Hey there everyone. I wonder if it's appropriate that we discuss about the multi-level marketing and pyramid selling laws that we have here in Singapore.
I felt that we should allow more awareness about multi-level marketing, so here's a FAQ about MLM and Pyramid Selling adapted from the MTI website itself.
Frequently Asked Questions about Multi-Level Marketing & Pyramid Selling
1. What is Multi-Level Marketing (MLM) and Pyramid Selling?
A Multi-Level Marketing or Pyramid Selling scheme will typically require participants to pay an upfront charge. In return, the participants are promised financial rewards for each additional participant recruited, as well as all new participants who are in turn brought in by their recruits - hence the pyramid-like structure.
As more salespersons are recruited, participants hope to recover their upfront charges and earn sizeable profits. However, such a pyramid schemes will eventually collapse when they run out of new recruits, resulting in those salespersons at the bottom of the pyramid losing all their upfront charges.
In the interest of consumer protection, the Government's regulation effort is targeted at preventing the proliferation of such high-risk schemes.
2. How do I recognise a pyramid selling scheme?
Many pyramid schemes often disguise themselves as sellers collectors' items, software, training programmes, etc, when all they are interested is to make a quick buck through recruitment. Members of the public who attend sales talks must be vigilant to such schemes. Illegitimate MLM schemes usually share the following characteristics:
When the promoter hype about how easy it is to earn money, people can get very rich in a very short time and that the way to earn money is by recruiting others to join the scheme;
The so-called product that you are supposed to sell is not something you would normally buy at its price;
Participants are required to invest money into the scheme, whether in the form of a joining fee, or buying inventory.
Remember - there is no easy money, you must believe in what you are selling and you should not put your money at unnecessary risk.
3. How are MLM activities governed in Singapore?
MLM activities in Singapore are governed by the Multi-level Marketing and Pyramid Selling(Prohibition) Act. The Ministry of Trade and Industry administers the Act.
The original Multi-Level Marketing and Pyramid Selling (Prohibition) Act was first passed in 1973. In June 2000, Parliament approved an amendment to the Act to widen the definition of pyramid selling to catch all business schemes that were multi-level in nature.
However, as not all multi-level marketing techniques are undesirable, the Government concurrently enacted the Multi-Level Marketing and Pyramid Selling (Excluded Schemes and Arrangements) Order (hereafter, referred to as the ¡®Exclusion Order) to exclude legitimate businesses from the Act, such as insurance companies, master franchises, and direct selling companies which fulfill certain criteria. This Exclusion Order was implemented in June 2000.
4. Why is there a need to have an Exclusion Order?
Not all multi-level marketing techniques are undesirable. There are legitimate businesses using innovative sales tactics, and should not be lumped together with pyramid schemes.
Hence, the Government enacted the Multi-Level Marketing and Pyramid Selling (Excluded Schemes and Arrangements) Order (hereafter, referred to as the 'Exclusion Order') in June 2000, to exempt legitimate businesses from the Act. The following categories of businesses were exempted:
(1) Insurance businesses that are registered, approved or licensed under the Insurance Act, the Insurance Intermediaries Act 1999 and the regulations made thereunder;
(2) Master franchise schemes and direct selling schemes which satisfy the following conditions:
the benefit received by any promoter or participant is as a result of the sale, lease, license or other distribution of a commodity and not as a result of the recruitment of additional participants;
the promoter of the scheme shall not knowingly make false or misleading representation or omission relating to the scheme or the commodity;
the promoter shall not make any representation on the benefits other than those allowed;
there should be a clearly stated policy on refund or buy-back guarantee.
After the Exclusion Order was enacted in 2000, the Government received feedback that the provisions in the Exclusion Order were not sufficiently clear. Some members of the public were also confused by claims of legitimacy by companies and often requested for the Government to clarify if particular schemes were legitimate.
In response to the feedback, the Government reviewed the Exclusion Order, and subsequently amended the Order in 2001.
5. Why is there a need to amend the Exclusion Order?
As a result of developments in the market and suggestions from the public, the Ministry of Trade and Industry, in consultation with the industry, and taking into consideration the public's comments, has come up with a revised MLM Exclusion Order.
6. What were the amendments made in 2001 to the Exclusion Order?
The Exclusion Order 2001 continued to maintain that insurance companies and master franchises would be excluded from the MLM Act.
However, it also introduced the following rules for direct selling companies:
Safeguards - A participant cannot be required to provide any benefit or acquire any commodity in order to become a participant in the scheme, other than the purchase of demonstration equipment which is not for resale, at no more than cost price and for which no commission can be given out. A legitimate multi-level marketing scheme would not impose a financial risk on salespersons. For example, salespersons should be entitled to full refunds, under reasonable commercial terms, for any inventories kept or purchased by them which are not sold to end consumers, so long as the inventories are returned within a period of 60 days.
Behavioural checks - The companies must not misrepresent the scheme as get-rich-quick opportunities, and should not use fraud, coercion, harassment, or unconscionable means to force people to join the scheme. Instead, the companies should focus their efforts on promoting the quality and features of the products. If a company wishes to show potential participants the earning potential, they must keep records of the maximum, minimum, mean, mode and median earnings of their salespeople in the past.
Sharing of commission - It is all right for a salesperson to share commissions from several layers of salespersons recruited by him. However, such commissions must be generated by sale of the product or service in question, and not through the recruitment of additional participants into the scheme.