MLM on digital platforms: Legality and efficient enforcement of law

Generally, Multi-level Marketing (MLM) refers to a business scheme where a company's revenue derives from selling the products or services of a company where the participants or workforce of that company achieve their earnings through a pyramid scheme. Section 2(8) of the Multi-Level Marketing Activities Control (MLMAC) Act, 2013 defines MLM activity as a marketing activity by establishing two or more levels of a product or service marketing procedure with a commitment or plan to provide specific commissions or dividends or any other benefit. Though the definition does not directly refer to the pyramid scheme, this Act subsequently discusses it elaborately.

Recently, CID has arrested several officials, including CEO and MD of an MLM group conducting their MLM business, disguising them as an e-commerce platform. According to the investigation made by the Cyber and Special Crime unit of DMP, it has stated that only this SPC group has allegedly embezzled 268 crore taka within this year. Therefore, a question arises whether the existing MLMAC Act is adequate in restricting these activities.

According to section 4 of the MLMAC Act, no MLM company can run their business without a license. Also, section 4(2) of the said Act delineates the industries in which MLM business may be conducted to ten criteria for consumable products. However, the e-commerce sector sells a range of products and there is little law enforcement or regulatory oversight on their compliance with the existing laws. Besides, section 21 of the MLMAC Act requires every product or service to have a visual presence within a credible environment. But the catchy offers of many e-commerce platform and their advertisement modules show that most products and services have no visual presence. Instead, those advertisements of products are made in relation to products that may be produced in the future.

The fundamental problem with those online-based digital MLM activities is that their business is based on a pyramid scheme that is inherently an integral part of MLM business and declared illegal under section 15 of the MLMAC Act. Firstly, this section explicitly bans pyramid or any similar kind of pyramid module-based business system. Secondly, it hinders any illusory or non-materialistic products manufactured or produced on a time-to-time base cycle in the future. Under this section, all the digital-based MLM companies can be taken into question whether their business can run beyond all those legal restrictions or should be taken under immediate legal sanction. However, it is a matter of concern that those MLM companies frequently disguise themselves as e-commerce platforms for which they remain out of sight for most of the consumers. They have also managed to convince many public figures and celebrities as their well-wishers and ambassadors by the passage of time. As a result, the rapid involvement of mass people cannot be controlled within due course.

Besides, MLMAC Act is a law that involves many shortcomings and loopholes that should be amended within the due period of time. The mostly contraband fraudulent Ponzi Scheme is not explicitly banned or defined. In addition, the penalty for violation of the provisions is fixed in case of a monetary fine. For instance, section 26 penalises any person for the infringement of section 15, with a monetary penalty not exceeding fifty lakhs of taka. The question arises when an MLM company has the scope of seizing millions of taka, how much it is justifiable to penalise them within a fixed monetary fine. Rather inserting ad valorem fine would be a more sensible and pragmatic step to put a stumbling block for those scams. Moreover, this Act remains tongue-tied regarding how the victims will get remedy in case they face any infringement and swindling experience.

The authority should admit the gravity of this issue and take some urgent action over the expanding digital MLM market and revisit the provisions in question to enhance a compact and strict regulatory system for wiping out any further probability of MLM scam in Bangladesh.

The writer is a student of law, daffodil international university.