Since its enactment in 2018, Decree 40 on the management of multi-level marketing (MLM) activities, which was released to supersede Decree 42 of 2014, has created a legal framework and a fair competitive environment for MLM enterprises and participants, thus reducing the risk of scams and negative impacts on socio-economic development.
However, after five years of implementation, the Decree, though giving stricter regulations on business conditions for MLM enterprises and participants as well as on state management of MLM activities, has revealed certain limitations, thus affecting the efficiency of management of MLM activities. The shortcomings are manifested in the provisions on conditions for registration of MLM activities, local-based representatives of MLM businesses, and conditions on use of deposits, among others.
To deal with the above problems, the Government on April 28 issued Decree 18 with the hope to complete the legal framework for state management agencies to tighten management of MLM activities and for MLM enterprises and participants to lawfully conduct their business activities.
|Le Hong Nhung, representative of the Vietnam Competition Commission, addresses a seminar on management of multi-level marketing activities and protection of consumer interests held at the Ho Chi Minh City University of Economics-Finance__Photo: https://bhdc.vcca.gov.vn/|
Registration of MLM activities for businesses involving foreign elements
The new Decree adds a provision to Article 7.1 of Decree 40 regarding conditions for registration of MLM activities for organizations, saying that in case organizations registering for MLM activities are enterprises whose owners, members or shareholders are foreign investors or foreign-invested economic organizations, all of these foreign investors or foreign-invested economic organizations must have at least three consecutive years’ experience in MLM activities in any country or territory in the world. This aims to help select foreign investors that are experienced in MLM activities before they join Vietnam’s market and to reduce the risks of large-scale frauds.
With respect to composition of a dossier of application for an MLM registration certificate, Decree 18 requires the applying enterprises to additionally submit their business licenses stating that they are licensed to exercise the right to retail distribution covering retail activities in the MLM form, in case the enterprises’ owners, members or shareholders are foreign investors or foreign-invested economic organizations.
In addition, as MLM activities are also regarded as retail activities, enterprises whose owners or shareholders are foreign investors must comply with the provisions on business licenses of Decree 09 of 2018, detailing the Commercial Law and the Law on Foreign Trade Management regarding goods purchase and sale activities and related activities of foreign investors and foreign-invested economic organizations in Vietnam.
To remove difficulties for authorities in the management of MLM activities in localities, Decree 18 sets specific requirements for local-based representatives of MLM enterprises. Accordingly, an MLM enterprise that has no head office, branch, representative office or business location in a locality is required to designate an individual residing in the locality to act as its representative to work with the local state management agencies. To act as an enterprise’s representative, a person must satisfy the following conditions: (i) not falling into the case specified in Article 28.2.a of Decree 40; (ii) possessing a certificate of legal knowledge of MLM granted by the Ministry of Industry and Trade; and (iii) being assigned by the enterprise to work with, and provide information and documents related to MLM activities in the locality upon request of, the state management agency in charge of MLM business.
Measures to raise responsibility of MLM enterprises and participants
In order to heighten responsibility of MLM businesses in the country and protect consumers, in addition to the responsibilities mentioned in Article 40 of Decree 40, the new Decree also requires MLM enterprises to make sure that at least 20 percent of their MLM sales in a fiscal year come from customers who are not MLM participants. This provision aims at promoting the proper development of MLM activities as retail activities, thus facilitating the distribution of goods not only to MLM participants but also to non-participant customers.
As per notification of the organization of seminars or training courses on MLM activities, the new Decree makes it clearer for Article 26.2 of Decree 40. It says that before holding a seminar or training course on MLM activities with the participation of 30 persons or more or with the participation of 10 MLM participants or more while such seminar or course is not its internal event, an MLM enterprise must notify the event to the provincial-level Department of Trade and Industry. For seminars or training courses on MLM to be held online in a province or centrally run city with the participation of MLM participants, the concerned enterprise has to notify the event to the Department of Trade and Industry of such locality; if the event is to be organized in more than one province or centrally run city, it must be informed to the Department of Trade and Industry of the locality where the enterprise’s head office is based. The notification requirement is intended for addressing the situation that MLM firms often take advantage of holding online events to shirk functional agencies’ inspection and supervision.