**Table 5: Modes of Distribution of Financial Products and Services**

|**Country**|**Direct Sale**|**Tied Agents**|**Multi-Agents**|**Brokers**|**Multi-level**<br>**Distribution**|
|---|---|---|---|---|---|
|Azerbaijan|Credits<br>Investment Funds<br>Insurance||Insurance|Securities<br>Insurance||
|Bulgaria|Credits<br>Investment Funds<br>Insurance<br>Pensions|Credits|Credits<br>Insurance<br>Pensions|Securities||
|Croatia|Credits<br>Investment Funds<br>Insurance|Credits<br>Insurance<br>Pensions|Insurance<br>Pensions|Securities<br>Insurance<br>Pensions|Insurance|
|Czech Republic|Credits<br>Investment Funds<br>Insurance<br>Pensions|Credits|Credits<br>Insurance|Credits<br>Securities<br>Insurance|Credits<br>Insurance|
|Latvia|Credits<br>Investment Funds<br>Insurance|Credits<br>Insurance|Insurance|Securities<br>Insurance||
|Lithuania|Credits<br>Investment Funds<br>Insurance<br>Pensions|Credits<br>Insurance|Insurance|Credits<br>Securities<br>Insurance||
|Romania|Credits<br>Investment Funds<br>Insurance<br>Pensions|Credits<br>Insurance<br>Pensions|Credits<br>Insurance<br>Pensions|Credits<br>Securities<br>Insurance<br>Pensions|Insurance|
|Russia|Credits<br>Investment Funds<br>Insurance<br>Pensions|Insurance|Insurance|Securities<br>Insurance||
|Slovakia|Credits<br>Investment Funds<br>Insurance<br>Pensions|Credits|Credits<br>Insurance|Credits<br>Securities<br>Insurance|Credits|

_Source:_ Diagnostic Reviews; European Commission, DG Internal Market and Services, _Study on Credit Intermediaries in the Internal Market_ (MARKT/2007/14H), Final Report by Europe Economics, January 15, 2009

**Special attention should be paid to multi-level schemes as a distribution mechanism** . Multi-level distribution systems were seen in four of the country studies whereby the purchase of a product requires that the consumer also become part of the sales distribution force for the product. A multi-level scheme is often described as a program with three or more levels that promotes the supply of a product (or service) to participants of the scheme. Participants in the scheme earn compensation based on the supply of the product or service to other participants or non-participants of the scheme. While multi-level selling is often used for legitimate purposes, its structure is vulnerable to abuse. A legitimate multi-level scheme focuses on the supply of products or services—rather than the recruitment of prospective participants into the scheme. A legitimate scheme also offers products or services that consumers value and are willing to purchase. The law should identify a multi-level sales scheme as a pyramid scheme if: (1) the scheme requires a payment for the right to receive compensation for recruiting new salespersons into the plan; (2) there is inventory loading, that is, new salespersons must purchase an unreasonable quantity of a product or service; and (3) purchases of services are required as a condition of entry into the scheme.<sup>34</sup> Large

> 34 Paying people a bonus for recruiting others is a common incentive in many legitimate schemes. The problem in the multi-level schemes (which is a form of a pyramid) is that participants have to pay to receive the bonus. If they cannot recruit anyone, they do not receive a bonus—and they are not reimbursed for the money paid to enable them to get the bonus. This—and being forced to buy inventory—are the essence of the fraud.

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