Rules Eyed For MLMs

The government will issue new guidelines on multi-level marketing companies, subjecting them to investigations and penalties for violations. The action comes as complaints against such companies' operations are increasing. In multi-level marketing firms, employees earn commissions on their sales and on sales made by new employees they recruit.

Proposed legislation announced Thursday by the Korea Fair Trade Commission will strengthen disclosure requirements when multi-level marketing companies recruit distributors, making it mandatory for them to reveal sales revenue and details of compensation plans. The amendment, which is scheduled to take effect next April, will also require companies to be insured against possible damages and unpaid compensation if they default on payments or declare bankruptcy.

The head of the consumer protection bureau, Lee Dong-wook said, "We decided that it was necessary to require multi-level marketing companies to disclose sales record and compensation plan. There are still too many people enlisting as marketing reps at what are basically scams in search of a quick fortune."

Local and provincial governments regulate multi-level marketing companies and have legal authority to file complaints with the prosecution or to order firms to shut down.

The commission said illegal activities and fraud are rampant in multi-level marketing firms. Reported abuses include reported cases of sales trainees being confined against their will and the marketing of substandard products. The commission has asked local and provincial governments to step up legal action against infractions.

by Suh Kyung-ho