HYIP and Law. Common Aspects.

Updated: 10/31/2005 06:14
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When one starts talking about legitimacy of HYIP, the usual phrase immediately comes to mind: Check your government's laws for the legality of these programs in your country. Though how much does it correspond to the reality and how much it shows the actual state of affairs?

Today we'll try to make the things clear, whether HYIP is legal and to what extent. Of course we won't be able to show all the aspects of this question, though we will develop the basis, which is certainly going to open your eyes on many things, and will become a nice basis for the right understanding of the HYIP and laws.


High Yield Investment Programs – absolutely legal and legitimate measure. :) High-flown statement? Though it is true. Whatever the monitoring services or the programs' admins may say form the security considerations, HYIP is really absolutely legal. You know why? Because HYIP is not more than a notion, defining the profit degree of the INVESTMENT project.

If you give money to a person, fond of betting or gambling, and he returns 150% to you – this is HYIP, and there's no such a country in the world, where you could be brought to trial (of course if betting is not illegal of course, and the taxes are paid). What are the grounds? Right. No legal grounds of fighting with the notion (I stress – the notion) are possible and there can never be.

However in some countries the following formulation is possible: ''so-called'' high yield investment projects are prohibited (the details are given below). Also the basic of these HYIP is described there. Not more. Unfortunately we have no detailed information saying how exactly and in what country this question is regulated, though we can let you into the general part that has more or less international character.

And this general part is one and indisputable rule for every, without exception, countries of the world. FRAUD BAN.
The fraud itself means activity aimed at getting blessings without the permission of the owner of these blessings. Besides, this activity excludes any physical impact, blackmailing etc. it's a deceit, to put it simpler. Pyramid of any kind COMES WITHIN this definition. The tap as if with the purpose of economic activity – is also a fraud, no matter how you would call it. And of course all this is illegal. Though not everything is so easy.

When we talk about such things as fraud, we have in mind the fact that took place already. I.e. we talk about the situation when some scammer swindled someone or created something with the aim of swindling. But we deal with the HYIP – economic phenomenon, under which both absolutely REAL projects, really high yield and UNREAL ones that are aimed at the FRAUD with the help of different tools. In such a way, we are the hostages of the pure sophistry.

Speaking about HYIP on one hand we speak about real high yield projects bringing profit to investors, owners and the state in the view of taxes etc. At the same time we are talking about the projects imitating those projects: lotteries, pyramids of different kinds and types, autosurfing programs and many other schemes, which are called like that HYIP. And of course it's clear that in such a case, most often it is the matter of fraud, and hence of the illegal things!

Though the question is not so simple. Really, it turns out that, we have both legal, lawful HYIP on one hand and illegal – on the other hand. Online we deal with the site, which is the main representation of a program. Here they all have practically one and the same face, practically similar rules of the game, which unfortunately far more complicate the situation, which is complex enough already.

In any deal linked with investments several members participate. The admin of the program (let's call it like that), investor, state (as a watcher, arbiter, registrar) and the third party is possible, the one referring investors to this process. The state is the regulator of the relationships. In case any disputable situation arises, the court should take a decision on this question. The reason for holding, institution the criminal case is the fact of the fraud, the main material is document. Actually, in a general way (let the jurist excuse us) everything looks like that.

In the real life everything is quite simple. Economic activity without registering these processes is practically impossible. In case the underground activity starts, hence it will be illegal. Hence, no matter where, on the territory of which state these processes take place, all is illegal activity. That's why for creating HYIP legal grounds are needed.

For instance, providing the product, for which the interest is paid (you buy a banana for $200, and you get the percent for it 5% daily) – one of the legal covers. For instance - "private loan" – similar format. However, then the distinct contact is concluded, where everything is registered (if you certainly don't want that tomorrow your ''lovely'' friend would ride the horses along Mexico. :)

The rules online are absolutely different. We deal with the site. Site is a virtual representation of the real event… stop! It SHOULD BE LIKE THAT. Though not even should. :( Sorry for the pun. Let's take a simple example. We have several investors. Me, my friends Pitt and Lella ''lend'' some money to Toddy, according to the agreement we receive back not $100 each, the amount we receive is $150.

Todd, trading on Forex goes to his broker and participates in trades (or stakes on horses). He is a real professional – he gives the money back. Or he loses – everything is regulated with the help of agreement. It's absolutely legal and legitimate in most of the countries. Of course, these relationships are regulated in different ways in many respects, though now the main thing is to grasp the main principle.

Now Todd makes a site. He gets the money in e-currency. He participates in trades via the special terminal, without going out of the house. And he doesn't live in the USA, he lives in a small house somewhere in Greenland with the satellite Internet. And Todd can't even go out on the street, come to me and say: Hi, David, you can give $100 to me; I will return $150 to you if I trade on Forex. There's an endless snowy waste all around him. And Todd… right. He is searching for me online with the help of that site. And here the mess and brothel starts. :)

Let's start with the fact that in order to regulate relationships we need a state. What state should regulate relationships between Todd and me if I am somewhere on the Northern pole, and Todd's site is somewhere in France? And the domain is registered somewhere in Russia? Where should Todd be registered and process our relationships with him?

Of course some sort of the basis can be made for that in a separate one state, making the registration, paying the taxes and so on. Though this rule, believe me will work for the 5% of all the variants possible. And this is insignificantly.

Besides, the main temptation appears: if so, why do we need to register at all. Internet is rather free thing, so that everyone could do whatever he wants, being far away from the all-powerful force of the law. And so it happens. Getting online, all these measures are actually found OUT of the law regulation. And INDEED, in such a way the activity of our hero is completely illegal. If he gets the profit, handles some economic activity, he must have registration, processing and STATE regulation.
Though not everyone may allow this, and not everyone can do that, and many ones don't do that especially...

So, when a person organizes everything in a small town, one does everything absolutely legally, being registered and honestly. In case one would open his site, he would place his address on it, and his HYIP would be legal.

Another variant, when one really registers the company for legalizing his business. And he does that? No, not where he lives. And of course not in the Greenland. He makes it in some offshore zone – where he would have to pay negligibly small interests, where he is not going to be asked for the family tree way back to the tenth generation and where he won't have to report for his activities religiously.

No sooner said than done. Then the site is registered, the real address of the office is written there (the one you can place in any other place of the world) and here the economic activity starts. Is it the legal HYIP? Entirely. And the third type, well-known, old familiars, numerous HYIP that appear via the way described above. The site is made, the money is received from it, the interests are paid, though, there are no any links with the real life, except for the admins' existence. NO. As we have already mentioned this activity is OUT of the law.

Now a couple of words about notions.
In the very first case, we talked about private loan. Regulated with the agreement, made in accordance with the terms of local legislation, it is legal and legitimate event. The second case – we mean HYIP. As we said, ''high yield investment activity'' - legal notion. THOUGH (!) be careful.

There above we said that some countries CUT SHORT the opportunities of creating the fraud schemes. And all of them without exception PROHIBIT ponzi or any other schemes. In the upshot: any program that relies on future spends to pay previous spends without any meaning of HOW EXACTLY the program is called, how it is classified as "ponzi" and it can't be legalized in the US, Great Britain, Australia, Canada, New Zealand, for instance France and Germany.

I.e. trying to register something of that kind, you condemn yourself to the IMPOSSIBILITY of holding such operations (to give new members of the chain the deposits of the previous ones). And hence, you can't realize this activity. And as the result to start a program, classified as "ponzi".

Some exception or ruse is MLM or games. Though, here we should immediately tell that this is also illegal on the territories of different states and on the territory of some others all should be strictly licensed and ratified. If HYIP tries to place oneself as a gambling game, nevertheless he should have a license and corresponding papers, if he claims to be legal.

MLM implies selling the product like banana, mentioned in this text before. People get their interests for this product. Though such a change of the price is the reason that it is the question of MLM and there's also fight going on with MLM as well. :)

In the upshot it turns out that major part of the programs, existing online are illegal just because you are not registered and exist only virtually. The chances to drive such a program into a corner practically equal to zero. You can only close it. Hence rising the question, whether such companies are legal is simply not serious. At the same time, such companies can EASILY work, bringing profit to investors, and not just ponzi.

Many companies simply don't provide their registration data. Hope in this complex and a little bit ambiguous material you could find the reply to the main question. And don't be surprised, that there are so many meanings here and at the same time so many answers. Indeed, everything is very ambiguous. Having the actual HYIP legal, corresponding to norm it's ILLEGAL. Besides, various schemes hide beyond HYIP, it is also illegal.

But on the other hand, legal and normative activity also AUTOMATICALLY comes within the notion HYIP, though absolutely doesn't disaffiliate with the limits of the limits of the law! In such a way, such a perfect and very rich bouquet of virtual, legal and semi-legal, very profitable and very dishonest programs we deal in our everyday life, has lighted up at the turn of these two opposites.

And only investor in himself has the ultimate right to accept the terms of the program or not, but if he loses, he should better hope that legislative justice will crow over, in case he takes care of it IN ADVANCE.

Of course we want to continue this topic in the future, approaching to the question from another perspective. And it's impossible to place all the opinions, views, documents to one small article. See you soon. Respect the law and be careful with that.


About the author

Joe Wong is another example of a good dependable and collaborative team player with a proven ability to write colorful, persuasive copy. Having impeccable grammar, strong editing skills and a long track record of writing technical, promotional, and advertising articles, reading copies by Joe Wong readers stop and think every time they read the copies, news and articles written by Joe Wong at HYIPNews.com
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