New regulations to combat pyramid schemes

Direct selling is legal in Vietnam and as a relatively new business it lacks the regulations to deter those who use it for scamming and manipulating consumers.

At a roundtable meeting on November 22 in Danang on journalism and communications in the multi-level marketing (MLM) industry, chairwoman of the Vietnam Direct Selling Association Truong Thi Nhi said that after 11 years and 96 registered companies, 26 businesses have folded and five have seen their licences revoked.

The companies were both local, joint ventures, and foreign-owned. A majority of the firms were producers and traders of food, cosmetics, and housewear.

The meeting focused on the legal boundaries of direct selling and the pyramid schemes that lie outside those borders.

Joseph N. Mariano, president of the US Direct Selling Association and chairman of the ethics council under the World Federation of Direct Selling Assocations, said the fundamental difference between the two was that legal businesses were committed to transparency and ethical standards. He also said that direct selling firms are committed to giving refunds to dissatisfied customers, are conscientious in their operations, and have transparent commission policies.

Mariano added that pyramid schemes focused only on expanding their sales network and putting their teams to work while at the same time greatly exaggerating the quality and application of their products in advertising.

According to director of the Vietnam Competition Authority under the Ministry of Industry and Trade Bach Van Mung, the agency just finished a draft which has been transferred to the Ministry of Justice and would later be submitted to the government for approval.

If passed into law, the new decree would overturn a previous one in 2005 and is expected to strictly crack down on pyramid schemes.

According to statistics from the Vietnam Direct Selling Association, Hanoi is home to 47 MLM companies, Ho Chi Minh City 42, Dong Nai province 2, Binh Duong, Hai Duong, Haiphong, Quang Ninh and Bac Giang have one company each.

By the end of 2012 there were more than a million people involved in direct selling with total sales of more than VND4 trillion ($190 million). The industry contributes nearly VND600 billion ($28.5 million) in tax and contributed nearly VND25 billion ($1.2 million) to charities between 2005 and 2012.