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Fraudulent network marketing firms spoil it for the bunch in Vietnam

Monday, February 29, 2016, 16:45 GMT+7

While multilevel marketing is legal in Vietnam, fraudulent variants of the scheme have blindsided a lot of people with promises of easy earnings before eventually appropriating large sums of money from them.

As of the end of last year, there were 65 licensed multilevel marketing firms, 11 of which were foreign owned, across the country, according to the Vietnam Multi Level Marketing Association (MLMA).

In 2015, Vietnam’s multilevel marketing sector reported more than VND7 trillion (US$312.5 million) in revenue, with 1.4 million distributors receiving a total of VND2.1 trillion ($93.75 million) in commission, according to the Ministry of Industry and Trade.

For most network marketing firms, salespeople not only sell their products but also encourage others to join the companies as a distributor. A person will receive commission not only for the sales they generate, but also for the sales of the other distributors they recruit.

However there are firms in Vietnam that only urge people to buy their products and recruit as many distributors as possible without pressuring them to sell anything.

There are also companies that promise to pay commissions to distributors even when they do not receive any products to re-sell, or those that recruit salespeople to do nothing.

“These are all illegal forms of network marketing,” said Truong Thi Nhi, chairwoman of the MLMA.

In legitimate multilevel marketing business, selling goods is a must, and a person is only compensated on the sales they generate, or the new distributors they recruit, Nhi explained.

“But many firms do not focus on selling products and instead seek to recruit as many salespeople as possible,” she said.

Another kind of fraudulent multilevel marketing company is those that sell poor-quality products at exorbitant prices and offer hefty commissions to newly recruited distributors.

At workshops to recruit salespeople, these firms talk little about their products, but blind people with promises of a bright future for doing nothing and still being able to rake in dozens of millions of dong per month. (VND1 million = $45)

Most fraudulent network marketing companies usually encourage people to buy their products without a proper contract, enabling them to easily swindle distributors out of money.

“Another sign in recognizing a fraudulent multilevel marketing firm is them not allowing salespeople to return the purchased products,” Nhi said.

According to the law on multilevel marketing, a distributor is permitted to return the goods and take back their money within 30 days from purchase for any reason, Nhi explained.

Kon Tum, a mountainous province in the Central Highlands with a large population of the Gie Trieng ethnic minority, has emerged as a lucrative destination for multilevel marketing firms.

A Lan, residing in the province’s Dak Glei District, has paid VND36.6 million ($1,634) to buy four packs of coffee and a pack of tea from a pyramid selling firm, in exchange for a “VIP membership.”

Lan said the company had promised to pay him back the initial investment, plus VND99 million ($4,420) in commission after nine months, which he never received.

In Kon Tum, the number of these companies rose to 19 in 2015, with 4,190 people recruited as distributors.

This man in Kon Tum paid VND5 million ($2.4) for a Chinese electric oven to join a multilevel marketing network. Photo: Tuoi Tre

Vietnam has recently cracked down on many networking marketing firms for swindling, most recently the Hanoi-based Lien Ket Viet Co.

On February 20, leaders of Lien Ket Viet were arrested and initial police reports show that the company has appropriated a total of VND1.9 trillion ($85 million) from 45,000 people.

“Firms like Lien Ket Viet make use of the multilevel marketing scheme for fraudulent purposes and are not real network marketing companies,” said Phan Duc Que, head of the unhealthy competition office at the Vietnam Competition Authority.

“People who want easy money have fallen victim to such companies, and there are also those who know it is an illegal scheme but still join because they are so thirsty for profit.”

Nhi from the MLMA suggested the Criminal Code be amended to “criminally charge those who take advantage of the network marketing scheme for fraud.”

“This will deter swindlers and kick fraudulent firms out of the multilevel marketing market,” she said.

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