WFDSA EU Testimony
This submission is respectfully submitted by the World Federation of Direct Selling Associations (WFDSA) in the hope that it will be of assistance to the European Commission as it analyzes the Final Report entitled Door to Door Selling - Pyramid Selling - MultiLevel Marketing (Contract No. A0/7050/98/00156) submitted to the Commission by professor Dr. Hans W. Micklitz on behalf of VIEW, the Institut fur Europaisches Wirtschaftsund Verbraucherrecht e. V. While it addresses some specific misstatements in the VIEW Final Report and endorses the submission of the Federation of European Direct Selling Associations (FEDSA) and the Oppenheimer, Wolff and Donnelly legal analysis, it primarily is submitted to bring a global view of the direct selling industry to the Commission and present some basic observations that might give the reader additional insights into our methods of doing business.
Founded in 1978, the WFDSA is a not-for-profit federation of national direct selling trade associations (DSAs) from 52 countries and one regional federation representing European associations. It is governed by a board of directors consisting of one director representing each national DSA with equal votes and six officers elected from the board. All directors and officers are elected for three-year-terms. The Mission of the WFDSA is as follows:
The Mission of the WFDSA is to support direct selling associations in the areas of governance, education, communications, consumer protection and ethics in the marketplace and to promote personal interaction among direct selling executives regarding issues of importance to the industry.
A brochure describing the World Federation and a list of its board of directors is attached.
While we refer to “direct selling” as an industry, in reality it is more accurately described as a method of consumer product and service distribution. Estimated global retail sales for 1999 are in excess of US$83 billion. The industry operates in more than 130 countries through more than 34 million salespeople. Most salespeople are women (approximately 80%) and most work part-time and not year-round.
Definition Of Direct Selling:
While definitions of “direct selling” may vary from jurisdiction to jurisdiction, it might be helpful to present a generic definition widely understood and accepted. Such a definition is as follows:
The sale of a consumer product or service, in a face-to-face manner, away from a fixed retail location.
Definition Of Multilevel Marketing:
Likewise, definitions of multilevel marketing (also known as network marketing) vary from jurisdiction to jurisdiction. However, again a simple generic definition may prove useful, especially because the term “multilevel marketing” is a misnomer. It is not a form of marketing but rather is a form of compensation within, for our purposes, some direct selling companies. Our generic definition of multilevel marketing therefore is as follows:
Multilevel marketing is a form of compensation in a direct sales company where the salesperson can earn money not only on his or her own personal retail sales but also on the sales of people he or she personally recruited into the business and on the sales of people recruited by their recruits.
Note: Compensation is based on sales to ultimate consumers with overrides and bonuses also reflecting the management, training and support given by “uplines” to “downlines” in making those sales. It should be noted that you can have a multilevel company that is not in direct selling and such firms do exist (e.g. some direct mail firms and some Internet firms).
Types Of Salespeople:
There are fundamentally seven types of salespeople in the industry. The types are based on individual motivations for joining and staying affiliated with a direct selling corporation. Individuals can belong to more than one type at the same time and can move from one type to another. Hence, we do not have data that would allocate the percentages of salespeople into individual categories. These types are:
- Wholesale Or Discount Buyer: These individuals technically are salespeople in that they sign up as salespeople but in reality do so to buy the company’s products at the wholesale or discount price accorded members of the salesforce. They do not sell and they do not recruit. (Note: A trend in the industry today is to replace this category with a category of “preferred customers” who are given special discounts and offerings.)
- Short Term/Specific Objectives: These are individuals who join a company to earn extra money for a specific objective. Examples of these people are women who join many of our companies one month before Christmas to earn extra income to spend on their own families’ Christmas presents. Another example is when an individual joins one of our firms to earn enough money to replace a worn out appliance, such as a refrigerator, or to buy a television set. Their normal family income is inadequate for them to be able to afford the purchase, so they take advantage of the income-earning opportunity and ease of entry and egress from the salesforce that our firms offer.
- Quality Of Life Improvement: These are people whose family income is inadequate to give them the quality of life they want, even though both husband and wife both may work outside the home or the husband’s income is inadequate and the wife must care for the children during the day. One of them, usually the woman, will therefore work a few hours per week with one of our companies but she or he will do it all year long to earn enough money to improve the quality of their lives financially.
- Careerists: These are the people who work full-time at their direct sales business. They are micro-entrepreneurs with their own small businesses, in effect in partnership with the direct selling firms. Globally, less than 10% of salespeople are in this category (e.g. 6% of the U.S salesforce of 9.7 million).
- Social Contacts: In some countries, women who have become isolated in the home because of a diminution of the number of nuclear families, join direct sales firms for the social contact direct selling provides, both with their customers and with their colleagues. Also, men and women join to enjoy each other’s company and the positive environment of like-minded people.
- Recognition: In some countries, people, especially women, join our firms for the treatment of respect and the recognition they earn for their efforts. (Note: Women earn the same amount of money for the same amount of work done by men as contrasted, for example, with the disparity in many countries such as the United States where women earn only 75 cents for the same work a man is paid $1.00. Also, there are no “glass ceilings” restricting how high a woman may rise in a direct selling firm.)
- Belief In The Products: Some people join our companies because they believe so much in the attributes of the products that they want to share them with their friends, neighbors and public at large.
Again, as stated before, individuals can be in more than one category at the same time and can move from one to another depending upon their individual and changeable motiva-tions. For example, almost all direct sellers join companies because they believe in the product having experience with it as consumers. This prior experience as a consumer is true for salespeople in both single level and multilevel firms. It is fundamental to all companies in our industry with the exception of some high-ticket, durable product companies selling through full-time salesforces. Salespeople are protected around the world by two sets of laws, i.e. laws to protect them in their consumer roles and laws to protect them in their salesperson roles. They also are protected in both capacities by our codes of conduct and ethics.
Types Of Direct Selling Companies:
Because direct selling is a channel of distribution, almost every type of consumer product is sold by one of our companies somewhere in the world. The common tie between our companies is the sale of product or service in a face-to-face manner by primarily independent micro-entrepreneurs. The companies themselves can be described in various ways. Here are some of the major categorizations:
- Methods of Selling
- Individual to Individual
- Group Demonstration/Party Plan
- Combinations of both
- Structures of Compensation
- Single Level/Traditional
- Source of Compensation
- Profit on Markup
- Overrides/Bonuses on Total Volume (Individual or Group)
- Product Distribution Methods
- Company sells at wholesale to top distributors who resell at the same wholesale price to the next level of distributors, who in turn rewholesale at the same price to the next level, etc., all at the same wholesale price.
- Company sells directly at wholesale to every distributor at every level at the same price.
- Company sells at wholesale to single level salespeople who retail to consumers.
- Company pays a set percentage commission on sales made on behalf of the company by the salesperson to the consumer. (Note: The global trend is to category (b).)
- Primary Product Line
- High Ticket/Durable Goods
- Low Ticket/Consumable Goods
- Primary Salesforce Makeup: Time Worked
- Primary Salesforce Makeup: Gender
- Husband/Wife Teams
Consequently, one can describe a company in many ways. For example, a company can be a party plan firm, using a multilevel compensation structure, providing its salespeople the opportunity to profit on markups from the wholesale prices they purchase at and receive overrides on the sales of people in their downline sales organization who sell consumable low-ticket goods through a part-time, largely female salesforce. Or it could be a company selling via a single level compensation plan on a one-to-one basis, on commission for the high ticket durable goods its full-time male salesforce sells. You can virtually mix and match elements from all seven categories.
We use the American definition of turnover rates, meaning the number of salespeople who join and leave a company during the course of a year. Some direct sales firms experience turnover as low as 20%, others in excess of 100% per year. To understand turnover rates, one must go back to the seven types of salespeople. If a woman works one month before Christmas, in personnel/human resources calculations, it takes 12 like her to make a “one-person year.” The turnover percentage for this type of person therefore is 1,200% per annum. But, because these people are successful direct sellers, i.e. they achieve their objective of earning extra money for Christmas presents, such a high turnover is not a bad thing. Both the company and the salespeople benefit. Furthermore, because people come in and out, many returning year after year, the concept of saturation and geometric progression does not occur in the real world as evidenced by the age of many of our companies, including multilevel compensation firms.
Average income, like turnover rates, also are potentially misleading. Let’s take the lady working the month before Christmas, putting in a few hours per week. If her goal was to earn US$300 and she in fact earned it, she has succeeded. To then calculate average annual earnings of all direct sellers, including the short-term specific objective types, certainly would bring down the figure because there are literally millions of these people involved in the business (e.g. in the United States, 50% of the salesforce works less than 10 hours per week and not every week). Statistics therefore can be very misleading absent an assessment of the goals of the salesperson.
Data on the education level of direct salespeople varies from country to country, from the developed economies to the developing economies, U.S. salesforce data may be fairly similar to European salesforce data. In the United States, 39% of direct sellers had some college experience, an additional 25% graduated from college and a further 10% had advanced degrees. Consequently, 74% of the U.S. salesforce have attended college to varying degrees.
Ratio Of Salesforce To National Population:
The ratio of the number of direct salespeople to the general population of a country is an interesting demographic datum. In established markets (as opposed to fairly newly opened markets such as China, Vietnam, Bulgaria and Ukraine), this ratio runs from less than 1% to more than 8% (e.g. there are two million Taiwanese direct salespeople out of a population of 25 million). Again, people work primarily on a part-time basis and enter and leave and re-enter and re-leave our companies frequently...again because of the seven types of motivations found in our categorization of salespeople. Another indication of the viability of our industry are the strategic alliances formed by major manufacturers with direct selling firms. For example, Proctor and Gamble and Disney partner with Tupperware, Mattel and Swiss-based Roche partner with Avon, Rubbermaid partners with Amway and IBM partners with World Book Encyclopedia. In addition, many direct sales firms are owned by conglomerates. For example, Berkshire Hathaway owns World Book and Kirby Vacuum Cleaners, Citigroup owns Primerica Financial Services, Bell Canada owns Teleglobe and Excel Communications and Sara Lee owns Nutri-Metics and Avroy Shlain Cosmetics. Furthermore, more than 40 direct sales firms are publicly traded.
Pyramid Schemes - A Quick Test:
Like the definitions of direct selling and multilevel marketing, the definitions of pyramid schemes varies from jurisdiction to jurisdiction. The WFDSA and our national associations all refer to pyramid schemes as illegal frauds. We use in our outreach to the public, to governments, to the news media and to consumer groups, a simple two-question test on how to tell the difference between legitimate multilevel direct sales companies and fraudulent pyramid schemes. The first question is:
Do you risk financial loss by being involved with this company?
If the answer to this question is yes, we say “be careful.” It may be legitimate but most direct sales firms do not require any substantial investment or risk of financial loss. The second question is the critical question. It is:
Is the money you are going to earn primarily coming from the sale of the products or services to the ultimate consumer of those products or service?
If the answer to this question is no, and money earned is coming from some other source (e.g. recruiting or headhunting fees, inventory loading, sale of sales kits and sales aids), you then have an illegal pyramid scheme and we advise people to stay away. It is that simple. Please note that we include in our definitions the sales to salespeople for their personal or family consumption as sales to the ultimate consumer. There is nothing unethical or illegal in compensating based on personal or family consumption, so long as the amount purchased for such personal and family consumption is reasonable and the products are reasonably priced.
An additional question that we also suggest be asked is:
Would you buy the company’s product if you were not a member of the sales organization?
If the answer to that is no, you would not buy it, then why would you want to sell for a company whose product you do not think worthy of purchasing whether for your own or family’s or friends’ usage.
Number Of Multilevel Levels:
There is no correlation between the number of levels in a multilevel direct sales company and pyramid schemes. There are two ways multilevel firms physically distribute their products to the ultimate consumer. The original way, before the advent of personal computers, was for the company to sell at wholesale to the highest level of distributors who sold some of the product at retail but re-wholesaled, at the same price they bought the product from the company, to their immediate level of recruits (their first “downline” level). This passage of title to goods from one level to another to a third, fourth, etc., all are done at the same wholesale price. Profits are derived two ways by salespeople in multilevel organizations. First, it is based on their retail sales (i.e. the markup between the wholesale price they paid their supplier and their price to the consumer). Second, they receive compensation, most often called overrides or bonuses, which are based on their group sales volume. The number of levels is not indicative of a pyramid scheme and the override/bonus amounts are based on decreasing percentages. In addition, because most direct sellers, whether single level or multilevel, are part-timers, looking to merely supplement family income and often frequently entering and leaving the firms because of changing motivations (Note: See our previous discussion on the seven types of salespeople), we have what we call “compression.” Compression means that as people leave the organization, those below them move up Others who have left often return. Academic theories of geometric progressions look technically correct, however the allegations that multilevel plans must fail in short order because the entire population of Europe would be recruited into the sales organization of a company in seven or eight levels are not. The fact that some of our multilevel companies have been operating for 20, 30 and 40 years or more, with neither the entire world joining these companies nor the companies failing or running into legal or ethical problems, belies the allegation from an historical and operational perspective.
Pyramid Schemes; Major Abuses:
The most common abuses in pyramids that try to pass themselves off as legitimate multilevel direct selling companies are:
- Headhunting Or Recruiting Fees: These are payments made by the recruit to the scheme organizers which are shared back to the recruiter for the mere act of recruiting a participant into the scheme. These fees generally are illegal in all countries that have dealt with the problem.
- Inventory Loading: This is a required or coerced purchase of excessive inventory (or sales aids) by a recruit. (Note: All members of all DSAs must provide at least a 90% refund of net cost of all inventory (and sales aids) purchased in the prior 12 months of the time a salesperson wishes to leave the business, thereby eliminating the possibility of inventory loading when dealing with DSA member companies. Such buybacks are required under the WFDSA and FEDSA Codes.)
- Exaggerated/Outrageous Earnings Claims: To lure recruits into the business and thereby get them to pay large upfront fees or purchase large amounts of unrefundable inventory, outrageous earnings claims often are made, e.g. “earn US$100,000 per month working part-time without retailing.” (Note: Such claims also are banned under the WFDSA and FEDSA codes.)
Discussion Of U.S. Pyramid Scheme Laws And Trends: Proposition: The VIEW Report Has Given A “Misimpression” Of United States Law:
The Final Report on Door to Door Selling, Pyramid Selling and Multilevel Marketing and accompanying analysis of laws suggests a comprehensive regulatory approach of legitimate multilevel companies which simply does not exist. There are only a handful of jurisdictions which have specific laws meant to regulate multilevel companies. (Six, as the VIEW Report notes - footnote 392.)
Indeed, the trend is away from regulating legitimate companies. Using U.S. states as examples:
- New Mexico eliminated its multilevel statute in favor of anti-pyramid statute.
- Georgia relaxed regulatory requirements for multilevel companies.
Another trend is toward enacting clear laws which prohibit illegal pyramid schemes and rejecting regulation of legitimate companies:
- Louisiana practically relaxed its registration requirements and enacted anti-pyramid statute.
- Texas rejected MLM regulation and enacted anti-pyramid statute.
- Oklahoma rejected MLM regulation and enacted anti-pyramid statute.
- Montana enacted an anti-pyramid statute.
Less recently, but significantly,
- Arizona enacted anti-pyramid statute.
- Illinois enacted anti-pyramid statute.
- Kentucky enacted anti-pyramid statute.
Moreover, the laws which the VIEW Report cites in its report are general anti-fraud provisions applicable to all business activity and were not intended to specifically apply to multilevel companies. It is more accurate to say that aside from the six jurisdictions described in VIEW footnote 392, there is no special or extraordinary treatment or scrutiny of legitimate direct sales MLM companies, as compared to other businesses or industries.
18 U.S.C. Sec. 1962 “RICO,” for example had nothing to do with multilevel companies or direct selling and has been a broad-based anti-fraud and corruption tool used in private and public actions. It has been used as an element of prosecution against alleged pyramid schemes in private and public actions.
15 U.S.C. Sec. 13, the Clayton Act, has never been a major component of prosecution against pyramid schemes. Nor are we aware of any action citing the law against multilevel companies.
The Securities and Exchange Act of 1934 has been an element in prosecutions of pyramid schemes and has never been used by the government to regulate a legitimate multilevel direct selling company. Multilevel companies are not presumed to be selling securities under the law.
Similarly, state anti-referral sales laws and lottery laws have no applicability to direct selling companies; instead these various laws have been used to prosecute pyramid schemes when there is no better law available in the jurisdiction with which to attack fraudulent operations.
Federal Trade Commission:
The U.S. FTC generally does have regulatory authority over many U.S. business activities, including direct selling. That authority has been used to set anti-pyramid standards and has been instrumental in determining the business standards used by legitimate multilevel companies in the United States.
Again, we fear the VIEW Report has left a misimpression with regard to United States federal law in this regard. Footnote 149 of the Final Report and the accompanying description of the case in Volume II overstate the nature and import of Webster v. Omnitrition. The case did not involve the United States Federal Trade Commission but was instead a private class action brought by dissatisfied distributors. The decision of the Court in Omnitrition was not a final adjudication of the case but instead returned the case to the trial court for final resolution. The decision was interlocutory in nature, and its dictum cannot be cited as law or even as a statement of generally accepted opinion.
The seminal FTC v. Amway case is the persuasive, controlling, authority in the United.States. FTC v. Amway did not reject or question compensation to participants in a direct selling multilevel company based upon their own or other participants actual use and consumption of the company’s products. Final or ultimate customers in a legitimate direct selling, multilevel company can be participants or non-participants in Amway. Indeed, the Amway plan scrutinized by the FTC in that case awarded such compensation, at least in part, to individuals based upon sales to actual users of the products who also were salespeople.
USDSA surveys indicate that almost 40% of product, on average, is ordered for personal or household use by direct sellers themselves. There is no general legal standard, either federally or in the states, suggesting that compensation based on personal use or consumption by sellers should be limited. Bona fide marketing plans almost invariably award such compensation. While these incentives initially are based upon the purchases made by recruits of the participant, they are made effectively contingent upon sales to ultimate consumers taking place by adoption and enforcement of rules which, together, encourage these sales and prevent inventory loading. If participants or recruits otherwise find themselves with inventory they cannot or do not wish to resell, they may return the goods to the company and receive back substantially the same price they paid, less any compensation previously paid on the unsold goods.
Koscot Interplanetary Inc., 86 F.T.C. 11106 (1975), found that pyramid schemes are inherently deceptive and in contravention of § 5 of the Federal Trade Commission Act, 15 U.S.C. § 45. See also, In re Ger-Ro-Mar, Inc., 84 F.T.C. 95 (1974) rev’d 518 F.2d 33 (2d Cir. 1974), Holiday Magic Inc., 84 F.T.C. 748 (1974). The FTC’s decisions in Koscot provided a broad definition of unlawful pyramid schemes; the Commission’s basic test was that a pyramid rewards recruiting alone “unrelated to the sale of product to ultimate users” through headhunting fees and inventory loading. However, violations of the Koscot standard must be determined using an analysis of whether or not sales of product to ultimate users are taking place and driving the compensation mechanism, and in light of what features exist in the plan to prevent the evils of a pyramid scheme.
After Koscot, the FTC refined its general analysis in Amway, which has served as the U.S. standard for distinguishing bona fide marketing plans from illegal pyramids for more than 20 years. Many direct selling companies and law enforcement officials have relied on the tests established in Amway. In Amway, distributors were eligible to receive a monthly bonus which was based on the total amount of products purchased for resale both to consumers and to other distributors.
The Koscot and Amway analyses, together, have set clear standards for determination of whether a plan is a pyramid scheme or a bona fide marketing plan and remain controlling U.S. legal authority. See e.g., State ex rel. Miller v. American Professional Marketing, Inc., 382 N.W. 2d 117 (Iowa 1986). As stated previously, a pyramid - in which participants pay money in return for (1) the right to sell a product and (2) the right to receive in return for recruiting other participants into the program rewards which are unrelated to the sale of product to ultimate users - is typified by headhunting fees, large upfront payments and inventory loading. A bona fide marketing plan offers significant distinguishing features, like those considered in Amway. Chief among these features is that no fee or compensation is paid merely for having recruited additional participants, no large non-returnable investment in inventory is required to start or stay in the business, and a commercially reasonable inventory repurchase policy is offered.
Again, VIEW misstates U.S. law. Amway remains the controlling authority for U.S. legal purposes, not Omnitrition. Law enforcement, legislators, the public and direct selling companies across the United States have relied upon these features and safeguards, particularly the buyback provisions, as clear legal distinctions between bona fide marketing plans and pyramid schemes.
We urge the European Commission to recognize that traditional and multilevel direct sales companies are not a problem. Pyramid schemes are. An effective and enforced buyback, as included in the FEDSA and WFDSA codes, can eliminate the central ill of a pyramid scheme - inventory loading - by which participants are fettered with inventory they cannot sell and which they purchased in order to receive greater commission or bonus payments. A buyback eliminates this possibility by ensuring that participants will be able to recoup most or all of their payments for the inventory. Thus, in a bona fide plan, the risk of loss to participants is minimal or nonexistent and the ability to perpetuate a pyramid scheme is effectively nullified.
Pyramids do not offer effective and enforced buybacks. Inventory repurchase policies have, in fact, become the chief mechanism to protect against inventory loading.
Analysis of the Amway safeguards led the USDSA and WFDSA to conclude that the buyback was a clear-cut and unequivocal part of the difference between bona fide marketing plans and pyramid schemes. The buyback requirement specifically was adopted and incorporated into the USDSA Code of Ethics, a document which already specifically prohibited pyramid schemes. Violation of the USDSA Code can result in expulsion from the Association and referral of the matter to law enforcement officials.
Since Amway, an effective and enforced buyback has been established as the principal standard to distinguish legitimate business activities from pyramid schemes in the United States. Likewise, complementary rules similar in purpose and spirit to those set out customer rules in Amway have since been adopted by a number of companies to help manage inventory and encourage sales to ultimate consumers. These legitimate plans offer rewards based upon distribution of products to real consumers, and all who participate may assess for themselves the demand for their products and whether they will find a sufficient number of consumers to make their efforts profitable. A bona fide plan does not rely upon the large, upfront purchases of inventory of new participants to sustain it. Indeed, legitimate plans offer to repurchase inventory from participants who leave the plan. Plans which offer incentives, such as bonuses based on total purchases of a sales organization, together with the safeguards noted above, are commonplace in the direct selling industry around the globe.
The USDSA and WFDSA believe that, based on existing legal precedents, a marketing plan which calculates and pays compensation initially on the volume of inventory purchased by participants and which includes features to effectively avoid the ills associated with pyramid schemes is, on its, face, valid. Reliance on orders and suggested retail prices to calculate rewards simply is a practical and efficient way to calculate the amount of those rewards; it is consistent with, not contrary to, the Amway standards and in no way suggests that the rewards are “unrelated to sales to ultimate users.” That determination depends instead on whether a multilevel company has adopted and effectively enforces the Amway or similar safeguards.
Cooling-off periods in direct selling were created to eliminate high-pressure door-to-door salesmen selling expensive products to consumers who really did not want them. The U.S. experience has shown that the three-business-day cooling-off period is more than adequate to allow the consumer to cancel. Consumers who are high-pressured regret the purchase immediately and cancel. We have no objection to a longer period because ethical companies selling quality products at fair prices, i.e. our members, will not use high-pressure tactics and therefore will not have sales canceled. Note: We believe that the ultimate in consumer protection is an unconditional, unlimited money-back guarantee. If companies are willing to voluntarily extend such protection for consumers, the EU and EC should endorse the concept and urge all its members states to allow this ultimate consumer safeguard.
Referral Sales: Legal And Illegal:
In the United States, there are two types of referral sales, those legal and those illegal. Under the Uniform Consumer Credit Code and various state statutes, salespeople are allowed to pay consumers for referring someone for the salesperson to call upon indicating that the original consumer recommended the call. This type of referral is legal only if the consumer who had bought a product from the salesperson will receive the payment whether or not the referred parties make subsequent purchases. In other words, a referral scheme is illegal if it is dependent upon an event subsequently occurring (which may or may not happen). In the late 1960s and through the 1970s, U.S. state referral sales statutes sometimes were used to prosecute pyramid schemes but are no longer used to do so except on extremely rare occasions. The referral sales laws are aimed at fraud that deceives the consumer into thinking they will wind up paying a lower price for the product they just purchased if their friends or neighbors buy from the salesman. Consumers most often wound up paying an exorbitant price for the product with no subsequent rebate.
Providing Necessary Information:
Entry into direct selling, unlike franchising, does not require any substantial investment to start into the business. Accordingly, while all information and training materials must be accurate and honestly communicated, it would be counterproductive to overwhelm new participants with what is basically irrelevant data. WFDSA and FEDSA codes require that all earnings claims be realistic and substantiated. It obviously is in the interest of direct selling firms, all of whom compete with one another for recruits, to provide enough information to help salespeople succeed. Our salespeople basically are our firm’s partners who do not make investments into the business other than their hard work (which also is known in many countries as “sweat equity”).
Independent Code Enforcement:
One element of our industry’s self-regulation efforts via our codes of ethics is its independent enforcement by an outside code of ethics administrator. These administrators are selected for their reputations for integrity and consumer protection orientation. It is a unique self-regulation program in that regard. Our codes also have been used as models for other industries, e.g. in Singapore our code has been slightly modified and adopted by the trade associations of the direct marketing furniture and jewelry industries. It has teeth and is more progressive in its terms than almost all laws impacting our industry throughout the globe.
The VIEW Final Report:
The WFDSA concurs with and endorses the Oppenheimer, Wolff and Donnelly, LLP analysis and the submission made by the Federation of European Direct Selling Associations. We regret the VIEW did not seek our cooperation or input in their research other than citing USDSA’s publication, MultiLevel Marketing: A Legal Primer. The WFDSA has extensive experience especially in North America, South America and the Asia Pacific region in dealing with consumer protection issues. Just last year, the Asia Pacific Economic Cooperation (APEC) economies endorsed via their Ministers for Small and Medium Size Enterprises (SMEs) and then by the Foreign Ministers and Heads of State our Consumer Education and Protection Initiative (CEPI) which has been launched in Thailand and the Philippines. This initiative is part of our global effort to work with consumer groups and governments to heighten consumer protection and education. We also regret VIEW’s clear lack of understanding about very significant aspects of our industry and the seeming failure to base recommendations on objective facts, analyses and practical experiences.
The European Commission inadvertently prejudices the discussion of the issues in a negative way by linking door-to-door sales (an antiquated term we might add) and multilevel marketing (a compensation element of direct sales companies) to the universally condemned and illegal pyramid scheme. It implies an institutional connection between an honest method of doing business and an illegally fraudulent scheme. The VIEW study and, unfortunately, elements in its recommendations incorrectly and unfairly make the same linkage. This linkage and recommendations also run counter to the trends around the world and to those within the European Union as well. Direct selling, whether single level or multilevel, is an accepted, valuable method of marketing goods and services as well as a wonderful opportunity for people to supplement their income or begin careers as small business entrepreneurs. The FEDSA- commissioned PricewaterhouseCoopers study of the economic contributions our industry makes in Europe should be persuasive to the Commission as to those points. Pyramid schemes are the problem that the European Commission should focus on, not legitimate direct sales firms. Concocting so-called remedies to non-existent problems undermines the legitimate efforts of the Commission to protect consumers, unnecessarily maligns a vibrant industry and undercuts the rule of law. The actions of the Commission will have global implications on trade, labor and consumer protection issues relating to our industry. The World Federation of Direct Selling Associations stands ready and able to assist the Commission in its further study of the direct selling industry and suggests that either the model pyramid scheme law used in the United States by our industry (“the Baltimore Model”) or the model used by FEDSA be considered as the basis of any new or amended Directives to be promulgated by the EC. For additional information, we respectfully suggest you visit our web site at www.wfdsa.org.