http://www.mti.gov.sg/legislation/Pages/Multi-level%20Marketing%20and%20Pyramid%20Selling.aspx
Multi-level Marketing 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.
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:
Remember - there is no easy money, you must believe in what you are selling and you should not put your money at unnecessary risk.
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.
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:
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.
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.
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:
The amendments to the Exclusion Order were published on 14 December 2001, and came into effect on 01 January 2002.
The full text of the current Multi-Level Marketing and Pyramid Selling (Excluded Schemes and Arrangements) Order can be accessed at the MTI website.
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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:
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 63250000 or lodge a report at 391 New Bridge Road, #06-701 Block D, Police Cantonment Complex, Singapore 088762.
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