Singapore Government Press Release
Media Division, Ministry of Information, Communications and The Arts,
MITA Building, 140 Hill Street, 2nd Storey, Singapore 179369
Tel: 837-9666

 

PRESS RELEASE

MTI ENHANCES SAFEGUARDS ON MLM SCHEMES
OPERATING IN SINGAPORE

The Ministry of Trade and Industry has enhanced the safeguards on MLM schemes operating in Singapore, with the aim of protecting Singaporean consumers. The revised Multi-Level Marketing and Pyramid Selling (MLM) (Excluded Schemes and Arrangements) Order (MLM Exclusion Order for short) will take effect from 01 January 2002.

The Multi-Level Marketing (MLM) and Pyramid Selling (MLM) (Prohibition) Act (the MLM Act for short) was enacted in 1973 to protect consumers against harmful pyramid schemes. An illegal pyramid scheme will typically require participants to pay hefty upfront charges. In turn, the participants are promised attractive financial rewards for each additional participant recruited, as well as for all new participants brought in by their recruitees. As more salespersons are recruited, participants hope to recover their upfront charges and earn sizeable profits. Consequently, such pyramid-like structures will eventually run out of new recruits and collapse, resulting in those salespersons at the bottom of the pyramid losing all their upfront charges. Illegitimate MLM schemes usually share the following characteristics:

    1. Promoters hype about how easy it is to earn money, that 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;

    2. The commodity in question is not something one would normally buy at its price;

    3. Participants are required to invest money into the scheme, whether in the form of a joining fee or buying inventory.

Not all multi-level marketing schemes are harmful and outlawed. The MLM Act empowers the Minister of Trade and Industry to exclude certain schemes and arrangements under the MLM Exclusion Order 2000. Insurance, franchise and direct selling schemes, which fulfil certain criteria, are exempted from the MLM Act. However, 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 main amendments of which are:

    1. 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 are 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.

    2. 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.

    3. 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.

Any person who promotes or participates in an illegal MLM scheme or arrangement is liable, on conviction by a court, to a maximum fine of $200,000 or to imprisonment for a term not exceeding 5 years, or to both. In addition, the Act empowers the court to impose an additional penalty of an amount not exceeding the amount or value of any benefit which the promoter or participant has received.

The amendments to the Exclusion Order will be published on 14 December 2001. There will be a grace period for companies to review their current rules and regulations and to inform their promoters about the change. The new legislation will come into effect on 01 January 2002.

The full text of the Multi-Level Marketing and Pyramid Selling (Excluded Schemes and Arrangements) Order can be accessed at the MTI website, www.mti.gov.sg from 14 December 2001. Hard copies may be purchased on line at www.myepb.com/script/legalpub.asp or any MyEPB book stores.

While the Government can help by amending laws and enforcing against fraudulent activities, the consumer's best defense is to stay vigilant and not fall prey to fraudulent, 'get-rich-quick' schemes. When investing, consumers should always look not only at the profit opportunities but also at the risks of losses involved.

 

  

Ministry of Trade and Industry
13 December 2001