On December 1, 2012, Lawyer, LLM Nguyen Thanh Ha, Managing Director of SB Law Company (S&B Law) responded to the question of Finance Television on the regulation of multi-level sale in Vietnam as follows:
Interviewer: What is the nature of Multi-level sale? What is the efficiency of this model of business?
Multi-level sale is the method of marketing in retail under the regulation in Section 11 Article 3 of Competition Law.
In particular:
The marketing in retail will be conducted through the network of Participants with multiple levels and branches.
The products will be directly introduced to the Customers at home, in the office or other places, which are not fixed as the regular business outlet of the Company or the Participants.
The Participants will receive commission, bonus or other business benefit, which results from the revenue of marketing and sale as well as the lover-level participant in their own network under the approval of the multi-level sale Company.
Interviewer: Nowadays, what is the regulation governing this model of business in Vietnam?
Currently, the following documents are governing the multi-level sale such as:
Competition Law,
Decree No.110 of the government on multi-level sale management
Circular No.19/2005/BTM detailing the content of Decree No.110
Circular No.35/2011/BCT on the amendment of Circular No.19
Interviewer: In your opinion, how can the multi-level sale Company avoid the law to exist and attract people to attend?
- There are several kinds of “law avoidance”:
+ Business in blind pyramid to attract people to the network,
+ Take advantage of E-Commerce to sell without products
+ Not register as the business entity in multi-level sale to avoid the regulation.
+ Take advantage of the distortion, speed, movement of business place, difference in registration place and business place.
+ Unfaithful advertising and go against the content of the project.
+ Use the model of “nhị phân thoát bàn”, which means each Participant will pay for the code of the products and attract more people to receive commission. However, products are blind to avoid the law, while the Participants can raise the capital and use the money of the latter to pay for the former. This is the gap of the law now.
Interviewer: How can identify the illegal model of multi-level sale?
The identification of the illegal model of multi-level sale is very difficult due to the lack of information of the people. However, before joining the network, the Customer should research the necessary information of the company, product, business, and bonus.
The fraudulent usually base on the model of blind pyramid, “nhị phân” or distorted matrix”,
There are popular features such as: to request the Participants to pay for the highly initial fee to attend the Company;
To pay for the bonus by attracting newcomers to join;
To request the Participants to buy a huge number of products more than the expected sale or demand and not allow to return;
To provide fraud information on the benefit of the network or the features of the products to attract Participants
To take advantage of E-Commerce to multi-level sale and blind shop.
There is an opinion revealing that the regulation of Competition Law and Decree 110 is not sufficient to manage this model of business, what do you think about it? In your opinion, what is the solution to prevent the illegal multi-level sale in Vietnam?
The insufficient legal framework, such as requesting the multi-level sale Company to report the business every 6 months in the registration place, not business place in Decree 110, results to the lack of management of competent authority.
The slight penalty, which ranges from 20 to 30 million VND for no registration, which causes the breach of law is more advantage.
The deposited account is only 5% of the authorized capital.
In my opinion, we should conduct the following to manage this business:
Draft the new law and amend the Decree 110
Improve the supervisory board of the competent authority to report the illegal business conduct.
Raise the deposited account rate.
The report should be submitted to the Department of Industry and Trade of the business place.
