Balance Regimen International Corporation violated Article 23(1) of the Fair Trade Law

Chinese Taipei

Case:

Balance Regimen International Corporation violated Article 23(1) of the Fair Trade Law

Key Words:

Improper multi-level sales, accumulating number method, close businesses, criminal investigation

References:

Fair Trade Commission Decision of January 24, 1996 (the 224th Commission Meeting)

Industry:

Retail Business (4020)

Relevant Laws:

Article 23(1) and Article 42 of the Fair Trade Law; Article 3(1) of the Supervisory Regulation of Multi-level Sales

Summary:

1.Upon receipt of a complaint from a citizen against "Balance Regimen International Corporation” (hereinafter referred to as the "BRI"), the Fair Trade Commission sent its staff to inspect the principal business office of “BRI” in accordance with Article 6 of the "Supervisory Regulation of Multi-level Sales." It is noted during the inspection that in early July 1995, “BRI” had reported to the Commission that its business commencement date would be August 1, 1995. However, according to the information gathered in the course of the inspection, “BRI” had in fact started its business in early June 1995, established its operation system structure, and adopted a member seniority system for granting the rewards. Among the members admitted as of the end of August since early June, there was one member who had received the highest reward in an amount over NT$1,070,000. This is a probable violation of Article 23 of the Fair Trade Law. Therefore, the Commission initiated an investigation in accordance with its authority.

2.It is noted that "BRI" is engaged in the sale of water purifying and unboiled drinking water supplying equipments by means of multi-level sales. According to the rules of its operation, a person interested in joining the sales system shall first obtain the recommendation from an existing member, fill out a membership application form and make a minimum purchase of NT$36,000 (equals to total of 30,000 points) before qualifying for admission. A member will be graded to certain purchase structure level determined based on a multiple of two of his serial number which is automatically assigned to him based on the sequential order of his admission to the Company's sales system, and will be entitled to receive a "purchase structure reward" payable to him up to the first four grades (levels). If the number of new members introduced by a member to the Company within one month after the admission of the introducing member accumulated up to 3 men/times, the introducing member will then be entitled to the highest amount of the "purchase structure reward" (NT$1,075,200). An introducing member is entitled to receive a grand total of "purchase structure reward" for the ninth purchase structure level in the amount of NT$1,946,600. In addition, a member will be entitled to receive an "extra introduction reward" for each new member introduced to the Company by him after his promotion to a qualified member; and will be further promoted to be an agent or superintendent and be entitled to receive "organization development reward" and "outstanding contribution reward." As described above, the nature of the operation system of “BRI” conforms to the "multi-level sales" defined in Article 8 of Fair Trade Law, its conduct shall be governed by Article 23 of the "Supervisory Regulation of Multi-level Sales."

3.Article 23(1) of the Fair Trade Law provides that "Multi-level sales shall not be conducted if the participants thereof receive commissions, monetary awards, or other economic benefits mainly from introducing others to join the sales system rather than from the marketing or sale of goods or services at reasonable market prices." If the income of the participants of a multi-level sales enterprise is primarily derived from introducing other persons to join in the sales system and receiving the commission soured from the fees paid by new members rather than from marketing or sale of goods or services at reasonable market prices, it is in violation of Article 23(1) of the Fair Trade Law. While BRI’s actual operation are to set aside 2% from its "total operating PV" as the "extra introduction reward", and to promote its members to the position of agent or superintendent when the number of newly joined participants attains a specific level, and to set aside a 9% "organization development reward" and a 3% "outstanding performance reward", the main source of income of its participants is in fact from the "purchase structure reward", and the granting of such "purchase structure reward" is depending on whether a specific purchase structure level is established and a specific number of members have accumulated rather than basing on marketing or sale of goods or services at reasonable market prices. In conclusion, it is evident that the income of the participants of "BRI" is not primarily from marketing or sale of goods or services, but is from introducing others to join the Company; i.e. from receiving the "purchase structure reward" set aside from the fees paid by new participants. The fact is clear that the main income source of BRI’s participants is the "purchase structure reward", set aside from the fees paid by new participants based on whether a specific purchase structure level pre-determined by the members’ sequential orders of admission. Such a fact constitutes a violation of Article 23(1) of the Fair Trade Law.

4.Under the multi-level sales system operated by "BRI", its participants are receiving commissions, monetary awards or other benefits mainly from introducing other persons to join the said multi-level sales system rather than from marketing or sale of goods or services at reasonable market prices. Such practice is therefore regarded as a violation of Article 23(1) of the Fair Trade Law. Furthermore, as “BRI” failed to submit to the central competent authority a written report of its business operations before commencing its business activities, it is also regarded as a violation of Article 3(1) of the "Supervisory Regulation of Multi-level Sales" which are enacted pursuant to Article 23(2) of the Fair Trade Law. Since the foregoing violation are serious in nature, the case was brought forth to the 224th meeting of the Fair Trade Commission for appropriate disciplinary action. According to the decision made at the said meeting, the FTC imposed upon "BRI" a fine of NT$500,000 in accordance with Article 42 of the Fair Trade Law and ordered “BRI” to close its business on the next day of receipt of its disposition. With regard to BRI’ acts violation of Article 23(1) and Article 35 of the Fair Trade Law, FTC has referred the case to the competent judicial authority for criminal investigation and necessary action pursuant to the law.

Summarized by Yeh, Tien Fre
Supervised by Tso, Trin Liang

＄: For information of translation, click here

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