New Legislation Set to Remove Multi-Level Marketing BanJuly 30, 2020
The use of a Multi-level Marketing (“MLM”) business model has been banned since 2018 by way of Notification 46/2018, dated 18 September 2018, issued by the Ministry of Commerce as a result of an audit of several MLM companies by the authorities. Due to the absence of specific laws and regulations on MLM, the restrictive action had been linked to the Essential Goods and Services Law.
However, the aforesaid ban will be lifted once the draft of the Direct Selling Law (the “Law”) is passed in the near future. The draft Law was issued earlier in 2020 in order to set the regulations for direct selling activities in Myanmar, including the use of an MLM business model.
What is direct selling?
Under the draft Law, direct selling is defined as “selling of goods or services to consumers either by meeting the consumers, by ordering, or by communicating via an electronic system rather than through the stores.” In short, it is understood that direct selling only occurs in a non-retail environment.
No further explanation is provided under the draft Law; however, we believe that it will be in line with the general concept of direct selling in other countries, where it consists of two main business models of single-level marketing and multi-level marketing.
Who will need to register under the Law?
Section 11 of the draft Law states that “the entrepreneur shall apply to the Department in accordance with the stipulations to obtain the Certificate for the direct selling business.”
Further, section 2 (h) defines that “the entrepreneur means an individual, a company, or an organization that has registered with the Department under this Law to operate the direct selling business.”
Accordingly, this draft Law seems to apply to anyone who will carry out the direct selling business within Myanmar. Any person that will take part in direct selling will need to apply for and obtain a Certificate from relevant authority (i.e., the Department of Consumer Affairs under the Ministry of Commerce (the “Department”))
What are the duties of an entrepreneur?
Section 15 of the draft Law lists certain duties of an entrepreneur, including the responsibility to report to the Department in relation to the sales as well as the sales agent’s operations and profit.
Accordingly, section 17 of the draft Law also provides the administrative actions applicable to the entrepreneur in case they are not able to comply with the requirements listed in section 15. The actions include the following:
- Payment of specified fines
- Suspension of the Certificate temporarily or for a specified period
- Permanently revoking the certificate
At present, the draft Law does not specifically mention what the amount will be for the fines; we do, however, anticipate further details to be included in the final Law or in the relevant notification and guidance after that.
What is not allowed under the draft Law?
The draft Law lists certain activities that are deemed to be prohibited in terms of direct selling. Most importantly, is the operation of direct selling without a Certificate from the Department, which is not allowed. In addition, the draft Law also prohibits an entrepreneur from forcing any person to buy their goods in order to become a sales agent or from charging a fee higher than the set fee stipulated by the government.
Depending on the violation of any prohibited activities, an entrepreneur may be punished with imprisonment for a term of up to two years or a fine of up to MMK300 million (equivalent to approximately US$220,000), or both. Accordingly, it appears that operating without a proper certificate is deemed as the most serious violation.
We believe that there will be certain amendments in the final version of this Law as well as an additional notification regarding licensing matters. We will continue updating on this matter.