A Study on Multilevel Sales Regulations and Administration

1. Background of Study
Multilevel marketing may be just one of many ways to sell products, but, due to its characteristics of person-to-person sales without a store and large numbers of people usually involved, it is extremely likely that individuals with bad intentions can obtain excessive profits by taking advantage of the design of the system and human weaknesses. It can even turn into an illegal practice to solicit capital (the so-called ‘pyramid scheme’), ending up damaging the interests of the public and bringing undesirable effects on social and economic order.
The administration of multilevel sales businesses has been practiced for two decades since the Fair Trade Law and the Supervisory Regulations Governing Multilevel Sales went into effect. Along with the advancement in Internet technology and diversification of commercial activities, however, new multilevel marketing approaches have continued to emerge one after another and the management patterns have also grown increasingly complicated, including marketing of products not for participants’ own use, shipment of products overseas for rental purposes, or even participation in purchases of management rights and participants can just sit back and collect bonuses. These practices apparently have deviated from the nature of multilevel sales and even become illegal. Further examination is therefore necessary. Moreover, there are also the questions of whether the existing administrative measures of the Fair Trade Commission (FTC) are enough to cope with new multilevel sales practices and whether it is possible to learn from the regulatory measures applied in other countries. Hence, the title, “A Study on Multilevel Sales Regulations and Administration” is adopted and the focuses are set on the management patterns of new multilevel sales practices, the contents of related regulations, and the administrative measures employed. The approaches applied in other countries are studied and compared. In the end, attempts are made to put forward suggestions regarding whether the FTC’s current administrative mechanisms should be revised.

2. Methods and Process of Study
All the illegal multilevel sales cases the FTC has processed recently are comprehensively reviewed in this study to identify and classify similar patterns and analyze them. At the same time, the current regulations and administrative measures for multilevel sales are also thoroughly inspected. By gaining a better understanding of the overall development and characteristics of the multilevel sales industry in the country as well as collecting and studying the multilevel sales regulations and law enforcement experiences in other countries, it is hoped that concrete suggestions with regard to the FTC’s multilevel regulations and administrative measures in the future can be established.
In this paper, Chapter 1 is the Introduction. Chapter 2 describes the regulations and precedents in other countries that perhaps can serve as references for future administrative practices and revision of regulations. In Chapter 3, the investigation reports on the development of multilevel sales business management over the years are presented and analyzed to provide an overview of the domestic multilevel sales industry, its characteristics, and tendencies. Chapter 4 gives a general description of the multilevel sales regulations and the administrative mechanisms currently practiced in the country. Chapter 5, the most important section, presents and classifies the new patterns of management of multilevel sales that the FTC has come across in recent years while also analyzes and puts forward suggestions for revision of regulations and administrative measures aiming at different patterns. Conclusions and consolidated suggestions are provided in Chapter 6 to be references for future planning of multilevel sales administration and revision of regulations.

3. Principal Suggestions
Based on the conclusions of the study, the following suggestions with regard to the current multilevel sales regulations and administrative mechanisms and protection of the interests of participants are proposed for reference:
(1) As a result of the characteristics of the multilevel sales industry and the laws and regulations in the country, new patterns of multilevel sales keep emerging. Therefore, the regulations currently applied in multilevel sales administration are examined to see if they are sufficient to cope with new management patterns. Take online multilevel marketing for example. There are numerous products being marketed and the present filing regulations and practices can be contradictory sometimes. So far, no foreign online multilevel sales operators have set up branches in the country. The controversies and doubts encountered when the FTC enforces related regulations can be discussed in accordance with the findings of this study. By revising the Supervisory Regulations Governing Multilevel Sales and the Disposal Directions (Guidelines) on Investigations in Multilevel Sales Cases, the FTC will be able to ensure that the legal basis its law enforcement can keep up with the fast-changing multilevel sales industry and multilevel sales administration will remain effective while sustainable development of the industry can be maintained and the interests of participants can be protected.
(2) Analysis of the precedents reveals that multilevel sales businesses are coming up with new types of products incessantly as well as different ways of bonus calculation and transaction modes. To encourage legal practices and prevent illegal ones in multilevel sales based on the current administrative mechanisms, it is suggested that a complete standard operating procedure (SOP) covering reviews of operations filed, business inspections, and forwarding of cases to prosecution and investigation authorities be established. Meanwhile, a system of administrative measures corresponding to different levels of risk should also be set up and meetings should be convened regularly to discuss and work out approaches to cope with issues related to new management patterns discovered when multilevel sales operations are reviewed. The present administrative mechanisms should be consolidated in application, such as extending the range of multilevel sales operation information that the FTC requests from the Fiscal Information Agency each month, so that the data can be compared to detect possible violations of multilevel sales businesses and action can be initiated to understand the developments and prevent unlawful conduct. On the other hand, innovative approaches can also be adopted and investigations like the “Online Crackdown Day” practiced in the US can be initiated.
(3) The multilevel sales cases that the FTC has processed indicate that the public is normally unaware of the risk in doing business with multilevel sales operators that adopt new management patterns, including those unregistered in the country, those adopting special ways to make transactions, and even those legally registered with the FTC to provide the cover-up for their unlawful practices. Therefore, besides the fair trade warnings regularly announced at present, it is suggested that the aforesaid findings of this study be incorporated as public education topics to teach specific groups of people. As for the protection of participants, the enforcement of the Supervisory Regulations Governing Multilevel Sales should be continued to protect the interests of participants.