Contracts & Commercial

Legislation in the Works to regulate Multi-Level Marketing

Date: 05 October 2018; Type: Legal News; Source: Myanmar Times

Following the government’s prohibition of multi-level marketing via a notification dated September 18, consumer rights advocates and other experts have come out to say more must be done to educate the public about the drawbacks of the system.

The notification from the Ministry of Commerce says those found operating MLM-type businesses will face legal action under the Essential Supplies and Services Law. The law states that if found guilty, the person will face imprisonment between six months and three years and shall also be liable for a fine not exceeding K500,000.

Unlike ordinary businesses, MLM businesses tend to rely on participants recruiting others to work beneath them for a cut of their profits. This can result in something resembling a pyramid scheme where the early participants reap the most while those lower down struggle to recruit more people for the scheme.

The United States has investigated some the biggest names in the business such as Amway, Herbalife, and Nu Skin, resulting in fines and settlements amounting to hundreds of millions of US dollars.

Myanmar currently has no specific laws to deal with MLM-type businesses. “We are dealing this situation by using the Essential Supplies and Services Law so we can take action,” said U Khin Maung Lwin, assistant secretary of the Ministry of Commerce.

Prior to the government’s ban in September, news of the effects MLM businesses on the public was spreading, causing the issue to be raised by MPs in the Pyithu Hluttaw at the end of 2016.

“MLM businesses in the country were causing problems mostly by claiming their products could cure illnesses or saying participants could become rich by joining,” said U Zin Zay Lwin, one of the leading critics of MLMs in the country.

Previously, although no direct action had been taken against MLM businesses, some firms had been punished for violating various regulations.

Earlier this year, action was taken against 41 MLM companies after their accounts, bank transactions, import applications, food and drug administration approvals, tax payments, and financial statements were examined.

Following the September ban, some MLM companies announced officially that they had terminated their businesses. One such company, Shwe Pan Taing, announced that it would give bonuses to its members and pay them back for their products. There has been news that other companies will not be doing so.

“People in MLM businesses think that they’re suffering due to the government. In reality, they’re facing consequences due to irresponsible MLM companies. If MLM companies took responsibility for their actions, there would be no problems,” said U Zin Zay Lwin.

Daw Nan Kham War Hla, a member of the board of directors of Successmore Company, an MLM business, said it has stopped selling products using the MLM system, and now distribute and sell them normally.

Under a law the government is proposing to control such businesses, restrictions will be placed on the number of levels of agents a company can said U Khin Maung Lwin. People who are knowledgeable about the sector say of the businesses can have more 10 levels of agents.

“As there are currently no MLM laws or penalties for violations, we are preparing to draft a law. It will include to what level the products are allowed to be sold. Currently, the pyramid-model exponentially increases the number of sellers, so we are making arrangements to regulate that market and protect consumers. As a prelude to all this, MLM businesses will be prohibited,” said U Khin Maung Lwin.

MLM companies are also requesting the government to draft laws and regulations for the health of the business.

“Not every criticism of the business model may be true. If there is a law, people will work systematically under it. Those violating the regulations will be stopped while legitimate companies will be legalised,” said Daw Nan Khan War Hla.

Critics of MLMs say they are worried that MLM model will come back under the guise of “direct selling”.

“We need to prevent pyramid model appearing in direct selling. The law should clearly state how many levels are permitted,” said U Aung Kyaw Kyaw Oo, Pyithu Hluttaw MP, who raised questions about MLMs in the Hluttaw.

“MLMs don’t divide profits fairly. Those at the upper levels are earning large sums while those at the lower levels, who are mostly people from the lower-income bracket, are suffering. 

Although I admire people working hard and becoming rich, telling others that there is a shortcut to [acquire] riches is not good,” said U Maung Maung, secretary of Myanmar Consumer Union.

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