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.
7. When did the amended Exclusion Order come into effect?
The amendments to the Exclusion Order were published on 14 December
2001, and came into effect on 01 January 2002.
8. Where can one obtain the amended Exclusion Order?
The full text of the current Multi-Level Marketing and Pyramid
Selling (Excluded Schemes and Arrangements) Order can be accessed
at the following link.
9. What are the penalties for being in breach of the MLM Act?
During the review of the MLM Act in Year2000, the fines were raised
from $30,000 to $200,000. Currently, a conviction under the Act
will result in a fine of up to $200,000 or to imprisonment for a
term not exceeding 5 years, or to both. The fines are for the
following offences:
promoting or participating in a multi-level marketing, or pyramid
selling, scheme or arrangement.
registering a business which is designed to promote multi-level
marketing, or pyramid selling, scheme or arrangement.
registering a company which proposes to promote multi-level
marketing, or pyramid selling, scheme or arrangement.
In addition, the Act empowers a Court that convicts a promoter or
participant of a multi-level marketing or pyramid selling an
additional penalty of an amount not exceeding the amount or value
of any benefit which the promoter or participant has received. This
additional penalty ensures that the Act serves as an effective
deterrent to potential offenders.
10. What would happen to "innocent victims" who participated in
pyramid schemes unknowingly, and who did not benefit in any way
before the scheme closed down?
Under the Act, all persons who participate in multi-level marketing
or pyramid selling would commit an offence. This is because the
participants would have played an active but destructive role of
attracting others into the scheme. We believe that this is the best
way to deter the potential promoters of such schemes.
Hence, we would urge the public to be extra careful and to exercise
due diligence when deciding whether to participate in business
schemes. They should be doubly suspicious of get-rich-quick
promises. If they believe empty promises and hand over their money
to the promoter, chances are they will be cheated of the money. At
the same time, they might be guilty of committing an offence as
they are participating in an illegal scheme.
11. Is there a special license required to conduct those types of
businesses listed in the Exemption Order?
Companies whose business schemes fall under the Exclusion Order are
not required to obtain a special licence.
12. Can the operators and members of the public seek the
Government's advice on the legality of their business
schemes?
It is not proper, nor appropriate, for Government agencies to give
legal advice on which scheme is legal and which is not, as this
would circumscribe the Government's effectiveness in enforcing
regulation against fraudulent schemes that may evolve over
time.
Instead, the operators and members of the public should acquaint
themselves with the relevant laws, and seek legal advice from
lawyers, where necessary. Lawyers should be able to advise on
specific cases, according to the context and how the actual events
unfold.
13. Which agency should a member of the public report to, if they
suspect that certain business schemes are actually illegal
multi-level marketing or pyramid selling schemes?
The Commercial Affairs Department (CAD) investigates pyramid
selling schemes. If you suspect a scheme has contravened the MLM
Act, you can report to the CAD at telephone number 3250000 or lodge
a report at 391 New Bridge Road, #06-701 Block D, Police Cantonment
Complex, Singapore 088762.
