Certified Anti-Money Laundering Specialist Certification (CAMS) Practice Exam

What is another term for a pyramid scheme?

1. Multi-level marketing scheme

2. Chain-referral scheme

3. Investment holding scheme

4. Franchise operation scheme

The correct answer is: Chain-referral scheme

A pyramid scheme is often described as a chain-referral scheme because it relies on participants recruiting others into the scheme, with promised returns primarily coming from the investments of new recruits rather than legitimate business activities or sales of products. In a pyramid scheme, the structure resembles a pyramid, where each level of the pyramid earns money from the levels below it, creating a chain effect of income generation that relies on continuous recruitment of new members. Choosing the term "chain-referral" highlights the recruitment-based nature of these schemes, indicating that participants benefit financially primarily by bringing more people into the organization rather than by selling a product or service. It effectively captures the essence of how the scheme operates and why it is unsustainable, as new recruits are needed consistently to support the earnings of those who joined earlier. This distinction is important for recognizing the deceptive and illegal nature of such operations.