The curse of the pyramid
Jennifer Ashraf Weekend

  •  

My friend and I were thinking about starting a business and decided on starting a multi-level marketing business together. This seems to be a great opportunity and the thought of the business rapidly expanding is exciting. We are aware that MLM’s have messed up in the past and people are a little suspicious of it, but I think enough time has passed since the Destiny fiasco to allow people to have a fresh perspective. Is there any law about multi-level marketing businesses that could be helpful for me? Kindly advise.”

 

Dear Reader

Thank you for writing in to us. You are correct on one aspect – enough time has indeed passed since the Destiny fiasco. However, whether people are ready to approach the concept of multi-level marketing with a fresh perspective is another issue. We tend to hold on to the bad memories. Also, there is also the slight chance that the legal scenario concerning MLM businesses in Bangladesh may not exactly work to your advantage. Since the Multi-Level Marketing Activities Control Act 2013 or “MLM Act 2013” came into force, this arena of business is well regulated and involves several compliance issues. This information is therefore required for any business intending to begin or continue to operate a MLM business in Bangladesh.

The MLM Act 2013 requires all multi level marketing companies to be compliant and hold a valid license, prior to commencement of business. Failure to comply wth this provision will result in a fine and/or imprisonment. The registered address of the company needs to be the true physical office of the company. This is crucial as the Government of Bangladesh will physically inspect and investigate the registered address, prior to issuance of the MLM license. Furthermore, the MLM Act 2013 introduces a special regime of regulatory framework for the governance of MLM companies which requires the mandatory observances of certain practices such as those of standard packaging, principled pricing of products, marketing products on the basis of prescribed and approved terms and conditions etc.

The regulatory framework, at the same time, strictly prohibits a number of practices such as those of running pyramid scheme, adopting door to door marketing strategy, marketing of currently non-existent, intangible and future products, and others. In order to ensure compliance of MLM businesses in Bangladesh, the MLM Act 2013 classifies breach of many of its provisions to be criminal offences.

Only products and services, so specified in the MLM Act 2013, may be marketed by way of MLM business structure. Products and services that are permitted for MLM businesses are: house-work products, electric and electronic products, household appliances, cosmetics and toiletries, herbal products, telecommunication service or associated products, products and services relating to training and fitness, agricultural and agro-based products. The government has the authority to alter the list of authorized products although such authority is yet to be exercised by the government and the list of permitted products has, so far, remained the same.

Furthermore, under the 2013 Act, MLM companies are not allowed to rely on any business model which is a pyramid scheme or similar to pyramid scheme. “Pyramid scheme”, defined by the MLM Act 2013, is any such marketing strategy or process whereby the sellers at different levels, having paid certain membership fees in advance, can only participate in the company’s business on condition that specified profit or commission will be disbursed to them once they recruit geometrically increasing number of purchasers/buyers/participants to the company.

There is also another point you must keep in mind. Though theoretically and legally possible, the Government is very reluctant (still!) to issue MLM licences to businesses. I would further advise you and your friend to visit some of the offices of other MLM businesses who have a licence application pending, rejected or accepted, to have a better idea of the practical aspects too, alongside the legal aspects. Till next time, au revoir!

Jennifer Ashraf

Jennifer Ashraf is barrister and solicitor of England and Wales. She is currently a senior partner at Legacy Legal Corporate. She can be reached at [email protected]

comments powered by Disqus