VietNamNet Bridge – The government has released a new decree with strict regulations that control multi-level marketing (MLM), a sales model that has never been popular in Vietnam.

The newly released decree No 42 stipulates the required minimum legal capital of VND10 billion for MLM businesses.

The businesses must deposit 5 percent of their chartered capital, but the deposited sum of money at banks must be VND5 billion at minimum. Under the old regulations, MLM businesses only needed to deposit VND1 billion.

An official of the Ministry of Industry and Trade (MOIT) admitted that the requirement would cause difficulties for small businesses, but said that it was a necessary regulation to prevent disguised MLM businesses from multiplying.

The new required deposit, which is five times higher than the previous level, will force investors to think carefully before deciding to set up businesses.

Under the old decree issued in 2005, provincial trade departments, now industry and trade departments, were in charge of granting licenses to MLM businesses.

The loose discipline allowed room for businesses to commit fraud. Many MLM businesses, which had licenses revoked because of violations, still could “regenerate” when they registered their business in other provinces.

In June 2006, Sinh Loi Company had its license revoked by the HCM City Industry and Trade Department because of trade fraud. However, just three months later, the company re-appeared in Hanoi under the new name “Thien Ngoc Minh Uy”.

The legal loophole has been “fixed” in the new decree, under which, the Competition Administration Department (CAD), an arm of MOIT, will act as the agency which grants licenses, makes amendments, grants extensions and revokes licenses.

However, analysts doubt that the new regulations will prevent negative consequences.

The 2005 decree prohibited MLM businesses from forcing people pay deposits or buy a certain amount of products before they were allowed to become official members of the businesses and take part in the distribution networks.

However, MLM businesses still were able to evade the laws, forcing their members to buy goods “on a voluntary basis” and pay many kinds of fees.

Many people, deceived by MLM businesses, tried to make money to offset the sums of money they lost by enticing other people to join the distribution networks.

These disguised MLM businesses exist openly and have never had their licenses revoked.

A lawyer noted that, in general, Vietnamese who had been deceived did not want to bring the case to court. Most of them were students or poor people who joined MLM networks with a hope to change their lives. They said they would rather “settle the problems themselves”.

Many Vietnamese believe that the best way to protect themselves is to “keep away” from disguised MLM businesses, rather than depend on legal protection.  

Management agencies, with limited capability, have not been able to uncover the disguised companies and punish them. They were not even aware that many companies operate without licenses.

Xuyen Viet Travel, which registered itself as a travel firm, and Tam Mat Troi, for example, existed a long time before they were discovered and forced to stop operations.

Kim Chi