Korea FTC Cracks Down on Multilevel Marketing Firms

September 21, 2009

The Korea Fair Trade Commission (KFTC) has "declared war" on multilevel marketing firms, calling for increased investigations and criminal penalties to "make examples" of allegedly unlawful MLM firms accused of taking advantage of the unemployed, retirees, students and others having difficulty finding jobs due to the economic crisis.

The activities will include joint KFTC and local government investigations of MLM firms during October and November, as well as a crackdown on illegal activities, such as excessive sales bonuses to employees, the sale of goods high-priced merchandise (over $1000 in value) and failure of firms to register.

While the MLM market in Korea had been declining, it turned up in 2007 and in 2008 grew 24 percent. There were more than three million salespeople, with more than $550 million in sales bonuses paid to more than one million of them. Current Korean law limits sales bonuses to 35 percent of the sales price. Some MLM companies have been accused of paying excessively high bonuses of up to 84 percent of the sales price.

As part of its program, the KFTC will pay whistle-blowers from $250-$830 per tip, raise fines for breaking the law, and release the names of companies that habitually break the law.