- Victimisation is a financial, social and psychological phenomenon
- Holistic interventions combining legal, educational, and community-based strategies required
- Strengthening legal frameworks, improving public awareness, and addressing root causes of economic insecurity can help mitigate risk
This is Part II of a multiple-part series, the first article was published in an earlier issue of The Daily Morning
Pyramid scheme-based victimisation is not only a financial issue but a social and psychological phenomenon that requires holistic interventions combining legal, educational, and community-based strategies.
Strengthening legal frameworks, improving public awareness, and addressing the root causes of economic insecurity can help mitigate the risk of such schemes.
These recommendations were made in an article on ‘Criminological perspectives on pyramid schemes: Applying the routine activity theory in the Sri Lankan context’ which was authored by N.D.D.N. Weerasinghe (attached to the Sri Jayewardenepura University's Criminology and Criminal Justice Department) and published in the Ninth Volume of the Journal of Economic Criminology, September 2025.
Pyramid schemes in Sri Lanka have periodically emerged, especially during economic downturns. The lack of stringent regulatory frameworks has allowed these schemes to operate with relative impunity. Reports of people losing substantial savings and going into debt after investing in such schemes have become more frequent. The Financial Crimes Investigation Division (FCID) has played a role in tackling these frauds, but, preventive measures remain limited (R. Senaratne and S. Perera's ‘Financial crimes and regulatory responses in Sri Lanka: An overview’). The Central Bank of Sri Lanka (CBSL) has prohibited pyramid schemes by issuing a red notice to the general public on 24 August 2023 by highlighting companies/entities/money schemes that were identified as pyramid schemes (U. Pathirana's ‘Mitigating pyramid schemes in Sri Lanka: Strengthening financial resilience and ensuring public welfare in the interests of national security’).
The routine activity theory (developed in L.E. Cohen and M. Felson's ‘Social change and crime rate trends: A routine activity approach’) posits that crime occurs when three key elements converge: a motivated offender, a suitable target, and the absence of a capable guardian. Socio-economic contexts create opportunities for these schemes to proliferate. Socio-economic conditions, target demographics, and weaknesses in regulatory frameworks contribute to the rise of pyramid schemes.
The routine activity theory suggests that crimes are likely to occur when there is a convergence of a motivated offender, a suitable target, and the absence of a capable guardian. In the context of pyramid schemes, motivated offenders are often the organisers or recruiters, while the suitable targets are individuals looking for economic opportunity. The absence of a capable guardian may refer to weak regulatory enforcement or a lack of financial literacy among the general population.
Research methodology
Weerasinghe conducted interviews with victims of pyramid schemes, law enforcement officials, and financial experts. Additionally, a survey targeting individuals who had been approached by pyramid scheme recruiters was administered. The study employed a sample size of 50 participants for the interviews, representing diverse socio-economic backgrounds. Participants were recruited using the snowball sampling technique.
Accordingly, the participants were selected from a non-probability sampling method, which was the snowball sampling method, and through purposive sampling to ensure that the study included a diverse set of perspectives, including victims, authorities, and experts. Interviews were conducted in Colombo and several rural areas where victims of pyramid schemes were reported. Data were collected through semi-structured interviews and structured questionnaires. However, the routine activity theory may overlook deeper systemic issues, such as economic inequality or institutional negligence.
Analysis
It was found that there is no significant difference between the age groups to victimisation in a pyramid scheme money fraud. It was confirmed that many people between the ages of 18-45 were victimised. Among them, the 18-35 age group tends to become victims of pyramid scheme money laundering.
Most of the victims were between the age group of 18-35 years. Accordingly, the organisers of pyramid schemes in Sri Lanka are often skilled in exploiting the socio-economic vulnerabilities of their targets. Many participants reported being recruited by individuals that they trusted, including friends or relatives. The desire for quick wealth and the pressure to improve one’s financial status are key motivators for those who become involved in promoting these schemes. Motivated offenders seek out easy opportunities in their social networks.
Also, most of the victims were male. Among the samples, there were only five females out of 50 samples. Considering the economic status of the victims, it could be identified that many of them are from low-income backgrounds, unemployed youth, and from middle-income backgrounds also. Accordingly, the low-income earners are those who earn between Rs. 5,000-10,000 per month. Additionally, there is no specific education level for the vulnerable to become victims of these types of fraud. From high school education to graduates and sometimes teachers, professors, as well as people who are in the highest places in society, as well as people without proper education, have become victims of these scams.
The study identified that all the victims are motivated by an offender which involves enlisting family members, friends, or trusted acquaintances to reach out to potential associates regarding a promising business opportunity, inviting these individuals to an event or a meeting, typically held locally, where compelling and high-pressure sales presentations are executed. Ultimately, during these events, participants are presented with a distinctive, occasionally 'time-sensitive' option to participate in the plan.
The diversity in fraudulent approaches and the amount of money lost by fraud victims is reflected to a large extent by the wide range of monetary values that victims suffer (M. Button and C. Cross's ‘Cyber frauds, scams, and their victims’). Participants in the study reported significant financial losses as a result of their involvement in pyramid schemes. The amount lost varied widely among individuals, ranging from Rs. 50,000 to over Rs. 1 million.
These losses were often life-altering, with some victims investing personal savings, taking out loans, or mortgaging property under the belief that they would receive high returns.
Victimisation through pyramid schemes can be attributed to several interconnected factors. According to the study, the primary reasons are the trust in social networks and the lack of financial literacy, which hinders individuals from identifying fraudulent investment opportunities. Trust in social networks also plays a significant role, as many victims are introduced to schemes by friends or family members, reducing their scepticism. Many participants reported being recruited by individuals that they trusted, including friends or relatives. In tightly knit communities, peer influence and the fear of being left behind were common motivators for joining. One participant (female, age 34) shared: “My cousin invited me to a meeting. I didn’t think twice because he’s someone that I’ve always trusted.”
The promise of quick and substantial financial returns appeals to those seeking rapid economic improvement, particularly individuals facing financial hardship. Additionally, the influence of seemingly successful or authoritative figures can lend false credibility to such schemes. Many victims also lack awareness of how pyramid schemes operate and the legal risks involved. The lack of financial literacy hinders individuals from identifying fraudulent investment opportunities. As one victim (female, age 22) noted: “I didn’t even know what a pyramid scheme was. I just thought that it was some new kind of business.” According to the statement, the lack of financial literacy creates victims of pyramid schemes.
Social pressure and the desire to conform, especially when others appear to be benefiting, further contribute to participation. Finally, recruiters often employ manipulative tactics, using emotional appeals and deceptive success stories to persuade individuals to invest. Recruiters often projected an image of financial success and professionalism, which helped create a misleading sense of legitimacy around the scheme. As one participant (male, age 28) explained: “The man who presented the program wore a suit and talked like a real businessman. He showed pictures of his car and said that he’d earned it through this.”
These combined factors create a compelling but ultimately harmful environment that facilitates victimisation.
The desire for quick wealth and the pressure to improve one’s financial status are key motivators for those who become involved in promoting these schemes. As one participant (male, age 29) explained: “I didn’t have a stable income, and they said that I could double my money in two weeks. It sounded like a real chance to get ahead.”
In addition, many victims reported not disclosing their losses to others due to feelings of embarrassment and personal failure. This emotional response often resulted in underreporting and delayed intervention, allowing the schemes to persist unchecked within communities. One participant (male, age 37) expressed this sense of shame poignantly: “I didn’t tell anyone – not even my family – because I felt stupid for falling for it.”
Participants were often introduced to schemes by trusted friends or family members, which reduced scepticism and created a false sense of security.
Discussion
Pyramid schemes succeed by identifying patterns in everyday life that bring offenders and victims together in the absence of strong protections. Structural weaknesses such as the lack of oversight, financial vulnerability, and social trust combine to create ideal conditions for pyramid schemes to thrive.
Crime is more likely when there is a suitable target (T.C. Pratt and J.J. Turanovic's ‘Lifestyle and routine activity theories revisited: The importance of risk to the study of victimisation’). In Sri Lanka, the primary targets of pyramid schemes are individuals from low-income backgrounds, unemployed youth, and rural communities.
These groups are often unaware of the mechanics of pyramid schemes and are attracted by the promise of rapid financial gain. Many of the interviewees noted that they were initially sceptical but were convinced by the testimonials of others who had seemingly benefited from the scheme. The lack of effective regulatory oversight and public awareness campaigns in Sri Lanka creates an environment where pyramid schemes can thrive. Although the FCID has prosecuted some high-profile cases, many smaller operations continue unabated, particularly in rural areas. Financial illiteracy and the absence of stringent legal frameworks contribute to this gap in guardianship.
Victims expressed frustration with the slow response from the authorities, allowing pyramid schemes to expand unchecked before collapsing. The suitable targets are often economically vulnerable individuals from rural or urban low-income settings, including youth, women, and unemployed persons, who are seeking quick financial relief or upward mobility. Their limited financial literacy and high trust in community or religious networks make them ideal targets for exploitation.
The socio-economic landscape in Sri Lanka plays a critical role in the proliferation of pyramid schemes. Unemployment, particularly among the youth, and income inequality create a fertile ground for such fraudulent activities. Many individuals, desperate for financial improvement, become willing participants without fully understanding the risks (L. Patabendige's ‘Psychological motives behind investing in pyramid schemes jeopardising security’). In the Sri Lankan context, motivated offenders include individuals or groups driven by financial gain, often exploiting weak regulatory oversight and socio-economic vulnerabilities. These offenders are typically well-versed in manipulative communication and marketing techniques, enabling them to present fraudulent schemes as legitimate investment opportunities. Peer pressure and social influence might be motivation to engage in such work. Seeing friends or acquaintances benefit (or appear to benefit) from the scheme creates pressure to join. Social dynamics can make refusal difficult, especially in close-knit communities. As well as manipulative recruitment tactics, recruiters also use convincing language, fake success stories, or emotional appeals to motivate offenders.
According to the participants’ experiences, one participant shared that they were initially motivated to join a pyramid scheme by a close friend who promised significant financial returns. As the participant explained: “My friend told me, ‘This is a great opportunity, you can earn a lot of money really quickly, especially the first time’. I trusted him because we’ve known each other for years. At first, I did earn some money, and it seemed like it was working. It felt like a real way to improve my financial situation.” This quote illustrates the trust-based recruitment strategy commonly used in pyramid schemes, where personal relationships and promises of quick financial gains lure individuals into participating.
The absence of capable guardianship is reflected in the lack of effective institutional regulation, weak law enforcement, and low public awareness about financial fraud. Additionally, the informal nature of many pyramid operations and the reliance on personal networks for recruitment limit external oversight. In many cases, victims are unaware of the illegality of such schemes until they suffer financial losses.
The study also found that the victims were silent about such types of fraud. Persons who have lost money do not divulge the fact, as they tend to be ashamed of being deceived. Victims often blame themselves as losers.
Additionally, the cultural emphasis on trust within social networks makes people more likely to invest in schemes promoted by friends and family, which further accelerates the spread of these schemes. The convergence of motivated offenders, suitable targets, and the absence of capable guardians explains the ease with which these schemes spread, especially in socio-economically vulnerable populations. It is important to address both the regulatory gaps and the socio-economic conditions that make individuals susceptible to these schemes.
Dealing with pyramid schemes necessitates a unified endeavour from all segments of society.
Recommendations
Maximise the legal framework and efficient regulatory supervision
Implement a specialised system to promptly prosecute and penalise people and organisations involved in pyramid scams. Additionally, it necessitates expediting cases related to pyramid schemes to provide prompt justice for victims and deter offenders. Also, collaborate with global financial regulatory authorities to acquire best practices and enhance international collaboration in identifying and addressing pyramid schemes.
Increased public awareness and ongoing surveillance and adjustment
Initiate extensive awareness efforts via the mass media to inform the public about pyramid schemes and the associated investment hazards. Additionally, consistently observe the evolving strategies of pyramid schemes and adjust regulatory and legal measures in response to emerging schemes. Accordingly, the Government's role as a capable guardian needs to be strengthened through improved legislation and more aggressive enforcement against pyramid schemes. Educational programs aimed at increasing financial literacy, particularly in rural and low-income communities, are also crucial for preventing individuals from falling prey to these schemes.
Conclusion
Pyramid schemes pose a significant threat to individuals and the economy in Sri Lanka, exploiting the socio-economic vulnerabilities of the population.