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The Fair Trade Act authorized the enactment of the Supervisory Regulations Governing Multi-Level Sales, and both the Act and the Regulations govern multi-level sales. However, the purpose of supervising multi-level sales is to protect consumers and multi-level sales distributors, which is different from the objective of the Fair Trade Act, namely, to prevent unfair competition. Moreover, some multi-level sales activities are known to involve multi-million fraud and therefore pose a grave concern to society. Therefore, there is a need for a set of dedicated and comprehensive regulations to govern multi-level sales operations.
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The Fair Trade Commission had been reviewing a new multi-level sales supervisory bill since 2004, and the Executive Yuan approved it on 9 June 2011. The bill encompasses current relevant provisions in the Fair Trade Act and the Supervisory Regulations Governing Multi-Level Sales, and contains penalties, all of which are intended to regulate multi-level sales enterprises. There are a total of 40 articles in the seven chapters, which stipulate the following:
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The legislative intent, competent authority and definitions of terms such as multi-level enterprises and multi-level sales distributors.
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The procedures of registering and report changes with the authority.
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The obligation of the enterprises to provide and explain material information to the distributors.
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The obligation of the enterprises to enter into a contract in writing to engage distributors and the terms of the contract.
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Events that constitute breach of contract and the methods for handling such breaches.
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A multi-level sales enterprise shall not recruit a person who is legally incompetent as its distributor. Recruitment of a person with limited competency requires the written consent of the minor's statutory agent, which should be attached to the distributorship contract.
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The obligation to disclose financial information of the multi-level sales enterprises.
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Prohibition against improper multi-level sales conduct (i.e., distributors receiving commissions, bonuses, or other economic benefits mainly from recruiting other distributors) and improper sales tactics.
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The conditions to rescind or terminate the contracts with distributors and the product return rights and buy-back liabilities arising from contract rescission and termination.
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A multi-level sales enterprise shall not claim damages or levy penalties against the distributors for contract rescission or termination and shall not improperly prevent distributors from returning products.
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The chapter on contract rescission and termination is applicable to service providers as well.
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The procedures of business inspection, competent authority's investigation and other authorities' obligation to assist.
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The criminal and administrative penalties and harsher penalties based on the Banking Act on unscrupulous multi-level sales enterprises.
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The new act shall also apply to the enterprises not within the purview of Article 8 of the Fair Trade Act (i.e., multi-level sales enterprises whose distributors do not pay a certain consideration to obtain the distributorship) after coming into force.
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Provisions in the Fair Trade Act related to multi-level sales no longer apply upon the enforcement date of the new act.
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The bill is being deliberated by the Legislative Yuan; if the bill is ratified, there will be more-effective regulation and supervision of multi-level sales
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