multi-level marketing is it legal ?

Government Gazette No 20169 - June 9, 1999
Notice 1135 of 1999
Department of Trade & Industry
Consumer Affairs (Unfair Business Practices) Act, 1988

The above Gazette finally draws a clear distinction between Multi-level Marketing practices and "illegal pyramid schemes". 

It quotes the USA Direct Selling Education Foundation as stating that "Multi-level marketing is a lawful and legitimate business method", and that the difference between an illegal pyramid and a legitimate multi-level marketing company may be established in three ways.

• Pyramid seek to make money for you once only.  Multi-level marketing companies seek over time to build their businesses on repeat sales of consumer products and services.
• Pyramids often require large "entry fees" as part of the price charged for training, computer services and inventories.
• Multi-level marketers sell products to final consumers.  If there are no product sales to final consumers, the scheme is probably an illegal pyramid scheme.

The Minister of Trade and Industry has, upon the recommendation of the Business Practices Committee, issued Notice 1135 of 1999 in terms of the Consumer Affairs act, 1988 in which he has outlawed the following "Illegal Pyramid Schemes".

• "Multiplication Schemes" offering an effective investment interest rate of 20% and more above the REPO rate as determined by the South Africa Reserve Bank.
• "Chain Letter Schemes" which invite people to enter into arrangements, in terms of which the participating person is obliged to make a payment with the prospect of receiving reward merely for recruiting or introducing other persons to enter the Scheme. Payments made under these Schemes include those in terms of which part or all of the payments is used to make payment to another person who has also entered the Scheme.
• "Pyramid Promotional Schemes" by which a participant pays for the opportunity to receive a reward derived primarily from that person's introduction of other persons to the Scheme rather than from the sale of products to other persons. This section of the Notice goes to some considerable lengths to make it clear that multi-level marketing practices which reward their members only for making sales of products to end users for actual or consumption are considered legitimate and acceptable.

This is a pleasing development in South Africa legislation as it has been framed in such as way as to clarify the position of Network Marketing and Multi-level Marketing organizations and removes the confusion which sometimes surrounds these organizations when being compared with "illegal pyramid schemes".

The Direct Selling Association and each of its members will welcome the promulgation of this Notice.

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