor, is to develop a goal sheet with the emphasis on selling more and more tools each month. However, in order to sell tools, the recruit must convince other people to join and create a downline group to buy the tools, because they can only be sold to other Amway distributors.
How many people will he have to recruit? Well for starters, if the goal is 4000 PV a month, he would need 50 people in his group. But if he set his sights on becoming a Profit Sharing Direct (Direct), that requires doing 7500 PV ($15,000) for 6 months in a row. As a Direct, Eric says a distributor is told he will be making over $50,000 a year in a business structured 9-4-2; which means, you sponsor 9 people, who each sponsor four people, who each sponsor two, all of whom do a monthly volume of 100 PV.
To give you an idea of what this would entail, to reach this goal, a distributor would need 80 people in his downline. But there's much more to it than simply getting 80 people to join Amway. To move 7500 PV, the distributor would need to sell the tape of the week to 40 people - every week. He would also need to sell 200 more tapes, 75 books, and 16 kits, and 25 boards and easels.
And on top of all that, according to Eric, he would have to get 40 distributorships to buy tickets to monthly seminars, which translates into 80 tickets, since the distributorships are usually run by married couples. After hearing all this, its not hard to figure out why 99% of all Amway recruits never make a dime.
But it gets worse. In order to move up to the next level and become a Pearl, a distributor has to help 3 separate groups do 7500 in volume in one month. This is no small feat; 22,500 PV amounts to about $50,000.
However, here's the kicker, this is the level a distributor must reach, before he receives a bonus based on the tools sold to his downline each month. The bonus is usually between 2 and 4% of the total BV in the group. Very few distributors ever make it to this level.
The month the Scheilebers went Pearl, their downline moved nearly $70,000 in goods. "This was where "the big money" was to kick in," Eric said, "We could not wait to get the check that month. ... we carried the mail in to our kitchen and opened the envelope together. We were shocked at what we saw. Our bonus ... amounted to about $64 dollars.
At this level, distributors are led to believe they will be making $80-100,000. However, even though the Scheilebers were working a combined 100 hours most weeks, their income was still only about $20,000 for that year.
Isn't There A Law Against Pyramid Schemes?
There is supposed to be a law against pyramid schemes. But its rarely enforced against its namesake, which happens to be Amway. In 1979, as a result of a case against Amway, the FTC issued 3 rules that companies had to follow as a guard against pyramid scheme fraud: (1) 70% of the products sold had to be sold to retail customers; (2) distributors had to maintain a base of 10 retail customers; and (3) if a distributor quit, the company had to buy back its inventory.
However, as the FTC prosecuted new pyramid cases in the 1990's, the law became refined, after many defendants claimed innocence by stating that they had adopted the inventory buy-back policy, the 70% rule, and the 10 customer rule deemed acceptable in Amway. This prompted the appellate court in Webster v Omnitrition Int'l, Inc, to point out that the "70% rule" and "10 customer rule" are meaningless if commissions are paid based on a distributor's wholesale sales (which are only sales to new recruits), and not based on actual retail sales. (Statement of Debra Valentine, General Counsel for the FTC, on Pyramid Schemes, May 13, 1998)
As it stands now, although the law's namesake remains the number one culprit when it comes to pyramid schemes, the company is allowed to flourish in blatant violation of every rule set forth in the 1979 FTC Amway law.
What Did Amway Know and When Did It Know It?
The various documents that have surfaced during discovery in lawsuits against Amway over the past 25 years, reveal that by the early '80s, Amway knew about the tool pyramids and knew they were illegal. An internal memo from the District Court in Cincinnati, entitled Amway Distributor Compliance With The Code Of Ethics And Rules Of Conduct warned the Amway hierarchy about the illegal systems when it reported:
"Widespread illegalities inherent in Amway distributor designed "systems" of tapes, books, and rallies. While most of these "systems" were conceived in the late 1960's and early 1970's as genuine "support" programs ... entrepreneurial "higher pins" discovered and developed programs for substantial, separate, additional income, under the Amway "umbrella,"" it said.
Another 1982 memo, to the Amway Policy Committee, entitled Challenge of the 80s, warned "how these "support systems" escalated to what we believe is now a threat to the future security of Amway Corporation, at least in the United States." It specifically stated, "... these "tools/systems" are illegal, per se, under several U.S. federal and state laws."
The Challenge memo, in part, listed the following problems: (1) That operating and/or participating in a ... scheme involving only non-consumer items - particularly motivational tapes - violates state pyramid/chain distribution laws, and could lead to Amway distributors being indicted and/or convicted of criminal fraud. (2) That regulatory agencies, particularly state Attorneys Generals, are increasingly sensitive to the ongoing emergence of such programs. ... (5) That Federal Trade Commission and Anti-Trust Laws are being violated through price fixing and collusion."
It advised that corrective statements should be made immediately to correct misleading statements being made by the diamond distributors to new recruits such as: "No Selling" "Not Amway" "Must Have Tape of the Week" "Must Attend Rallies to Succeed"
In yet another 1983 memo, from the Heckert v Amways lawsuit, Ed Postma, then Amway business conduct manager, warned the leaders about the personal agendas of the kingpins.
"If there are any discussions of any length with the Diamonds utilizing this system, it becomes clear that although they realize that they are Amway distributors, they consider their personal business to be the motivation business. I think there is little question that that is where the big money is made. The motivation business is also where their primary allegiance lies," Postma wrote.
The memo called the system illegal because: It is a pyramid; it sells only to those who are involved in its structure; it may violate tax laws; there is no buyback rule; there is a danger of inventory loading; and it could be construed as an employer/employee relationship.
Postma also noted the huge amount of money being made off seminars. "It is not uncommon for the profits on these functions to exceed $25,000 to $50,000 for a weekend or $250,000 for a Free Enterprise night," he said.
He described the phony displays of wealth being used to entice recruits to join Amway, "...accessories (jewelry, clothing, and automobiles) are made available to distributors so that they may appear successful. It is considered extremely important for Diamonds to show material success in the business," he said.
At about the same time that this flurry of memos was taking place, it appears that Amway did try to get the kingpins to knock it off. In a 1983 taped speech entitled “Directly Speaking,” (never supposed to be heard in public), Amway co-founder, Rich DeVos, told the Diamonds that their tool businesses were illegal:
"Let me talk to you about the legal side ... that deals with the illegal operation of a business that does not have an end consumer, where the product is not retailed. That would include all books and tapes. ... when those things go out that way ... beyond my ten or 20% theoretical guideline ... then it becomes an out and out illegal pyramid."
DeVos explained that the priority on the sale of tools instead of products was hurting Amway, "... all the tape business does is take money out of the organization, and because the final person can’t retail it, it never brings money into the organization. ... motivation is important ... But, it must be motivation that builds the business – not become a business in itself. And some of you have made it a business in itself ... I am imploring all of you to do two things. Number one, clean up your act. And number two, if you know people who are continuing to do things improperly ... just tell us who’s doing it."
Here's what DeVos said about ripping off downline distributors by having them buy tools and self-consume products: "if I'd been told ... you don't have to sell the product, all you have to do is wholesale it to people ... maybe I wouldn't pay any attention to pricing, either. But that's an illegal business. And those of you that ... foster it and talk about it are operating illegally."
He even barked about the bogus income claims the Diamonds were making to bring in new recruits without disclosing the profits they planned to make off the tools. "You present wonderful numbers on the blackboard about all the money they can make. Maybe you ought to tell them about all you're going to take from them before they make any. Maybe that would be the rest of the story," DeVos said.
DeVos made that statement in 1983, but according to former long-time distributor, Bo Short, nothing has changed. Bo says we rarely get the whole story when people talk about how much they make in Amway. "I heard people say countless times, "We made $250 last month!" What many of them did not say is that they spent $500 in books, tapes and seminars that same month. This is a net loss of $250," Short reports.
On the tape, DeVos, himself, as much as admits the tool systems are a farce, "achievement numbers haven't changed at all with this tremendous burden of systems. I and you cannot prove an any higher ratio of achievement than you had before," he claimed.
If tools were the key to success, DeVos, wanted to know, "Why don't I have a hundred thousand Diamonds if all it takes is the tapes? Why, it's so easy. Just give 'em the tapes, and they're Diamonds next week. ... Who you kidding? ... Do the tapes help? Sure, they help. Do meetings help? Sure, they help. Are they the answer between winning and losing? No, they are not," he said.
20 years later, Bo Short makes the same point. He tells distributors who stay in Amway for years, naively believing the system will eventually work, to "Look around the room at your next convention. How many new diamonds do you see being recognized? Where are all the new diamonds? Why are the same faces on stage while the ones in the audience seem to change periodically? ... If the system was working so well, ... there should be a steady flow of diamonds convention after convention, year after year," he said. The fact is the system does not work.
If You Can't Beat Em, Join Em
In 1983, Amway apparently gave up the fight, and decided to compete with the kingpins instead, by putting PV on tools, and allowing the downline distributors to participate in the profits. The uproar over this decision prompted DeVos to record another "Directly Speaking" tape.
On the second tape, he explained the company's decision. "Amway has been working for three years on the matter of how to cope with the tape business. Should the company get in it, should it stay out of it ... we are going to put BV on tapes. ... we will pay full BV..." he said. ... "it awards everybody fairly in relationship to what they do in it, it protects the upline, it protects the downline ... we have a little hooker in there ... the BV on tapes can never exceed 20% of your total Business Volume," he advised.
For what its worth, DeVos did specifically tell the diamonds not to try and force people to buy tools. "... they will always be presented on a voluntary basis. No strings, no pressure, and no force, and by 'force' I mean such as saying to somebody ... "You must take ten tickets. You must take a hundred tickets. Here's your hundred tickets. Pay me for 'em. You better get rid of 'em. We're going to fill this hall. Or saying, "You must subscribe to Tape of the Week, or I won't work with you."
That's force, he said.
But no matter what good intentions DeVos may have had, they did not last because in the end Amway joined forces with the kingpins and they became mutually dependent on one another for survival.
To help stifle any competition from the downlines and maintain their monopoly on the tool business, Amway implemented a rule that required all new motivational materials to be sent to the company for prior approval before any sale or use was permitted. In addition, the Amway Sales and Marketing Plan began openly encouraging new recruits to buy tools and attend functions regularly by stating:
"To assist you with your own training and motivation, as well as training and motivating others, some distributors produce and distribute Business Support Materials and support services independently of Amway ... These may include books, magazines, and other printed materials, audiotapes, videotapes, rallies, meetings and educational seminars. While these BSMs are not required ... you may decide that they can play a useful role in building a profitable Amway business...
"As your business begins to grow ... You will also want to attend motivational and business-building meetings. Typically, you may attend one distributor meeting a week," the manual advises.
The continuation of the scheme stop low-level distributors from earning any profits from the tool pyramid was verified by yet another document that surfaced in a law suit, which quotes Amway attorney, John Pierce, in a March 25, 2002, telephone conference, saying:
"98% of the IBOs (Independent Business Owners), should not participate in the income nor should they even be aware that there is an opportunity."
The fact is, absolutely nothing has changed in Amway. Every problem that downline distributors experienced in 1983, still exists today.
Why Doesn't The Media Expose This Fraud?
The media often refuses to take Amway whistle-blowers seriously due to a belief that a scheme as deceptive and illegal as what they describe would never be allowed to continue for so long. And that's the exact same point that Eric Scheibeler raises in his book, Merchants of Deception. How could a world-wide consumer fraud scheme of this magnitude be allowed to continue for over 20 years?
The answer, Eric says, is that our government allows it to continue. Amway stays in business because Bush controls the FTC and he refuses to allow the agency to enforce the anti-pyramid laws. In effect, Amway's political influence within the Republican party provides the company with insurance against prosecution for fraud.
The cost of this insurance is paid for by large political contributions, with 100% going to Republicans. For instance, Amway was the second largest contributor of soft money to the RNP in 2000. In 2004, company founders, DeVos and Van Andel, gave $2 million to the Republican 527 group, "Progress for America." (Newsweek, “The Secret Money War,” Sep 20, 2004).
It really is that simple. As long as Amway pays the premiums, the insurance coverage for the largest consumer fraud scheme in the history of this nation will remain in effect.
Tuesday, August 3, 2010
Organized Crime Expert - Amway Just Like Mafia
January 27, 2005
Evelyn Pringle
Amway knew it was in trouble when the internet arrived and the details about the company’s pyramid schemes began appearing online.
A memo dated December 19, 1997, that surfaced in a lawsuit, contains the details of a voice message sent out to the Amway leadership, by then Vice President, Ken MacDonald, that reveals just how desperately Amway tried to control the flow of information on the internet.
MacDonald said ... "This message is on the internet ... we’ve hired consultants and been working very diligently on all of the secret computer language that helps the search engines pick a site and because of that we’ve moved the positive Amway sites quite a bit up in the web search engines, and some of the negative sites down. And lastly, that we are working to provide very soon, for all those who qualified Emeralds and above ... their own personal homepage so we will have tons of positive Amway information on the web," he said.
There is one particular document that the company has gone to great lengths to stop people from reading on the internet. In fact, on June 12, 1998, Amway went to court and got a Protective Order in attempt to keep this specific report hidden from public view.
Professor G Robert Blakey was retained as an expert witness for the plaintiffs in the 1998 Procter & Gamble v Amway lawsuit to render an opinion on Amway's business practices. He is one of the nation's foremost authorities on organized crime. Blakey was directly involved in drafting and implementing RICO-type legislation in 22 of the more than 30 states that enacted racketeering laws.
After studying Amway’s business structure and functions, Blakey, wrote a damning report that stated: "It is my opinion that the Amway business is run in a manner that is parallel to that of major organized crime groups, in particular the Mafia. The structure and function of major organized crime groups, generally consisting of associated enterprises engaging in patterns of legal and illegal activity, was the prototype forming the basis for federal and state racketeering legislation that I have been involved in drafting. The same structure and function, with associated enterprises engaging in patterns of legal and illegal activity, is found in the Amway business."
For those not familiar with the RICO Act, it "was passed by ... Congress to enable persons financially injured by a pattern of criminal activity to seek redress through the state or federal courts," according to the Act's website.
Amway has been sued hundreds of time under the RICO Act.
Blakey Report Outed
In the early spring of 2004, Amway became extremely upset when the full Blakey Report began appearing on the world wide web. The company’s attorneys flew into action trying to suppress it.
Initially, they successfully used the protective order to force websites to remove the report. For example, on March 11, 2004, the MLM Survivor website reported that the Quixtar Blog had removed the Blakey Report from its servers and said "... according to the site owner, Amway's lawyers are frantically trying to find out who leaked. They assert the report is confidential, and covered by a protective order."
However, Amway was not as successful with getting it removed from other sites. MLM Survivor reported that company attorneys also contacted MLM, to demand that they remove the report from its website because it was sealed under a protective order.
Survivor’s response to Amway was, "We can't remove what we don't have. MLM Survivor does not now, nor has it ever, had a copy of the report on its website. Link, yes. Copy, no," the website said.
This must be like deja vu to MLM. The website had already been hit with one SLAPPer lawsuit by Amway. SLAPP is the abbreviation for Strategic Lawsuits Against Public Participation.
According to the First Amendment Center, "SLAPPers do not sue to achieve a litigation outcome; rather, they file to silence their opposition. Generally, the mere filing of the suit — or just the threat of suit — accomplishes that purpose;" www.firstamendmentcenter.org
However, it looks like the SLAPPer failed to obtain its objective with Survivor because the site is still alive and well on the internet. In fact, Survivor had this to say about the lawsuit. "I have to admit that I've been waiting for about six years (as long as this site has been in existence) for Amway/Quixtar/Alticor to slap me with a lawsuit for one trumped-up thing or another. I never expected my first-ever lawsuit to be such a farce," it said.
In another futile attempt to have the report removed from a site, on March 2, 2004, Amway Attorney, Griffin, sent a letter with a copy of the court order to a research professor by the name of David Touretzky. On March 21, 2004, he wrote back to Griffin and stated: My reading of this order leads to the following observations:
Paragraph 16 says that the terms of the order shall remain in force "to the extent that the information in such material is not or does not become known to the public..." Since I obtained my copy of the Blakey Report from a publicly accessible web page, the information clearly has become known to the public. The order therefore no longer applies to this document.
Paragraph 16 also says that the protective order is "binding upon all persons to whom confidential information is disclosed hereunder." The information was not disclosed to me under the terms of this order. I was never a party to this litigation, nor do I have any relationship of any kind with Amway, or Proctor & Gamble, or their respective attorneys, agents, or consultants. The protective order was never intended to apply to totally unrelated parties like me, or the news media, and it is not binding upon me now.
Touretzky’s reasoning would apply to the copy of the report that I obtained as well. When I discovered my copy a while back, it was already published on a number sites. It is currently posted on just about every Amway website out there.
The entire report can be read on the www.merchantsofdeception.com website of Eric Scheileber, a former Amway Distributor, who wrote the book, Merchants of Deception, that prompted the current FBI investigation of Amway, and an expose by NBC’s Dateline. (The book discloses Amway’s close ties to the Republican party and both Bush administrations and can be downloaded free, for a limited time, on the website)
Why Was Amway So Worried?
Why was Amway so worried about people reading the report? Probably because it very specifically explains how the Amway Corporation’s family-business structure is just like the mafia. According to Blakey, Amway has a family structure nearly identical to those found in organized crime.
The company has remained a privately held company since it was founded by Jay Van Andel and Rich DeVos in 1959, Blakey notes. But control of the corporation has now shifted to the sons of the founders, Richard DeVos, Jr and Steve Van Andel, he says.
The report also describes the Amway pyramid schemes. "The Amway Corporation primarily provides the various products and services that serve as a backdrop for the pyramid-type recruitment and motivational schemes undertaken in the Amway business."
As evidence of the mafia-like family structure, the report points out that Amway's Policy Board consists of family members Richard DeVos, Sr, Steve Van Andel, Richard DeVos, Jr, Jay Van Andel, Cheri DeVos Vander Weide, Dave Van Andel, Doug DeVos, Nan Van Andel, Dan DeVos and Barb Van Andel Gaby.
On June 7, 2002, the shift of control in authority that Blakey mentioned in 1998, was further confirmed by a press release that announced that Doug DeVos would become president of Amway’s parent company, Alticor,* after the retirement of Rich DeVos.
Upon taking office, Doug DeVos, in true mafia lingo, was quoted as saying: "It’s humbling to be asked to step into a job that has been done so well for the past 43 years, first by my dad and then by my brother."
Further confirmation of the control being passed down, was the fact that Doug DeVos joined Chairman Steve Van Andel (Van Andel’s son) in the Office of the Chief Executive, extending the dual leadership structure first established by company co-founders Rich DeVos and Jay Van Andel, according to the press release.
Blakey explains that family members are drawn in to the business as a matter of right, with family members being given responsibilities that outweigh their capability. The basis for this assertion is with Amway itself. As an example, Blakey refers to the deposition testimony of Jay Van Andel's 2 children, David and Nan Van Andel, in the P&G lawsuit.
When deposed, they both held high positions with the company. Yet Blakey says, their testimony reflected a complete lack of knowledge and business experience. It was obvious that neither obtained their position on merit, nor would they have been permitted to continue in their position in an regular company.
"Placing unqualified family members in high positions is also common in the Mafia," Blakey reports.
What About Other Amway Families?
Amway stresses that once you are involved, you are a member of the Amway family, and your upline and downline are part of your family. "Amway becomes a way of life for its participants, much like those involved with the Mafia," Blakey notes.
He describes how, "You are to "edify" or honor your upline, and "counsel" with them regularly."
"The "upline" assume virtual "parental" control, and distributors are urged to "counsel" on all aspects of their life, including topics such as which car to buy or how to handle marital problems," Blakey wrote.
According to the report, distributors are even told how to dress. For example, "Wilson women" (those in the Don Wilson family) at functions do not show ankles, thighs or cleavage, he notes.
The absolute control is also evidenced by the Amway Distributors Association Board. At the time of Blakey’s report, the Board consisted of 30 distributors who were elected.
However, 15 were chosen off a list of nominees compiled by Amway. The Board is led by the Executive Committee which also includes family leaders, which all but guarantees that the family leaders, or their designees, will get elected and retain control of Amway.
Although the DeVos and Van Andel families control the corporation, Blakey says a 1996 Amway Corporate Culture Document shows there are at least 8 other lines of family sponsorship that control the distributors groups. Every participant is considered to be a member of a family, with one individual positioned at the top of a chain of command.
In 1998, the Dexter Yager family had the largest organization in North America, and the Bill Britt family was enormously comprised of over 149,000 distributorships.
However, it should be noted that Bill Britt has since been booted out of Amway and is under investigation for a host of scams. According to an August 12, 2004, letter from Robert FitzPatrick, President of Pyramid Scheme Alert, to North Carolina's Attorney General, requesting an investigation of the Bill Britt organization, "Last year, it was reported that Bill Britt was involved in what authorities consider perhaps the largest single financial fraud case in North Carolina history in terms of the amount of dollars that disappeared," the letter stated.
The August 8, 2003 edition of The Triangle Business Journal reported that in spring, 2001 Bill Britt invested $5 million in a fraudulent investment scheme perpetrated by Cornerstone Management, a company under investigation and prosecution by the SEC since 1999, according to the letter.
At the time of the Blakey report, other "Amway families" included: the Childers (team of six Diamonds); the Stewarts; the Gooch family; the Bryans (Down East); the Wilsons (WOW); the Puryears (World Wide Dreambuilders); the Hays (International Connection); the Matz family ( International Diamond Association); the Dornans (Network 21); the Strehlis (Creative Life Styles); and the INA (International Networking Association), run by a group of seven families.
According to the report, each family is involved in the Amway business, in terms of using the Amway Sales and Marketing Plan, and is also involved in Business Support Materials (BSM), or "tools," which include books, tapes, and rallies, Blakey determined.
However, each family kingpin rules his own Amway distributor pyramid and his own tool pyramid. But even though these pyramids are all separate corporate entities, they all work together to promote the Sales and Marketing Plan and the tools business, the report found.
What Else Is Amway Hiding?
What else is Amway hiding? Most likely Blakey’s assertion that "The Mafia uses "omerta" and violence for control," and "Amway has other methods, with similar effect."
Blakey claims, "Distributors must always honor their upline. No negative talk or action is permissible. A distributor who steps out of line is punished. ... serious offenders may be dealt with by having portions of their business taken away - e.g. they can no longer appear at rallies, or downline distributors are "re-routed."
There are also reports of violence against those who attempt to take action against Amway, the report maintains.
(Part 2 of this article will discuss specific incidents of this "omerta" and violence and other information contained in the report that Amway fought so hard to keep hidden.)
* Alticor was announced in October 2000 as the parent company for Amway (direct selling), Quixtar (e-commerce); www.alticor.com.
Evelyn Pringle
Amway knew it was in trouble when the internet arrived and the details about the company’s pyramid schemes began appearing online.
A memo dated December 19, 1997, that surfaced in a lawsuit, contains the details of a voice message sent out to the Amway leadership, by then Vice President, Ken MacDonald, that reveals just how desperately Amway tried to control the flow of information on the internet.
MacDonald said ... "This message is on the internet ... we’ve hired consultants and been working very diligently on all of the secret computer language that helps the search engines pick a site and because of that we’ve moved the positive Amway sites quite a bit up in the web search engines, and some of the negative sites down. And lastly, that we are working to provide very soon, for all those who qualified Emeralds and above ... their own personal homepage so we will have tons of positive Amway information on the web," he said.
There is one particular document that the company has gone to great lengths to stop people from reading on the internet. In fact, on June 12, 1998, Amway went to court and got a Protective Order in attempt to keep this specific report hidden from public view.
Professor G Robert Blakey was retained as an expert witness for the plaintiffs in the 1998 Procter & Gamble v Amway lawsuit to render an opinion on Amway's business practices. He is one of the nation's foremost authorities on organized crime. Blakey was directly involved in drafting and implementing RICO-type legislation in 22 of the more than 30 states that enacted racketeering laws.
After studying Amway’s business structure and functions, Blakey, wrote a damning report that stated: "It is my opinion that the Amway business is run in a manner that is parallel to that of major organized crime groups, in particular the Mafia. The structure and function of major organized crime groups, generally consisting of associated enterprises engaging in patterns of legal and illegal activity, was the prototype forming the basis for federal and state racketeering legislation that I have been involved in drafting. The same structure and function, with associated enterprises engaging in patterns of legal and illegal activity, is found in the Amway business."
For those not familiar with the RICO Act, it "was passed by ... Congress to enable persons financially injured by a pattern of criminal activity to seek redress through the state or federal courts," according to the Act's website.
Amway has been sued hundreds of time under the RICO Act.
Blakey Report Outed
In the early spring of 2004, Amway became extremely upset when the full Blakey Report began appearing on the world wide web. The company’s attorneys flew into action trying to suppress it.
Initially, they successfully used the protective order to force websites to remove the report. For example, on March 11, 2004, the MLM Survivor website reported that the Quixtar Blog had removed the Blakey Report from its servers and said "... according to the site owner, Amway's lawyers are frantically trying to find out who leaked. They assert the report is confidential, and covered by a protective order."
However, Amway was not as successful with getting it removed from other sites. MLM Survivor reported that company attorneys also contacted MLM, to demand that they remove the report from its website because it was sealed under a protective order.
Survivor’s response to Amway was, "We can't remove what we don't have. MLM Survivor does not now, nor has it ever, had a copy of the report on its website. Link, yes. Copy, no," the website said.
This must be like deja vu to MLM. The website had already been hit with one SLAPPer lawsuit by Amway. SLAPP is the abbreviation for Strategic Lawsuits Against Public Participation.
According to the First Amendment Center, "SLAPPers do not sue to achieve a litigation outcome; rather, they file to silence their opposition. Generally, the mere filing of the suit — or just the threat of suit — accomplishes that purpose;" www.firstamendmentcenter.org
However, it looks like the SLAPPer failed to obtain its objective with Survivor because the site is still alive and well on the internet. In fact, Survivor had this to say about the lawsuit. "I have to admit that I've been waiting for about six years (as long as this site has been in existence) for Amway/Quixtar/Alticor to slap me with a lawsuit for one trumped-up thing or another. I never expected my first-ever lawsuit to be such a farce," it said.
In another futile attempt to have the report removed from a site, on March 2, 2004, Amway Attorney, Griffin, sent a letter with a copy of the court order to a research professor by the name of David Touretzky. On March 21, 2004, he wrote back to Griffin and stated: My reading of this order leads to the following observations:
Paragraph 16 says that the terms of the order shall remain in force "to the extent that the information in such material is not or does not become known to the public..." Since I obtained my copy of the Blakey Report from a publicly accessible web page, the information clearly has become known to the public. The order therefore no longer applies to this document.
Paragraph 16 also says that the protective order is "binding upon all persons to whom confidential information is disclosed hereunder." The information was not disclosed to me under the terms of this order. I was never a party to this litigation, nor do I have any relationship of any kind with Amway, or Proctor & Gamble, or their respective attorneys, agents, or consultants. The protective order was never intended to apply to totally unrelated parties like me, or the news media, and it is not binding upon me now.
Touretzky’s reasoning would apply to the copy of the report that I obtained as well. When I discovered my copy a while back, it was already published on a number sites. It is currently posted on just about every Amway website out there.
The entire report can be read on the www.merchantsofdeception.com website of Eric Scheileber, a former Amway Distributor, who wrote the book, Merchants of Deception, that prompted the current FBI investigation of Amway, and an expose by NBC’s Dateline. (The book discloses Amway’s close ties to the Republican party and both Bush administrations and can be downloaded free, for a limited time, on the website)
Why Was Amway So Worried?
Why was Amway so worried about people reading the report? Probably because it very specifically explains how the Amway Corporation’s family-business structure is just like the mafia. According to Blakey, Amway has a family structure nearly identical to those found in organized crime.
The company has remained a privately held company since it was founded by Jay Van Andel and Rich DeVos in 1959, Blakey notes. But control of the corporation has now shifted to the sons of the founders, Richard DeVos, Jr and Steve Van Andel, he says.
The report also describes the Amway pyramid schemes. "The Amway Corporation primarily provides the various products and services that serve as a backdrop for the pyramid-type recruitment and motivational schemes undertaken in the Amway business."
As evidence of the mafia-like family structure, the report points out that Amway's Policy Board consists of family members Richard DeVos, Sr, Steve Van Andel, Richard DeVos, Jr, Jay Van Andel, Cheri DeVos Vander Weide, Dave Van Andel, Doug DeVos, Nan Van Andel, Dan DeVos and Barb Van Andel Gaby.
On June 7, 2002, the shift of control in authority that Blakey mentioned in 1998, was further confirmed by a press release that announced that Doug DeVos would become president of Amway’s parent company, Alticor,* after the retirement of Rich DeVos.
Upon taking office, Doug DeVos, in true mafia lingo, was quoted as saying: "It’s humbling to be asked to step into a job that has been done so well for the past 43 years, first by my dad and then by my brother."
Further confirmation of the control being passed down, was the fact that Doug DeVos joined Chairman Steve Van Andel (Van Andel’s son) in the Office of the Chief Executive, extending the dual leadership structure first established by company co-founders Rich DeVos and Jay Van Andel, according to the press release.
Blakey explains that family members are drawn in to the business as a matter of right, with family members being given responsibilities that outweigh their capability. The basis for this assertion is with Amway itself. As an example, Blakey refers to the deposition testimony of Jay Van Andel's 2 children, David and Nan Van Andel, in the P&G lawsuit.
When deposed, they both held high positions with the company. Yet Blakey says, their testimony reflected a complete lack of knowledge and business experience. It was obvious that neither obtained their position on merit, nor would they have been permitted to continue in their position in an regular company.
"Placing unqualified family members in high positions is also common in the Mafia," Blakey reports.
What About Other Amway Families?
Amway stresses that once you are involved, you are a member of the Amway family, and your upline and downline are part of your family. "Amway becomes a way of life for its participants, much like those involved with the Mafia," Blakey notes.
He describes how, "You are to "edify" or honor your upline, and "counsel" with them regularly."
"The "upline" assume virtual "parental" control, and distributors are urged to "counsel" on all aspects of their life, including topics such as which car to buy or how to handle marital problems," Blakey wrote.
According to the report, distributors are even told how to dress. For example, "Wilson women" (those in the Don Wilson family) at functions do not show ankles, thighs or cleavage, he notes.
The absolute control is also evidenced by the Amway Distributors Association Board. At the time of Blakey’s report, the Board consisted of 30 distributors who were elected.
However, 15 were chosen off a list of nominees compiled by Amway. The Board is led by the Executive Committee which also includes family leaders, which all but guarantees that the family leaders, or their designees, will get elected and retain control of Amway.
Although the DeVos and Van Andel families control the corporation, Blakey says a 1996 Amway Corporate Culture Document shows there are at least 8 other lines of family sponsorship that control the distributors groups. Every participant is considered to be a member of a family, with one individual positioned at the top of a chain of command.
In 1998, the Dexter Yager family had the largest organization in North America, and the Bill Britt family was enormously comprised of over 149,000 distributorships.
However, it should be noted that Bill Britt has since been booted out of Amway and is under investigation for a host of scams. According to an August 12, 2004, letter from Robert FitzPatrick, President of Pyramid Scheme Alert, to North Carolina's Attorney General, requesting an investigation of the Bill Britt organization, "Last year, it was reported that Bill Britt was involved in what authorities consider perhaps the largest single financial fraud case in North Carolina history in terms of the amount of dollars that disappeared," the letter stated.
The August 8, 2003 edition of The Triangle Business Journal reported that in spring, 2001 Bill Britt invested $5 million in a fraudulent investment scheme perpetrated by Cornerstone Management, a company under investigation and prosecution by the SEC since 1999, according to the letter.
At the time of the Blakey report, other "Amway families" included: the Childers (team of six Diamonds); the Stewarts; the Gooch family; the Bryans (Down East); the Wilsons (WOW); the Puryears (World Wide Dreambuilders); the Hays (International Connection); the Matz family ( International Diamond Association); the Dornans (Network 21); the Strehlis (Creative Life Styles); and the INA (International Networking Association), run by a group of seven families.
According to the report, each family is involved in the Amway business, in terms of using the Amway Sales and Marketing Plan, and is also involved in Business Support Materials (BSM), or "tools," which include books, tapes, and rallies, Blakey determined.
However, each family kingpin rules his own Amway distributor pyramid and his own tool pyramid. But even though these pyramids are all separate corporate entities, they all work together to promote the Sales and Marketing Plan and the tools business, the report found.
What Else Is Amway Hiding?
What else is Amway hiding? Most likely Blakey’s assertion that "The Mafia uses "omerta" and violence for control," and "Amway has other methods, with similar effect."
Blakey claims, "Distributors must always honor their upline. No negative talk or action is permissible. A distributor who steps out of line is punished. ... serious offenders may be dealt with by having portions of their business taken away - e.g. they can no longer appear at rallies, or downline distributors are "re-routed."
There are also reports of violence against those who attempt to take action against Amway, the report maintains.
(Part 2 of this article will discuss specific incidents of this "omerta" and violence and other information contained in the report that Amway fought so hard to keep hidden.)
* Alticor was announced in October 2000 as the parent company for Amway (direct selling), Quixtar (e-commerce); www.alticor.com.
Amway - Mafia Like Business
January 31, 2005
Evelyn Pringle
Professor G Robert Blakey was retained as an expert witness in the 1998 Procter & Gamble v Amway lawsuit to issue an opinion on Amway's business practices. Blakey is one of the nation's foremost authorities on organized crime and after studying its business structure and functions, Blakey determined that the Amway business is run in a manner that is parallel to the businesses run by members of organized crime, "consisting of associated enterprises engaging in patterns of legal and illegal activity."
Pyramid schemes that include little or no sales to retail customers are illegal. Because the tool pyramids sell to Amway distributors only, and not to retail customers, the tool pyramids are illegal.
And Amway knows they are illegal. Company memos from the early 1980's that have surfaced in lawsuits, reveal that co-founders Rich DeVos and Jay Van Andel, were well aware of the illegality of the tool pyramids operating under the umbrella of Amway.
However, they recognized the enormous power accruing within the pyramids and that the income from the tool systems was becoming greater than the income from marketing Amway products. But if they dared to take action against the pyramids, they feared the kingpins would decide to take their downlines and leave Amway altogether. When it became clear that the company risked collapse if it continued to the fight, Amway decided to join the kingpin distributors in the tool business instead.
Mafia Like Corporate Structure
Professor Blakey determined that Amway uses corporate structures to protect individuals from liability and to hide the company’s illegal activities. The major families use the corporate form for their tools business and the Amway sales and marketing business. For example, Don Wilson has Wilson Enterprises for Amway sales and marketing, and WOW International for tools.
Currently, there are three primary lines of sponsorship within Amway, headed by Dexter Yager, Bill Britt,* and Ronald Puryear and all three run their tool pyramids through separate corporations.
While very few of these companies operate under normal corporate rules, or are bound to each other legally, according to Blakey, "In order for the business to function, there is an association-in-fact among the participants. The large family leaders ... work with the DeVos and Van Andels (Amway Corporation) to ensure the continuing operation of the business."
This association is necessary due to the predictable power struggles, he notes.
Family leaders, much like organized crime groups, hold positions because of who they are, and not because of any particular job qualifications.
For instance, Blakey reports that when deposed in the P&G suit, James Rosloniec, a Amway Vice President, supposedly in charge of audit and control, said he did not know what Amway Financial Services did, and he had no knowledge of the Amway companies, Amway Jewelry Company, Amway Realty Network, Group Fifty Corp, Merchandising Products, Nutrilite Products, Nutrilite Products, Limited - New Zealand, Sunrise Auto Plaza, Taerus Expo Corp, American Way, Limited, Video Incentives, Plus, or Amway International, Inc.
More often than not, Blakey noted, Rosloniec had little or no knowledge about the operations of corporations where he was both an officer and director. Eg, he was a Vice President and director with HI, Inc; yet in his testimony, he said he "believes" this corporation owns a Hawaii distribution center, but had never been to a company meeting or board meeting. He "believes" he is president and treasurer of Amway Investment, Inc., which has a value in excess of $300 million. He "assumes" he is president of Amway Auditing and Financial Services, which is a shell corporation.
"All of this indicated that Rosloniec is nothing more than a "shill" for the DeVos and Van Andel family," Blakey determined.
Mafia-Like Dispute Resolution
The nature of the Amway corporation lends itself to disputes and just like the Mafia, Amway families prefer to handle their disputes internally. There is a formal method of resolution with binding arbitration, and an informal method, with determinations rendered by family leaders, Blakey explains.
The formal resolution method is set forth in Amway's Business Reference Manual. When a problem arises, it is first discussed with the offender. If the problem persists, it is reported to the offender’s upline. If it still persists, a warning letter may be issued, with a copy sent to Amway. If this does not resolve the issue, a direct distributor may take action, including termination.
If the violator is dissatisfied, he can appeal to Amway for an informal conciliation procedure. If there is still no resolution, the panel issues a recommendation. If the party disagrees, he can request a review by the ADA Board. Upon receipt of a recommendation Amway reviews the matter and issues a final determination binding on all parties.
For those who may be interested, the informal method is outlined in the complaint filed in the 1998 Musgrove lawsuit. The Musgroves alleged that their upline had illegally taken monies owed to them and their downlines.
The Musgroves claim they were warned that going to Amway or the ADA would be a "mistake." When there was no resolution, they went to Jody Victor - a principal of the ADA. Victor advised them that to cross Don Wilson or Dexter Yager would be the equivalent of "being drawn and quartered."
When nothing got resolved, the Musgroves went to Amway, which resulted in retaliation against them and prompted them to file the lawsuit.
Mafia Methods Of Coercion & Control
Blakey points out that "The Mafia uses "omerta" and violence for control," and "Amway uses other tactics, with similar effect."
Low-level distributors must honor their upline. No negative talk or action is permissible. Paul Klebniov discussed this no-talk-rule in the December 9,1991, issue of Forbes Magazine: "Amway's attitude toward any insider critical of the organization has bordered on paranoia."
According to Blakey's report, a distributor who steps out of line is punished. "Punishment may start off with being vilified by uplines as a "loser," as "negative," or as "brain-dead" which are typical Amway appelations for anyone who does not believe in the Amway system and the riches that allegedly flow from it," he says.
"More serious offenders," says Blakey, "may have portions of their business taken away - e.g. they can no longer appear at rallies, or downline distributors are "re-routed."
The Eric Scheibeler Experience
The punishment Blakey described actually happened to Eric Scheibeler and his wife. In a depositon, the former Amway distributor explains how he and his wife thought they were joining Amway, but ended up in a pyramid scheme.
"What we didn't realize is that we were in an Amway motivational organization ... to promote, market and retail the system to our organization. And we personally were used ... to extract somewhere between three and four million dollars, I'm estimating, of good people's money that went to books, tapes and seminars, which is really the real secret income source that our upline Amway diamond was making money from," he recounts.
Eric describes how "people are brought in based on this incredible life-style and economic success of the Amway distributors ... when, in fact, a lot of them don't make a net income of one dollar on Amway. Almost all their profits come from recruiting - using Amway as a shell corporation to recruit people into their secret motivational organization, which is where all their income has come from," according to his deposition.
In his book Merchants of Deception, Eric said in time he discovered that "perhaps millions of others had been recruited and induced to participate in not just one, but two illegal pyramid-type businesses. The first was the tool business that had no end user outside of the organization, and the second was the Amway business," he said.
(The book can be downloaded from his website, merchantsofdeception.com, for a limited time only).
Eric tried to do something about the fraud, and says, "I provided information of fraud, global fraud, to Amway regarding ... forced participation in the tool business, fraudulent income representations, and they took no action ... I provided that also to Dick DeVos, the president of Amway, personally in both fax and certified letter, and the action they took was cut my income off," he said in his deposition.
As punishment for speaking out against the company, Amway cut off their monthly commissions drawn from the organization the Scheilebers had developed, and withheld about $20,000 while the couple went bankrupt, lost everything, and barely held onto their home.
At their lowest point, Eric’s sponsor asked him to sign an agreement stating he would never speak about his experience with Amway again. In return, Amway would release the $20,000 of the Scheileber’s money the company claimed it was holding "in escrow," and would buy Eric's Amway business for $75,000. In a nutshell, they wanted to buy the business and his silence for $95,000. Eric declined.
Same Coercion & Control Alleged In Lawsuits
This upline coercion and control is alleged in nearly every one of the many law suits filed all over the country. For instance, the 1998 Taylor v Amway suit alleged that the upline warned the distributors that they had the authority, political connections and clout to cause the plaintiffs to lose their business and told distributors to buy tools and attend functions or they would be "cut out like cancer."
After taking a look at the Van Andel Institute's Website, I'd say Van Andel indeed had the political ties to make good on such threat. The site lists Van Andel's history in politics.
"In 1992, President George Bush appointed Jay to serve as the United States Ambassador and Commissioner General to the Genoa Expo '92 in Genoa, Italy. He has also served as Chairman of the U.S. Chamber of Commerce, a Director of the Gerald R. Ford Foundation, a member of the U.S.O. World of Governors, and North American Chairman of the Netherlands American Bicentennial Commission," it says.
The complaint filed in the Stewart v Amway case alleges the uplines coerced attendance at functions, controlled by family leaders, and anyone trying to hold events independent of high level approved functions was "blackballed" from participating in other events.
In the 1998 Morrison v Amway case, 29 distributors filed the suit and revealed many of the company's secrets. The suit alleges downlines are coerced into spending money on tapes and functions and told that they have no chance of success unless they do and that those who ask questions or refuse to play the game risk having their businesses destroyed
For those who may be interested, the complaint in the 1998 New Hampshire case of Lavoie v Yager, details on the inner working of the Yager tool system and also outlines the progression of a distributor through the system.
Report of Actual Violence
Blakey found, "There are also reports of violence against those who attempt to take action against Amway."
For example, Edward Engel was Amway's chief financial officer until he resigned in 1979, over a disagreement with DeVos and Van Andel. Engels claims he and his family received threats for years after his resignation.
"It was a Big Brother organization," says Engel today. "Everyone assumed that the phones were tapped, and that Amway had something on everybody."
In 1983, while Engel's former secretary, Dorothy Edgar, was helping the Canadian authorities in their investigation of Amway, she was roughed up in Chicago, after she was told to "stay away from Amway."
Engel picked her up after the incident and says he believes her story, according to Paul Klebniov's article.
In 1982, former Amway distributor, Philip Kerns, quit the company and wrote an expose called "Fake it Till You Make It." He claims Amway had private detectives follow him and rough him up. The expose prompted Phil Donahue and 60 Minutes to run highly critical programs about Amway.
The many examples of threats, intimidation, blackmail, and violence outlined above definitely mimic attempts to control with methods often used by members of the Mafia.
Eric says there was one question that had haunted him. "How could this have possibly gone on for so long?"
After delving into the company's political connections he discovered the answer. His book reveals the close ties between Amway, the Republican Party, and both Bush administrations. According to Eric, over the past 20 years, there have been huge contributions and large speaking fees paid to prominent Republicans, which have resulted in immunity and protection for Amway against investigations into its violations of anti-pyramid scheme statutes.
If not for this prepaid-insurance, I firmly believe that Amway would have been shut down 20 years ago.
* (Part 1 of this article contains the statement: "Bill Britt has since been booted out of Amway." It should have said, according to a tape recorded message by Triple Diamond Ron Puryear, leader of World Wide Dream Builders, Bill Britt, retired from the Amway IBOA board of directors in June of 2004. The announcement occurred just after the board of directors met in its June session, where Britt was supposedly approached by other directors about compromising personal issues relating to two 911 emergency calls made by a woman reporting disputes. His speaking fees from World Wide Dreambuilders functions have ended since he won't be speaking at those seminars any longer.)
Evelyn Pringle
Professor G Robert Blakey was retained as an expert witness in the 1998 Procter & Gamble v Amway lawsuit to issue an opinion on Amway's business practices. Blakey is one of the nation's foremost authorities on organized crime and after studying its business structure and functions, Blakey determined that the Amway business is run in a manner that is parallel to the businesses run by members of organized crime, "consisting of associated enterprises engaging in patterns of legal and illegal activity."
Pyramid schemes that include little or no sales to retail customers are illegal. Because the tool pyramids sell to Amway distributors only, and not to retail customers, the tool pyramids are illegal.
And Amway knows they are illegal. Company memos from the early 1980's that have surfaced in lawsuits, reveal that co-founders Rich DeVos and Jay Van Andel, were well aware of the illegality of the tool pyramids operating under the umbrella of Amway.
However, they recognized the enormous power accruing within the pyramids and that the income from the tool systems was becoming greater than the income from marketing Amway products. But if they dared to take action against the pyramids, they feared the kingpins would decide to take their downlines and leave Amway altogether. When it became clear that the company risked collapse if it continued to the fight, Amway decided to join the kingpin distributors in the tool business instead.
Mafia Like Corporate Structure
Professor Blakey determined that Amway uses corporate structures to protect individuals from liability and to hide the company’s illegal activities. The major families use the corporate form for their tools business and the Amway sales and marketing business. For example, Don Wilson has Wilson Enterprises for Amway sales and marketing, and WOW International for tools.
Currently, there are three primary lines of sponsorship within Amway, headed by Dexter Yager, Bill Britt,* and Ronald Puryear and all three run their tool pyramids through separate corporations.
While very few of these companies operate under normal corporate rules, or are bound to each other legally, according to Blakey, "In order for the business to function, there is an association-in-fact among the participants. The large family leaders ... work with the DeVos and Van Andels (Amway Corporation) to ensure the continuing operation of the business."
This association is necessary due to the predictable power struggles, he notes.
Family leaders, much like organized crime groups, hold positions because of who they are, and not because of any particular job qualifications.
For instance, Blakey reports that when deposed in the P&G suit, James Rosloniec, a Amway Vice President, supposedly in charge of audit and control, said he did not know what Amway Financial Services did, and he had no knowledge of the Amway companies, Amway Jewelry Company, Amway Realty Network, Group Fifty Corp, Merchandising Products, Nutrilite Products, Nutrilite Products, Limited - New Zealand, Sunrise Auto Plaza, Taerus Expo Corp, American Way, Limited, Video Incentives, Plus, or Amway International, Inc.
More often than not, Blakey noted, Rosloniec had little or no knowledge about the operations of corporations where he was both an officer and director. Eg, he was a Vice President and director with HI, Inc; yet in his testimony, he said he "believes" this corporation owns a Hawaii distribution center, but had never been to a company meeting or board meeting. He "believes" he is president and treasurer of Amway Investment, Inc., which has a value in excess of $300 million. He "assumes" he is president of Amway Auditing and Financial Services, which is a shell corporation.
"All of this indicated that Rosloniec is nothing more than a "shill" for the DeVos and Van Andel family," Blakey determined.
Mafia-Like Dispute Resolution
The nature of the Amway corporation lends itself to disputes and just like the Mafia, Amway families prefer to handle their disputes internally. There is a formal method of resolution with binding arbitration, and an informal method, with determinations rendered by family leaders, Blakey explains.
The formal resolution method is set forth in Amway's Business Reference Manual. When a problem arises, it is first discussed with the offender. If the problem persists, it is reported to the offender’s upline. If it still persists, a warning letter may be issued, with a copy sent to Amway. If this does not resolve the issue, a direct distributor may take action, including termination.
If the violator is dissatisfied, he can appeal to Amway for an informal conciliation procedure. If there is still no resolution, the panel issues a recommendation. If the party disagrees, he can request a review by the ADA Board. Upon receipt of a recommendation Amway reviews the matter and issues a final determination binding on all parties.
For those who may be interested, the informal method is outlined in the complaint filed in the 1998 Musgrove lawsuit. The Musgroves alleged that their upline had illegally taken monies owed to them and their downlines.
The Musgroves claim they were warned that going to Amway or the ADA would be a "mistake." When there was no resolution, they went to Jody Victor - a principal of the ADA. Victor advised them that to cross Don Wilson or Dexter Yager would be the equivalent of "being drawn and quartered."
When nothing got resolved, the Musgroves went to Amway, which resulted in retaliation against them and prompted them to file the lawsuit.
Mafia Methods Of Coercion & Control
Blakey points out that "The Mafia uses "omerta" and violence for control," and "Amway uses other tactics, with similar effect."
Low-level distributors must honor their upline. No negative talk or action is permissible. Paul Klebniov discussed this no-talk-rule in the December 9,1991, issue of Forbes Magazine: "Amway's attitude toward any insider critical of the organization has bordered on paranoia."
According to Blakey's report, a distributor who steps out of line is punished. "Punishment may start off with being vilified by uplines as a "loser," as "negative," or as "brain-dead" which are typical Amway appelations for anyone who does not believe in the Amway system and the riches that allegedly flow from it," he says.
"More serious offenders," says Blakey, "may have portions of their business taken away - e.g. they can no longer appear at rallies, or downline distributors are "re-routed."
The Eric Scheibeler Experience
The punishment Blakey described actually happened to Eric Scheibeler and his wife. In a depositon, the former Amway distributor explains how he and his wife thought they were joining Amway, but ended up in a pyramid scheme.
"What we didn't realize is that we were in an Amway motivational organization ... to promote, market and retail the system to our organization. And we personally were used ... to extract somewhere between three and four million dollars, I'm estimating, of good people's money that went to books, tapes and seminars, which is really the real secret income source that our upline Amway diamond was making money from," he recounts.
Eric describes how "people are brought in based on this incredible life-style and economic success of the Amway distributors ... when, in fact, a lot of them don't make a net income of one dollar on Amway. Almost all their profits come from recruiting - using Amway as a shell corporation to recruit people into their secret motivational organization, which is where all their income has come from," according to his deposition.
In his book Merchants of Deception, Eric said in time he discovered that "perhaps millions of others had been recruited and induced to participate in not just one, but two illegal pyramid-type businesses. The first was the tool business that had no end user outside of the organization, and the second was the Amway business," he said.
(The book can be downloaded from his website, merchantsofdeception.com, for a limited time only).
Eric tried to do something about the fraud, and says, "I provided information of fraud, global fraud, to Amway regarding ... forced participation in the tool business, fraudulent income representations, and they took no action ... I provided that also to Dick DeVos, the president of Amway, personally in both fax and certified letter, and the action they took was cut my income off," he said in his deposition.
As punishment for speaking out against the company, Amway cut off their monthly commissions drawn from the organization the Scheilebers had developed, and withheld about $20,000 while the couple went bankrupt, lost everything, and barely held onto their home.
At their lowest point, Eric’s sponsor asked him to sign an agreement stating he would never speak about his experience with Amway again. In return, Amway would release the $20,000 of the Scheileber’s money the company claimed it was holding "in escrow," and would buy Eric's Amway business for $75,000. In a nutshell, they wanted to buy the business and his silence for $95,000. Eric declined.
Same Coercion & Control Alleged In Lawsuits
This upline coercion and control is alleged in nearly every one of the many law suits filed all over the country. For instance, the 1998 Taylor v Amway suit alleged that the upline warned the distributors that they had the authority, political connections and clout to cause the plaintiffs to lose their business and told distributors to buy tools and attend functions or they would be "cut out like cancer."
After taking a look at the Van Andel Institute's Website, I'd say Van Andel indeed had the political ties to make good on such threat. The site lists Van Andel's history in politics.
"In 1992, President George Bush appointed Jay to serve as the United States Ambassador and Commissioner General to the Genoa Expo '92 in Genoa, Italy. He has also served as Chairman of the U.S. Chamber of Commerce, a Director of the Gerald R. Ford Foundation, a member of the U.S.O. World of Governors, and North American Chairman of the Netherlands American Bicentennial Commission," it says.
The complaint filed in the Stewart v Amway case alleges the uplines coerced attendance at functions, controlled by family leaders, and anyone trying to hold events independent of high level approved functions was "blackballed" from participating in other events.
In the 1998 Morrison v Amway case, 29 distributors filed the suit and revealed many of the company's secrets. The suit alleges downlines are coerced into spending money on tapes and functions and told that they have no chance of success unless they do and that those who ask questions or refuse to play the game risk having their businesses destroyed
For those who may be interested, the complaint in the 1998 New Hampshire case of Lavoie v Yager, details on the inner working of the Yager tool system and also outlines the progression of a distributor through the system.
Report of Actual Violence
Blakey found, "There are also reports of violence against those who attempt to take action against Amway."
For example, Edward Engel was Amway's chief financial officer until he resigned in 1979, over a disagreement with DeVos and Van Andel. Engels claims he and his family received threats for years after his resignation.
"It was a Big Brother organization," says Engel today. "Everyone assumed that the phones were tapped, and that Amway had something on everybody."
In 1983, while Engel's former secretary, Dorothy Edgar, was helping the Canadian authorities in their investigation of Amway, she was roughed up in Chicago, after she was told to "stay away from Amway."
Engel picked her up after the incident and says he believes her story, according to Paul Klebniov's article.
In 1982, former Amway distributor, Philip Kerns, quit the company and wrote an expose called "Fake it Till You Make It." He claims Amway had private detectives follow him and rough him up. The expose prompted Phil Donahue and 60 Minutes to run highly critical programs about Amway.
The many examples of threats, intimidation, blackmail, and violence outlined above definitely mimic attempts to control with methods often used by members of the Mafia.
Eric says there was one question that had haunted him. "How could this have possibly gone on for so long?"
After delving into the company's political connections he discovered the answer. His book reveals the close ties between Amway, the Republican Party, and both Bush administrations. According to Eric, over the past 20 years, there have been huge contributions and large speaking fees paid to prominent Republicans, which have resulted in immunity and protection for Amway against investigations into its violations of anti-pyramid scheme statutes.
If not for this prepaid-insurance, I firmly believe that Amway would have been shut down 20 years ago.
* (Part 1 of this article contains the statement: "Bill Britt has since been booted out of Amway." It should have said, according to a tape recorded message by Triple Diamond Ron Puryear, leader of World Wide Dream Builders, Bill Britt, retired from the Amway IBOA board of directors in June of 2004. The announcement occurred just after the board of directors met in its June session, where Britt was supposedly approached by other directors about compromising personal issues relating to two 911 emergency calls made by a woman reporting disputes. His speaking fees from World Wide Dreambuilders functions have ended since he won't be speaking at those seminars any longer.)
Neil Bush and Crest Investments
Evelyn Pringle March 2005
Another Profiteering Scheme
Neil Bush has a $60,000-a-year employment contract with a top adviser to a Washington-based consulting firm set up to help companies secure contracts in Iraq, according to the November 11, 2004 Financial Times.
Neil disclosed this employment during a divorce deposition on March 3, 2003. He testified that he was co-chairman of the Houston-based, Crest Investment Corporation, which invests in energy and other ventures, and said he received $15,000 every three months for a average 3 or 4 hours of work a week doing "miscellaneous consulting services."
"Such as?" his ex-wife's Attorney asked.
"Such as answering phone calls when Jamal Daniel, the other co-chairman, called and asked for advice," Neil answered.
Crest's co-chairman, Daniel, sits on the advisory board of New Bridge Strategies, a firm set up in March 2003, just in time to cash in on the Iraq reconstruction contracts, by a group of businessmen with close ties to the Bush family, and both Bush administrations.
The firm's chairman is Joe Allbaugh, who was W's campaign director in the 2000, and who was appointed Director of FEMA once Bush took office.
In addition to paying him for "consulting" work, Crest has provided funding for Neil's educational software company Ignite! In fact, Daniel sometimes introduces himself as a founding backer of the company, and has persuaded the families of prominent leaders in the Middle East to invest in Ignite, according to the December 11, 2003 Financial Times.
Overall, Crest goes to great lengths to show Neil how much it values his membership on the team. For instance, when Neil got remarried in 2004, Daniel held a wedding reception at his home, and Crest arranged a 5-year rent-free cottage for Neil and his new bride in Kennebunkport, Maine, so they could spend time near Mom and Pop Bush whenever they wanted to.
Another Jackpot - Thanks To Brother W
As usual, during his deposition, Neil forgot to mention a few facts about his earnings potential with Crest. First of all, he didn't mention that he attached his signature to letters soliciting business for New Bridge in obtaining contracts in Iraq, and two, that he attached his name as a reference for an extremely lucrative proposal submitted by Crest to obtain a lease on a parcel of property located on the island of Quintana, Texas, that will result in payments of at least $2 million a year to Crest.
When W took office in 2001, he vowed to make it easier for companies to build coastline facilities to store liquefied natural gas (LNG), a cooled and condensed form of natural gas, shipped in from countries around the world.
That promise sent US companies scrambling to secure coastline property on which to build the LNG processing facilities. One company looking to enter the market was Crest. Although the firm had no experience whatsoever in LNG processing, it had a very influential asset, a co-chairman by the name of Neil Bush.
One property of specific interest was Quintana Island, located in the Texas gulf, because it was accessible to cargo ships. The right to grant a lease to the land belonged to the Brazos River Harbor Navigation District.
If it could gain approval, the Crest LNG facility would be the first such facility in Texas, and only one of a few in the entire country.
The Harbor Commission was so enthralled with a proposal from Crest, that it offered the company an all-exclusive lease without soliciting for any other bids. The proposal was approved even though ExxonMobil owned the right to a first refusal on that part of the island, under a 1998 agreement, and even though the Commission knew that another company, Cheniere Energy, was interested in building a nearly identical facility on the exact same parcel of land.
When asked why the commission chose to grant the initial deal to Crest, Phyllis Saathoff, managing director of the Commission, said, "We worked it out and could accommodate [the Crest proposal], so we did," according to the LA Times on October 29, 2004.
To this day, Neil's connection to the firm is not widely known. However, Saathoff said that when Crest approached the commission with the project, it provided Neil's name as a reference.
How Did Crest Pull It Off?
The chronology of events that led to the Commission's approval of the Crest proposal is contained in court documents from a lawsuit filed against Crest, by Cheniere Energy, a firm with experience in LNG processing.
In 2000, Crest and Cheniere began discussing the possibility of a joint venture to build an LNG facility. After W's election, negotiations picked up speed and Cheniere provided a detailed, "confidential" briefing on its plans to Crest, according to court records.
In early 2001, Cheniere submitted an initial proposal for the project to the Commission. However, without telling Cheniere, Crest went forward and submitted a similar proposal to the Commission, according to court records.
The commission set a date of March 22, 2001, to meet with Cheniere officials about the firm's proposal, but the meeting was abruptly canceled. The very next day, on March 23, 2001, the Commission held an emergency session and met with Crest representatives, and granted the company, with no experience in LNG processing, an exclusive, 3-year lease option on the island property.
Cheniere then filed the lawsuit against Crest. But the two companies ended up settling out of court by becoming partners on the project. After other partners were added, the Freeport LNG consortium was created.
Crest To Handle Political Permits
An internal Freeport memo specified that Cheniere would be responsible for operational aspects of the project, and to no one's surprise I'm sure, Neil's company, Crest, was designated to "handle the political permitting side."
Crest has supported W in his campaigns and some of the firm's representatives have key Washington connections. According to harbor commission memos, Daniel is friends with Energy Secretary, Spencer Abraham, and Crest executive, Dee Osborne, was a guest of Commerce Secretary, Don Evans, on a 2002 US trade mission to Chile and Peru, the Times reported.
In addition to Neil's obvious inside track with W, Crest was able to garner other political support for the project's approval by the Federal Energy Regulatory Commission (FERC). House Majority Leader Tom DeLay (R-TX), was one of 4 members of Congress who signed a letter in support of approving the project, and Daniel's buddy, Spencer Abraham, also lent the backing of his office at the Department of Energy.
On December 12, 2002, the Commission approved the terms of a 30-year lease. However, Texas law required that it solicit for bids on any lease extending beyond 10 years. The Commission claimed it advertised for proposals in late December, 2002, but said no other bids were submitted.
The Crest-Quintana project was one of the first to benefit from the Bush administration's changes in regulations that streamlined federal permitting, relaxed financial reviews and made it easier to comply with safety standards.
Although the changes in the regulations were made after Freeport filed its initial application, the changes were applied retroactively to the project. In June, 2002, the FERC approved the project and gave the company a 5-year completion date. The final version of the lease was signed on March 28, 2003.
An important fact that Neil forgot to mention in his deposition is that once the plant goes into operation, Crest is guaranteed payments of at least $2 million a year from the partnership. However, unless Neil decides to dump his new wife, which might require his participation in another deposition, we will likely never know how much of the $2 million ends up in the Bush trough each year.
James Smith, director of Public Citizen-Texas, a watchdog group focused on energy issues, described the Crest profiteering scheme correctly when he told the LA Times on October 29, 2004, that the deal appeared to be "another classic example of Bush family cronyism paying off."
Another Profiteering Scheme
Neil Bush has a $60,000-a-year employment contract with a top adviser to a Washington-based consulting firm set up to help companies secure contracts in Iraq, according to the November 11, 2004 Financial Times.
Neil disclosed this employment during a divorce deposition on March 3, 2003. He testified that he was co-chairman of the Houston-based, Crest Investment Corporation, which invests in energy and other ventures, and said he received $15,000 every three months for a average 3 or 4 hours of work a week doing "miscellaneous consulting services."
"Such as?" his ex-wife's Attorney asked.
"Such as answering phone calls when Jamal Daniel, the other co-chairman, called and asked for advice," Neil answered.
Crest's co-chairman, Daniel, sits on the advisory board of New Bridge Strategies, a firm set up in March 2003, just in time to cash in on the Iraq reconstruction contracts, by a group of businessmen with close ties to the Bush family, and both Bush administrations.
The firm's chairman is Joe Allbaugh, who was W's campaign director in the 2000, and who was appointed Director of FEMA once Bush took office.
In addition to paying him for "consulting" work, Crest has provided funding for Neil's educational software company Ignite! In fact, Daniel sometimes introduces himself as a founding backer of the company, and has persuaded the families of prominent leaders in the Middle East to invest in Ignite, according to the December 11, 2003 Financial Times.
Overall, Crest goes to great lengths to show Neil how much it values his membership on the team. For instance, when Neil got remarried in 2004, Daniel held a wedding reception at his home, and Crest arranged a 5-year rent-free cottage for Neil and his new bride in Kennebunkport, Maine, so they could spend time near Mom and Pop Bush whenever they wanted to.
Another Jackpot - Thanks To Brother W
As usual, during his deposition, Neil forgot to mention a few facts about his earnings potential with Crest. First of all, he didn't mention that he attached his signature to letters soliciting business for New Bridge in obtaining contracts in Iraq, and two, that he attached his name as a reference for an extremely lucrative proposal submitted by Crest to obtain a lease on a parcel of property located on the island of Quintana, Texas, that will result in payments of at least $2 million a year to Crest.
When W took office in 2001, he vowed to make it easier for companies to build coastline facilities to store liquefied natural gas (LNG), a cooled and condensed form of natural gas, shipped in from countries around the world.
That promise sent US companies scrambling to secure coastline property on which to build the LNG processing facilities. One company looking to enter the market was Crest. Although the firm had no experience whatsoever in LNG processing, it had a very influential asset, a co-chairman by the name of Neil Bush.
One property of specific interest was Quintana Island, located in the Texas gulf, because it was accessible to cargo ships. The right to grant a lease to the land belonged to the Brazos River Harbor Navigation District.
If it could gain approval, the Crest LNG facility would be the first such facility in Texas, and only one of a few in the entire country.
The Harbor Commission was so enthralled with a proposal from Crest, that it offered the company an all-exclusive lease without soliciting for any other bids. The proposal was approved even though ExxonMobil owned the right to a first refusal on that part of the island, under a 1998 agreement, and even though the Commission knew that another company, Cheniere Energy, was interested in building a nearly identical facility on the exact same parcel of land.
When asked why the commission chose to grant the initial deal to Crest, Phyllis Saathoff, managing director of the Commission, said, "We worked it out and could accommodate [the Crest proposal], so we did," according to the LA Times on October 29, 2004.
To this day, Neil's connection to the firm is not widely known. However, Saathoff said that when Crest approached the commission with the project, it provided Neil's name as a reference.
How Did Crest Pull It Off?
The chronology of events that led to the Commission's approval of the Crest proposal is contained in court documents from a lawsuit filed against Crest, by Cheniere Energy, a firm with experience in LNG processing.
In 2000, Crest and Cheniere began discussing the possibility of a joint venture to build an LNG facility. After W's election, negotiations picked up speed and Cheniere provided a detailed, "confidential" briefing on its plans to Crest, according to court records.
In early 2001, Cheniere submitted an initial proposal for the project to the Commission. However, without telling Cheniere, Crest went forward and submitted a similar proposal to the Commission, according to court records.
The commission set a date of March 22, 2001, to meet with Cheniere officials about the firm's proposal, but the meeting was abruptly canceled. The very next day, on March 23, 2001, the Commission held an emergency session and met with Crest representatives, and granted the company, with no experience in LNG processing, an exclusive, 3-year lease option on the island property.
Cheniere then filed the lawsuit against Crest. But the two companies ended up settling out of court by becoming partners on the project. After other partners were added, the Freeport LNG consortium was created.
Crest To Handle Political Permits
An internal Freeport memo specified that Cheniere would be responsible for operational aspects of the project, and to no one's surprise I'm sure, Neil's company, Crest, was designated to "handle the political permitting side."
Crest has supported W in his campaigns and some of the firm's representatives have key Washington connections. According to harbor commission memos, Daniel is friends with Energy Secretary, Spencer Abraham, and Crest executive, Dee Osborne, was a guest of Commerce Secretary, Don Evans, on a 2002 US trade mission to Chile and Peru, the Times reported.
In addition to Neil's obvious inside track with W, Crest was able to garner other political support for the project's approval by the Federal Energy Regulatory Commission (FERC). House Majority Leader Tom DeLay (R-TX), was one of 4 members of Congress who signed a letter in support of approving the project, and Daniel's buddy, Spencer Abraham, also lent the backing of his office at the Department of Energy.
On December 12, 2002, the Commission approved the terms of a 30-year lease. However, Texas law required that it solicit for bids on any lease extending beyond 10 years. The Commission claimed it advertised for proposals in late December, 2002, but said no other bids were submitted.
The Crest-Quintana project was one of the first to benefit from the Bush administration's changes in regulations that streamlined federal permitting, relaxed financial reviews and made it easier to comply with safety standards.
Although the changes in the regulations were made after Freeport filed its initial application, the changes were applied retroactively to the project. In June, 2002, the FERC approved the project and gave the company a 5-year completion date. The final version of the lease was signed on March 28, 2003.
An important fact that Neil forgot to mention in his deposition is that once the plant goes into operation, Crest is guaranteed payments of at least $2 million a year from the partnership. However, unless Neil decides to dump his new wife, which might require his participation in another deposition, we will likely never know how much of the $2 million ends up in the Bush trough each year.
James Smith, director of Public Citizen-Texas, a watchdog group focused on energy issues, described the Crest profiteering scheme correctly when he told the LA Times on October 29, 2004, that the deal appeared to be "another classic example of Bush family cronyism paying off."
Bush Doing Corporate Bidding While On The Clock
Evelyn Pringle November 5, 2005
Among Latin Americans, polls show George W Bush to be the most unpopular American president in history. On November 3, 2005, the Argentine daily reported the results of a poll that showed 6 out of ten Argentines opposed Bush’s presence in their country.
In the same poll, 75% of those surveyed said they welcomed a visit by Venezuelan President, Hugo Chávez, Bush's staunchest opponent in his up-ill battle to win passage of the Free Trade Area of the Americas (FTAA).
The FTAA, with the exception of Cuba, would include all Caribbean and Latin American countries. If passed, some experts predict that it will be the largest free trade agreement in history, with an expected combined GDP of over $9 trillion, and a market of more than 750 million people.
The FTAA agreement was designed to bring 34 countries into a single market but it missed its deadline for enactment on January 1, 2005. Earlier this year, 10-year drive toward passage of FTAA was derailed completely after talks broke down when Argentina, Venezuela, and Brazil made it clear that they were unwilling to accept the terms set forth by the Bush administration.
In the meantime, the Central American Free Trade Agreement (CAFTA) was signed in August 2005, to extend the policies of the North American Free Trade Agreement (NAFTA), to Central American countries to include Guatemala, Honduras, Nicaragua, Costa Rica, and El Salvador, with a side agreement with the Dominican Republic (DR-CAFTA).
Overall, the FTAA faces widespread opposition in Latin America and for good reason. 20 years of NAFTA's so-called economic reforms have resulted in widespread poverty, high unemployment, massive debt, and a series of other economic crises.
Bush is hoping to get the deal back on track while attending the summit, but his prospects look grim. Protests against his visit were already underway in Argentina, 3 days before he got there, with the blocking of bridges and streets in the capital of Buenos Aires, and posters bearing the slogans "Stop Bush" and "Fuera Bush," some of which were superimposed over graphic pictures of wounded children in Iraqi.
Argentine Nobel Prize winner, Adolfo Pérez Esquivel, recently told a radio audience that Bush is "a torturer, violator of human rights, an assassin, a violator of United Nations resolutions, of international treaties and of the sovereignty of peoples, as has happened in Iraq."
There were even attempts to obtain a court order to bar Bush from entering the county and back in July 2005, Daniel Katz, the mayor of Mar del Plata, described Bush as the "most unpleasant guy in the world."
Same Old GOP Tactics To Pass CAFTA
"Though constituents widely opposed CAFTA, the agreement passed Congress through the use of bribery, threats, and deception," according to the article, Vote-buying and Arm-twisting, by William F Jasper on August 22, 2005.
The Senate and House set new lows for political prostitution, corruption, and betrayal, with the White House and Republican leaders openly propositioning members in the halls of Congress with billions of dollars in federal projects, along with promises of special trade concessions, Jasper maintains, "all to win passage of a misbegotten agreement that will cost America hundreds of thousands of jobs, billions of dollars in foreign aid, additional waves of illegal aliens, and further entanglement in sovereignty-destroying international regulatory regimes," he wrote.
Congressman, Ron Paul (R-Texas), one of the 27 Republicans who voted against CAFTA, said the vote-buying price tag may end up being $50 billion or more. "Most of the bribery is hidden away in projects funded by the massive energy and transportation appropriation bills," he told Jasper.
The truth is, CAFTA will do nothing to improve the US economy. In an August 30, 2005 letter to the Forum, Rep Earl Pomeroy (D-ND), tells how "the economies of the CAFTA countries is smaller than that of the state of Connecticut, just two-thirds that of Minneapolis-St. Paul. The idea that we are instantly going to be sending trucks and ships full of American products – high-quality commodities and goods – to the citizens of these countries, where 40 percent of workers earn less than $2 a day, is simply a myth."
In per capita terms, "the countries range from Nicaragua with a GNI per capita of $730, which the World Bank classifies as a low-income country, to Costa Rica with per capita income of $4,280, which is classified as an upper middle income country. The rest of the countries are classified as lower middle-income countries by the World Bank," according to an August 4, 2005 CRS Report for Congress.
The economies of the countries in Central America are so poor that they cannot afford to buy a significant quantity of any product from the US. "With a combined national income of about $84 billion, the Gross National Incomes (GNI) of the countries range from $5.5 billion for Nicaragua to $23.5 billion for Guatemala," according to the CRS Report.
But then the true goal of CAFTA has never been about making money off these tiny countries. Three years ago the Bush administration admitted that the purpose of CAFTA was to instigate a drive for the passage of FTAA, in a January 16, 2002 press release upon opening of negotiations for CAFTA: "This negotiation will complement the United States’ goal of completing the Free Trade Area of the Americas (FTAA) no later than January 2005 by increasing the momentum in the hemisphere toward lowering barriers," it said.
According to, Protectionism And Free Trade, by Harley Shaiken, "the DR-CAFTA is more a pleading of special interests than a free-trade deal. It manages simultaneously to fleece the people of six poor countries and to put U.S. workers in harm's way," in Tom Paine, on May 31, 2005.
Bush Lobbies For Pharma
By now, the records of the House ethics committee confirm that the Bush administration and its puppets in Congress, do little more than provide a trolley for private gain. I for one am getting tired of watching these lobbyists doing their bidding while on the clock, in addition to tax payers having to foot the bill for all expense paid trips to foreign countries.
While pursuing these trade agreements, Bush is doing the bidding for Pharma, his party's top campaign contributor. CAFTA was clearly designed to protect the interests of large drug companies in Central America. Drug makers currently invested in Costa Rica include Abbott, GlaxoSmithKline, Eli Lilly and Bristol-Meyers Squibb. See Department of Commerce, US Commercial Service, Costa Rica Country Commercial Guide 2002.
CAFTA includes intellectual property rights for pharma, that extend the time a drug maker may keep test data secret which will result in an extension of monopolies because impoverished countries cannot afford to conduct their own clinical studies.
"For American drug companies," Harley Shaiken says, "this agreement extends the time period during which brand-name pharmaceuticals have exclusive access to markets, postponing the entry of generic drugs and thus limiting competition."
"The Bush Administration's trade negotiators have repeatedly pressured the developing countries to forgo their rights ... and to adopt intellectual property standards that impede access to essential medications," says a report by Rep Henry Waxman, (D-CA).
"For Central Americans, the cost of drugs will soar, straining budgets and gutting health care," Shaiken writes, "The result may be a death sentence for many." Four of the 6 Latin American countries with the highest rate of HIV are in Central America. Hundreds of thousands of HIV patients could die as a direct result of CAFTA.
"In effect, the President's trade representatives have elevated the protection of pharmaceutical patents above the pressing health needs of developing countries," according to, Big Pharma's Free Ride, in Salon Magazine on August 12, 2005
War On The Supplement Industry
The dietary supplement industry has become a real threat to pharma as the number of people who stay healthy grows as a result of taking dietary supplements. In response to the threat, pharma has launched an undeclared all-out--global-war against the supplement industry.
The industry has already paid huge fines for illegal conduct aimed at supplement makers. Over the years, the US Department of Justice has brought actions against industry giants, Hoffman La Roche, Merck and others, for conspiring to fix prices of raw materials used to manufacture supplements, in violation of the Sherman Anti-Trust Act.
In the case of LaRoche, the company was fined a record setting $540,000,000 for price fixing by creating a false shortage of raw materials for vitamin B3, in order to increase sales of their anti-cholesterol drugs.
Considering the fine, it does not require much of an imagination to recognize the financial motives behind the war. The customer base that pharma is after is enormous. Recent polls show that 60 to 70% of North Americans now use complementary medicines and dietary supplements.
In addition to those already discussed above, another gift to pharma is buried in the language of CAFTA in Section 6, which requires that all member countries form a Sanitary and Phyto-Sanitary (SPS) committee for the purpose of insuring ongoing harmonization under the terms of the SPS Agreement in the WTO, according to the July 2, 2005, Urgent Alert Health Freedom Is Being Threatened, by Paul Anthony Tayler.
The World Trade Organization's SPS Agreement reads in part: "To harmonize sanitary and phytosanitary measures on as wide a basis as possible, Members shall base their food safety measures on international standards, guidelines or recommendations."
The Codex Alimentarius Commission is the international body charged with setting global food standards. It holds an annual gathering of delegates in Europe each year, many of them trans-national pharmaceutical corporations, who are primarily focused on increasing their market share, by pushing their desired and arbitrary regulatory "standards" into a global standard and forcing it onto the smaller local supplement industry, all in the name of "international regulatory excellence," according to Eve Hillary in "Codex - The Sickness Indu$try's Last Stand, April 23, 2005.
The Codex subcommittee that specifically deals with supplements is the Committee on Nutrition and Foods for Special Dietary Uses, which meets in Bonn, Germany each November. This committee establishes guidelines to govern international trade in supplements. In essence, it has the authority to decide whether or not consumers can have vitamins, minerals and other nutrients, in what dosage, and who will be permitted to manufacture and sell the products.
Under CAFTA, the US government must not only harmonize federal laws, it must also force state and local governments to conform their laws with the standards. Many believe there is a real danger that guidelines for supplements could be forced on the US because if it refuses to harmonize, the WTO can apply pressure by withdrawing trade privileges and imposing trade sanctions.
Such sanctions could amount to billions of dollars in tariffs that the WTO could authorize nations to levee on US exports, and not just supplement exports. This sanction would make US goods grossly overpriced and hard to sell. Under such pressure, Congress would likely adopt the anti-supplement regulations. It has already given in on past WTO disputes, to avoid crippling trade sanctions. See Dietary Supplements Under Imminent Threat, James South M.A, January 26, 2005.
A Major Battle At Home And Abroad
Convincing Latin American countries to adopt the FTAA, may be the least of the administration's worries. Considering how much political capital was waged on passing CAFTA, an even greater battle lies ahead in trying to get Congress to pass a plan that would encompass the entire Western Hemisphere.
One need only consider what has occurred in the this country since NAFTA, to recognize the uphill battle Bush is facing. The year before NAFTA was adopted, the US trade deficit with its partners was $9 billion. Last year the deficit hit $111 billion, over ten times what it was before NAFTA.
The Economic Policy Institute determined that the trade deficit has cost US workers nearly 900,000 jobs, and job opportunities, through 2002, and the deficit has grown higher since then. Robert Scott, "The High Price of 'Free Trade," Briefing Paper, November 2003.
And life after NAFTA is even worse for our partners. NAFTA promised to raise living standards in Mexico and reduce the flow of illegal immigrants to the US. But in fact, the opposite has happened. Real wages in Mexico today are actually lower than when NAFTA began, the poverty rate is higher, and illegal immigration to the US has soared.
More than a million small farmers have lost their land to floods of agricultural imports and are forced to seek work in factories along the border or in the US, Economist Mark Levinson told the Senate Finance Committee, on April 13, 2005.
Our trade relationship with Canada is not looking that great either. Ottawa, Washington's oldest and largest free trade partner, is close to giving up hope of reaching a fair settlement of its softwood lumber dispute with the US, according to the September 12, 2005, Toronto Star.
Canadian negotiators are refusing to return to the table, to indicate to the world, the ineffectiveness of trying to negotiate with the Bush administration. "The American position is absolutely untenable," said Prime Minister Paul Martin. "We've got to step up with retaliation, in my view," Industry Minister David Emerson told the Star.
The latest flare-up occurred in August 2005, when a final-appeal panel "ruled that the U.S. had no right to impose a 27 per cent levy on Canadian lumber imports. U.S. Trade Representative, Rob Portman, said the US government disagreed with the decision and would disregard it, according to the Star.
"Canadians shook their heads in disbelief," the paper wrote, while "the rest of the world, Latin America in particular, got a vicarious taste of free trade with the US."
It appears that a trade relationship with the US is no longer a sought after prize. According to the Star, "a growing number of countries regard it as a dubious asset."
Among Latin Americans, polls show George W Bush to be the most unpopular American president in history. On November 3, 2005, the Argentine daily reported the results of a poll that showed 6 out of ten Argentines opposed Bush’s presence in their country.
In the same poll, 75% of those surveyed said they welcomed a visit by Venezuelan President, Hugo Chávez, Bush's staunchest opponent in his up-ill battle to win passage of the Free Trade Area of the Americas (FTAA).
The FTAA, with the exception of Cuba, would include all Caribbean and Latin American countries. If passed, some experts predict that it will be the largest free trade agreement in history, with an expected combined GDP of over $9 trillion, and a market of more than 750 million people.
The FTAA agreement was designed to bring 34 countries into a single market but it missed its deadline for enactment on January 1, 2005. Earlier this year, 10-year drive toward passage of FTAA was derailed completely after talks broke down when Argentina, Venezuela, and Brazil made it clear that they were unwilling to accept the terms set forth by the Bush administration.
In the meantime, the Central American Free Trade Agreement (CAFTA) was signed in August 2005, to extend the policies of the North American Free Trade Agreement (NAFTA), to Central American countries to include Guatemala, Honduras, Nicaragua, Costa Rica, and El Salvador, with a side agreement with the Dominican Republic (DR-CAFTA).
Overall, the FTAA faces widespread opposition in Latin America and for good reason. 20 years of NAFTA's so-called economic reforms have resulted in widespread poverty, high unemployment, massive debt, and a series of other economic crises.
Bush is hoping to get the deal back on track while attending the summit, but his prospects look grim. Protests against his visit were already underway in Argentina, 3 days before he got there, with the blocking of bridges and streets in the capital of Buenos Aires, and posters bearing the slogans "Stop Bush" and "Fuera Bush," some of which were superimposed over graphic pictures of wounded children in Iraqi.
Argentine Nobel Prize winner, Adolfo Pérez Esquivel, recently told a radio audience that Bush is "a torturer, violator of human rights, an assassin, a violator of United Nations resolutions, of international treaties and of the sovereignty of peoples, as has happened in Iraq."
There were even attempts to obtain a court order to bar Bush from entering the county and back in July 2005, Daniel Katz, the mayor of Mar del Plata, described Bush as the "most unpleasant guy in the world."
Same Old GOP Tactics To Pass CAFTA
"Though constituents widely opposed CAFTA, the agreement passed Congress through the use of bribery, threats, and deception," according to the article, Vote-buying and Arm-twisting, by William F Jasper on August 22, 2005.
The Senate and House set new lows for political prostitution, corruption, and betrayal, with the White House and Republican leaders openly propositioning members in the halls of Congress with billions of dollars in federal projects, along with promises of special trade concessions, Jasper maintains, "all to win passage of a misbegotten agreement that will cost America hundreds of thousands of jobs, billions of dollars in foreign aid, additional waves of illegal aliens, and further entanglement in sovereignty-destroying international regulatory regimes," he wrote.
Congressman, Ron Paul (R-Texas), one of the 27 Republicans who voted against CAFTA, said the vote-buying price tag may end up being $50 billion or more. "Most of the bribery is hidden away in projects funded by the massive energy and transportation appropriation bills," he told Jasper.
The truth is, CAFTA will do nothing to improve the US economy. In an August 30, 2005 letter to the Forum, Rep Earl Pomeroy (D-ND), tells how "the economies of the CAFTA countries is smaller than that of the state of Connecticut, just two-thirds that of Minneapolis-St. Paul. The idea that we are instantly going to be sending trucks and ships full of American products – high-quality commodities and goods – to the citizens of these countries, where 40 percent of workers earn less than $2 a day, is simply a myth."
In per capita terms, "the countries range from Nicaragua with a GNI per capita of $730, which the World Bank classifies as a low-income country, to Costa Rica with per capita income of $4,280, which is classified as an upper middle income country. The rest of the countries are classified as lower middle-income countries by the World Bank," according to an August 4, 2005 CRS Report for Congress.
The economies of the countries in Central America are so poor that they cannot afford to buy a significant quantity of any product from the US. "With a combined national income of about $84 billion, the Gross National Incomes (GNI) of the countries range from $5.5 billion for Nicaragua to $23.5 billion for Guatemala," according to the CRS Report.
But then the true goal of CAFTA has never been about making money off these tiny countries. Three years ago the Bush administration admitted that the purpose of CAFTA was to instigate a drive for the passage of FTAA, in a January 16, 2002 press release upon opening of negotiations for CAFTA: "This negotiation will complement the United States’ goal of completing the Free Trade Area of the Americas (FTAA) no later than January 2005 by increasing the momentum in the hemisphere toward lowering barriers," it said.
According to, Protectionism And Free Trade, by Harley Shaiken, "the DR-CAFTA is more a pleading of special interests than a free-trade deal. It manages simultaneously to fleece the people of six poor countries and to put U.S. workers in harm's way," in Tom Paine, on May 31, 2005.
Bush Lobbies For Pharma
By now, the records of the House ethics committee confirm that the Bush administration and its puppets in Congress, do little more than provide a trolley for private gain. I for one am getting tired of watching these lobbyists doing their bidding while on the clock, in addition to tax payers having to foot the bill for all expense paid trips to foreign countries.
While pursuing these trade agreements, Bush is doing the bidding for Pharma, his party's top campaign contributor. CAFTA was clearly designed to protect the interests of large drug companies in Central America. Drug makers currently invested in Costa Rica include Abbott, GlaxoSmithKline, Eli Lilly and Bristol-Meyers Squibb. See Department of Commerce, US Commercial Service, Costa Rica Country Commercial Guide 2002.
CAFTA includes intellectual property rights for pharma, that extend the time a drug maker may keep test data secret which will result in an extension of monopolies because impoverished countries cannot afford to conduct their own clinical studies.
"For American drug companies," Harley Shaiken says, "this agreement extends the time period during which brand-name pharmaceuticals have exclusive access to markets, postponing the entry of generic drugs and thus limiting competition."
"The Bush Administration's trade negotiators have repeatedly pressured the developing countries to forgo their rights ... and to adopt intellectual property standards that impede access to essential medications," says a report by Rep Henry Waxman, (D-CA).
"For Central Americans, the cost of drugs will soar, straining budgets and gutting health care," Shaiken writes, "The result may be a death sentence for many." Four of the 6 Latin American countries with the highest rate of HIV are in Central America. Hundreds of thousands of HIV patients could die as a direct result of CAFTA.
"In effect, the President's trade representatives have elevated the protection of pharmaceutical patents above the pressing health needs of developing countries," according to, Big Pharma's Free Ride, in Salon Magazine on August 12, 2005
War On The Supplement Industry
The dietary supplement industry has become a real threat to pharma as the number of people who stay healthy grows as a result of taking dietary supplements. In response to the threat, pharma has launched an undeclared all-out--global-war against the supplement industry.
The industry has already paid huge fines for illegal conduct aimed at supplement makers. Over the years, the US Department of Justice has brought actions against industry giants, Hoffman La Roche, Merck and others, for conspiring to fix prices of raw materials used to manufacture supplements, in violation of the Sherman Anti-Trust Act.
In the case of LaRoche, the company was fined a record setting $540,000,000 for price fixing by creating a false shortage of raw materials for vitamin B3, in order to increase sales of their anti-cholesterol drugs.
Considering the fine, it does not require much of an imagination to recognize the financial motives behind the war. The customer base that pharma is after is enormous. Recent polls show that 60 to 70% of North Americans now use complementary medicines and dietary supplements.
In addition to those already discussed above, another gift to pharma is buried in the language of CAFTA in Section 6, which requires that all member countries form a Sanitary and Phyto-Sanitary (SPS) committee for the purpose of insuring ongoing harmonization under the terms of the SPS Agreement in the WTO, according to the July 2, 2005, Urgent Alert Health Freedom Is Being Threatened, by Paul Anthony Tayler.
The World Trade Organization's SPS Agreement reads in part: "To harmonize sanitary and phytosanitary measures on as wide a basis as possible, Members shall base their food safety measures on international standards, guidelines or recommendations."
The Codex Alimentarius Commission is the international body charged with setting global food standards. It holds an annual gathering of delegates in Europe each year, many of them trans-national pharmaceutical corporations, who are primarily focused on increasing their market share, by pushing their desired and arbitrary regulatory "standards" into a global standard and forcing it onto the smaller local supplement industry, all in the name of "international regulatory excellence," according to Eve Hillary in "Codex - The Sickness Indu$try's Last Stand, April 23, 2005.
The Codex subcommittee that specifically deals with supplements is the Committee on Nutrition and Foods for Special Dietary Uses, which meets in Bonn, Germany each November. This committee establishes guidelines to govern international trade in supplements. In essence, it has the authority to decide whether or not consumers can have vitamins, minerals and other nutrients, in what dosage, and who will be permitted to manufacture and sell the products.
Under CAFTA, the US government must not only harmonize federal laws, it must also force state and local governments to conform their laws with the standards. Many believe there is a real danger that guidelines for supplements could be forced on the US because if it refuses to harmonize, the WTO can apply pressure by withdrawing trade privileges and imposing trade sanctions.
Such sanctions could amount to billions of dollars in tariffs that the WTO could authorize nations to levee on US exports, and not just supplement exports. This sanction would make US goods grossly overpriced and hard to sell. Under such pressure, Congress would likely adopt the anti-supplement regulations. It has already given in on past WTO disputes, to avoid crippling trade sanctions. See Dietary Supplements Under Imminent Threat, James South M.A, January 26, 2005.
A Major Battle At Home And Abroad
Convincing Latin American countries to adopt the FTAA, may be the least of the administration's worries. Considering how much political capital was waged on passing CAFTA, an even greater battle lies ahead in trying to get Congress to pass a plan that would encompass the entire Western Hemisphere.
One need only consider what has occurred in the this country since NAFTA, to recognize the uphill battle Bush is facing. The year before NAFTA was adopted, the US trade deficit with its partners was $9 billion. Last year the deficit hit $111 billion, over ten times what it was before NAFTA.
The Economic Policy Institute determined that the trade deficit has cost US workers nearly 900,000 jobs, and job opportunities, through 2002, and the deficit has grown higher since then. Robert Scott, "The High Price of 'Free Trade," Briefing Paper, November 2003.
And life after NAFTA is even worse for our partners. NAFTA promised to raise living standards in Mexico and reduce the flow of illegal immigrants to the US. But in fact, the opposite has happened. Real wages in Mexico today are actually lower than when NAFTA began, the poverty rate is higher, and illegal immigration to the US has soared.
More than a million small farmers have lost their land to floods of agricultural imports and are forced to seek work in factories along the border or in the US, Economist Mark Levinson told the Senate Finance Committee, on April 13, 2005.
Our trade relationship with Canada is not looking that great either. Ottawa, Washington's oldest and largest free trade partner, is close to giving up hope of reaching a fair settlement of its softwood lumber dispute with the US, according to the September 12, 2005, Toronto Star.
Canadian negotiators are refusing to return to the table, to indicate to the world, the ineffectiveness of trying to negotiate with the Bush administration. "The American position is absolutely untenable," said Prime Minister Paul Martin. "We've got to step up with retaliation, in my view," Industry Minister David Emerson told the Star.
The latest flare-up occurred in August 2005, when a final-appeal panel "ruled that the U.S. had no right to impose a 27 per cent levy on Canadian lumber imports. U.S. Trade Representative, Rob Portman, said the US government disagreed with the decision and would disregard it, according to the Star.
"Canadians shook their heads in disbelief," the paper wrote, while "the rest of the world, Latin America in particular, got a vicarious taste of free trade with the US."
It appears that a trade relationship with the US is no longer a sought after prize. According to the Star, "a growing number of countries regard it as a dubious asset."
No Bush Left Behind Act - Uncle Bucky Bush
Evelyn Pringle January 26, 2005
Wherever there’s a buck to be made by scamming tax payers, a member of the Bush family is sure be close at hand. Many Bush relatives are benefiting financially from the war in Iraq, and according to regulatory filings, Uncle William (Bucky) Bush has not been left behind.
In 2000, while nephew George W Bush was running for president, Bucky fell into good fortune and joined the board of directors of Engineered Support Systems (ESS), which just happened to be a major military contractor.
Uncle Bucky is also a Bush "Pioneer" in good standing, which means he raised over $100,000 for Jr's campaigns in the year 2000 and 2004 elections, according to Margie Burns on Information ClearingHouse (2/22/04).
Bucky came on board at ESS at exactly the right time. Since the 2000 election and September 11, 2001, ESS's revenues have greatly increased and its stock prices have soared, according an article by Burns, in the Jan 13, 2003 Prince William George's Journal.
As luck would have it, as a director of the company, Bucky not only receives a monthly consulting fee, he also holds stock options. And he has exercised those options. In January 2003, prior to the Iraq war, Bucky only owned 33,750 shares of stock, but as of January 2004, he owned 56, 251 shares, according to ICH. Not a bad haul for one year.
By 2003, ESS held contracts with every branch of the military. In fact, according George's Journal, the company did so well that it made it onto the Department of Defense's list of the top 100 contractors. In 2001, it held $330 million in government contracts. And it just kept getting better and better. In 2002 ESS held $380 million in contracts, and in 2003 it was awarded close to $400 million.
In another stroke of luck (the Bush's are the luckiest family to ever hit Washington), ESS just happened to manufacture Field Deployable Environmental Control Units (Says Russ Mitchell, in Smart Money), and on January 17, 2003, the company announced that it had a large order for these units, complete with Nuclear Biological Chemical Kits, to be used in the hunt for (as we know now) the non-existent WMDs.
On January 28, 2003, Jr gave his State of the Union address, including his now famous bogus allegation that Saddam was actively seeking nuclear weapon materials from Africa. In hindsight, maybe that was an advertisement for Bucky's products.
Come to think about it, how many tax dollars did we waste on that wild goose chase?
On March 25, 2003, Bush asked Congress for supplemental funding "to cover military operations, relief and reconstruction activities in Iraq, and ongoing operations in the global war on terrorism."
And low and behold in another coincidence, the very next day ESS announced that it had received a very large order of its Chemical Biological Protected Shelter systems from the Army.
And the good luck didn't end there. ICH says that on May 1, 2003, ESS announced that it had acquired the subsidiary, TAMSCO, coincidentally again I'm sure, on the exact same day that Jr made his TV flight-suit appearance on the aircraft carrier and declared "mission accomplished."
The very next week, TAMSCO revealed that it had begun technology support for US Army logistics operations in the Middle East, noted Burns.
I'll tell you right now, if I was as lucky as Bucky I'd spend every day at a bingo hall.
More than ever, it looks like Bush planned to invade Iraq before he won the White House, and one thing is indisputable, the war is filling the family coffers and will continue to do so for many years to come.
The documented track record of ESS and Uncle Bucky is only a symbol of the larger pattern in which Bush family members and close associates are sharing the financial benefits generated by Jr's grand war profiteering scheme.
What I find amazing, is that after droning on endlessly about Whitewater (a failed land deal involving $150,000), for 8 years during the Clinton years, now that Jr and his gang are ripping tax payers off for $100s of billions at a crack, the average person doesn't even realize it because the media isn't doing it's job of educating Americans about what is going on in our government.
I think the citizens deserve know which politicians in the Republican controlled Congress participated in passing the "Leave No Bush Behind Act of 2001," by turning a blind eye and playing deaf and dumb for the last 4 years.
Wherever there’s a buck to be made by scamming tax payers, a member of the Bush family is sure be close at hand. Many Bush relatives are benefiting financially from the war in Iraq, and according to regulatory filings, Uncle William (Bucky) Bush has not been left behind.
In 2000, while nephew George W Bush was running for president, Bucky fell into good fortune and joined the board of directors of Engineered Support Systems (ESS), which just happened to be a major military contractor.
Uncle Bucky is also a Bush "Pioneer" in good standing, which means he raised over $100,000 for Jr's campaigns in the year 2000 and 2004 elections, according to Margie Burns on Information ClearingHouse (2/22/04).
Bucky came on board at ESS at exactly the right time. Since the 2000 election and September 11, 2001, ESS's revenues have greatly increased and its stock prices have soared, according an article by Burns, in the Jan 13, 2003 Prince William George's Journal.
As luck would have it, as a director of the company, Bucky not only receives a monthly consulting fee, he also holds stock options. And he has exercised those options. In January 2003, prior to the Iraq war, Bucky only owned 33,750 shares of stock, but as of January 2004, he owned 56, 251 shares, according to ICH. Not a bad haul for one year.
By 2003, ESS held contracts with every branch of the military. In fact, according George's Journal, the company did so well that it made it onto the Department of Defense's list of the top 100 contractors. In 2001, it held $330 million in government contracts. And it just kept getting better and better. In 2002 ESS held $380 million in contracts, and in 2003 it was awarded close to $400 million.
In another stroke of luck (the Bush's are the luckiest family to ever hit Washington), ESS just happened to manufacture Field Deployable Environmental Control Units (Says Russ Mitchell, in Smart Money), and on January 17, 2003, the company announced that it had a large order for these units, complete with Nuclear Biological Chemical Kits, to be used in the hunt for (as we know now) the non-existent WMDs.
On January 28, 2003, Jr gave his State of the Union address, including his now famous bogus allegation that Saddam was actively seeking nuclear weapon materials from Africa. In hindsight, maybe that was an advertisement for Bucky's products.
Come to think about it, how many tax dollars did we waste on that wild goose chase?
On March 25, 2003, Bush asked Congress for supplemental funding "to cover military operations, relief and reconstruction activities in Iraq, and ongoing operations in the global war on terrorism."
And low and behold in another coincidence, the very next day ESS announced that it had received a very large order of its Chemical Biological Protected Shelter systems from the Army.
And the good luck didn't end there. ICH says that on May 1, 2003, ESS announced that it had acquired the subsidiary, TAMSCO, coincidentally again I'm sure, on the exact same day that Jr made his TV flight-suit appearance on the aircraft carrier and declared "mission accomplished."
The very next week, TAMSCO revealed that it had begun technology support for US Army logistics operations in the Middle East, noted Burns.
I'll tell you right now, if I was as lucky as Bucky I'd spend every day at a bingo hall.
More than ever, it looks like Bush planned to invade Iraq before he won the White House, and one thing is indisputable, the war is filling the family coffers and will continue to do so for many years to come.
The documented track record of ESS and Uncle Bucky is only a symbol of the larger pattern in which Bush family members and close associates are sharing the financial benefits generated by Jr's grand war profiteering scheme.
What I find amazing, is that after droning on endlessly about Whitewater (a failed land deal involving $150,000), for 8 years during the Clinton years, now that Jr and his gang are ripping tax payers off for $100s of billions at a crack, the average person doesn't even realize it because the media isn't doing it's job of educating Americans about what is going on in our government.
I think the citizens deserve know which politicians in the Republican controlled Congress participated in passing the "Leave No Bush Behind Act of 2001," by turning a blind eye and playing deaf and dumb for the last 4 years.
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