The Chunghua Fire Prevention and Safety Association's conduct of its multi-level sales operations allegedly violated the provisions of Article 23 of the Fair Trade Law

The Chunghua Fire Prevention and Safety Association's conduct of its multi-level sales operations allegedly violated the provisions of Article 23 of the Fair Trade Law

Chinese Taipei

Case:

The Chunghua Fire Prevention and Safety Association's conduct of its multi-level sales operations allegedly violated the provisions of Article 23 of the Fair Trade Law

Key Words:

Chunghua Fire Prevention and Safety Association, multi-level sales

Reference:

Fair Trade Commission Decision on July 4, 2002 (the 556th Commissioners' Meeting); Disposition Kung Ch'u Tzu No. 091110

Industry:

Organizations Not Elsewhere Classified (9499)

Relevant Law:

Article 23 of the Fair Trade Law

Summary:

1. The Taitung County Government filed a complain alleging that the Chunghua Fire Prevention and Safety Association (the respondent) used a pyramid sales scheme offering free mobile telephone SIM cards to recruit new members from the general public. Those wishing to join the association were required to provide copies of their bankbooks and identification cards to be used by the association to make disbursing bonuses and applying for mobile telephone signal gateways for members easier. County residents who joined the association, however, have yet to receive mobile telephone SIM cards even though they have received billing notification for mobile phone monthly line fees and have found that three to four months of monthly line fees had already been deducted from their bank accounts.

2. The respondent began recruiting sponsor members in August 2000. Members were required to pay NT$2,600 or apply for two new mobile phone signal gateways to obtain “Class-A volunteer member” credentials. When said members introduced new recruits to the organization, with said recruits applying for two mobile phone signal gateways at the time of joining, the introducing member would then be entitled to collect economic benefits in the form of an organizational bonus based upon their Class-A volunteer membership. Alternatively, said members could pay NT$8,000 to obtain Class-B volunteer membership credentials. When said members introduced new recruits who applied for two mobile phone signal gateways at the time of joining, the introducing members would receive, in addition to the NT$1,500 “travel expenses” awarded per each new recruit, economic benefits in the form of an organizational bonus based upon their Class-B volunteer membership. These practices are consistent with what is defined in the provisions of Article 8(1) of the Fair Trade Law as “multi-level sales.”

3. The commissions, bonuses, and other economic benefits collected by the respondent's members are not based upon the fair market price of any goods or services that are sold or promoted by the respondent but are based upon the continuous recruitment by members of new members to become Class-A or Class-B volunteer members. Further, the telecommunications shop with which the respondent colluded employed dummy accounts to improperly profit from the price differential on special offers on handsets or on re-sales of handsets. The source of the bonuses and other economic benefits collected by the respondent's members were commissions on the improper profits on the price differentials on handset special offers and handset re-sales rather than profits on any goods or services promoted or sold by the respondent's members. The respondent's actions therefore violated Article 23 of the Fair Trade Law and the respondent was consequently fined NT$10 million pursuant to the fore part of Article 41 of the same law.

Summarized by Wang, Horng-Shiuan;
Supervised by Lin, Ching-Tarng

＊＊: For information of translation, click here

1.	The Taitung County Government filed a complain alleging that the Chunghua Fire Prevention and Safety Association (the respondent) used a pyramid sales scheme offering free mobile telephone SIM cards to recruit new members from the general public. Those wishing to join the association were required to provide copies of their bankbooks and identification cards to be used by the association to make disbursing bonuses and applying for mobile telephone signal gateways for members easier. County residents who joined the association, however, have yet to receive mobile telephone SIM cards even though they have received billing notification for mobile phone monthly line fees and have found that three to four months of monthly line fees had already been deducted from their bank accounts.
2.	The respondent began recruiting sponsor members in August 2000. Members were required to pay NT$2,600 or apply for two new mobile phone signal gateways to obtain “Class-A volunteer member” credentials. When said members introduced new recruits to the organization, with said recruits applying for two mobile phone signal gateways at the time of joining, the introducing member would then be entitled to collect economic benefits in the form of an organizational bonus based upon their Class-A volunteer membership. Alternatively, said members could pay NT$8,000 to obtain Class-B volunteer membership credentials. When said members introduced new recruits who applied for two mobile phone signal gateways at the time of joining, the introducing members would receive, in addition to the NT$1,500 “travel expenses” awarded per each new recruit, economic benefits in the form of an organizational bonus based upon their Class-B volunteer membership. These practices are consistent with what is defined in the provisions of Article 8(1) of the Fair Trade Law as “multi-level sales.”
3.	The commissions, bonuses, and other economic benefits collected by the respondent's members are not based upon the fair market price of any goods or services that are sold or promoted by the respondent but are based upon the continuous recruitment by members of new members to become Class-A or Class-B volunteer members. Further, the telecommunications shop with which the respondent colluded employed dummy accounts to improperly profit from the price differential on special offers on handsets or on re-sales of handsets. The source of the bonuses and other economic benefits collected by the respondent's members were commissions on the improper profits on the price differentials on handset special offers and handset re-sales rather than profits on any goods or services promoted or sold by the respondent's members. The respondent's actions therefore violated Article 23 of the Fair Trade Law and the respondent was consequently fined NT$10 million pursuant to the fore part of Article 41 of the same law.