19/12/2018, 03:21 AM

On March 3, 2018, the Government issued Decree 40/2018/NĐ-CP (“Decree 40”) on management of business activities via multi-level method. Decree 40 replaced Decree 42/2014/ND-CP (“Decree 42”) and came into force on May 2, 2018.

Next, on May 24, 2018, Ministry of Industry and Trade promulgates Circular 10/2018/TT-BCT (“Circular 10”) guiding some regulations of Decree 40. Circular 10 has abolished Circular 24/2014/TT-BCT and came into force on July 15, 2018.

Decree 40 and Circular 10 were issued in the circumstance that multi-level sale (“MLS”) in Vietnam has been happening complicatedly and there is a need of specific, clear, possible, strict regulations to meet management requirements of government agencies in this industry.

In the comparison with Decree 42, Decree 40 has laid down a stricter legal framework governing the MLS. Many new regulations were supplemented to perfect the legal framework, strengthen in controlling, enhance the efficiency of governmental management in MLS, to ensure that no one can take advantage of the multi-level sale method to illegally mobilize.

Generally, Decree 40 and Circular 10 have some new points as follows:

Firstly, on prohibited act in MLS:

For MLS enterprises, Decree 40 has added some new prohibited acts, such as:

  • Providing false information concerning the compensation plan or benefits from participarting in the MLS;
  • Implementing sales promotion program using multi-level network in which a participant has more than one position, identity number or others of equivalent method;
  • Providing commercial intermediary services as regulated by the laws on commerce with the aims of maintaining, expanding and developing its own MLS network;
  • Receiving or accepting the application or any other form of documents of MLS participants, in which MLS participants declare that they waive a part or all of their rights under the provisions of this Decree or allow the enterprise not to perform its obligations towards MLS participants in accordance with regulations of Decree 40;
  • Failing to use the management system registered with the regulatory authority that issued the MLS registration certificate to manage its MLS participants.

For the MLS participants, it is prohibited for them to do MLS activities in their local place where the business has not been granted a registration certificate.

Secondly, the conditions of applying for MLS activities:

Regarding deposit, enterprises have responsibility for opening deposit account and depositing an amount of money equivalent to 5% of capital charter but not less than 10 billions VND at a commercial bank or at a foreign bank’s branch in Vietnam. This amount is double compare to the amount of deposit stipulated in Decree 42. This regulation is to ensure, enhance the possibility of executing obligations of enterprises to MLS participants and the State in the case that MLS business terminate its activities but having not fulfilling its obligations sufficiently.

Regarding MLS materials, one of the important conditions to apply for MLS business is the enterprises need to have MLS materials including: MLS Agreement, Compensation Plan, Code of Conduct (“MLS Materials”). Decree 40 has detailed basic requirements and the form of materials. This comes from the need of fixing weak-points of Decree 42, for it only has the concept of materials, stipulated unspecificly and not consitent the necessary contents of a MLS Marterials.

Regarding information technology system managing MLS participants, this is a compulsory requirement to enterprises when they register for MLS activities. This system have to be operated under a server located in Vietnam and enterprises have to provide fundamental information related to MLS business according to legal regulations. Besides, enterprises have to ensure MLS participants are enable to access and find out basic information about their MLS activities and give the right of access to the system managing account when there is a written document of the authority managing MLS activities.

Regarding enterprises website, enterprises must have websites to provide information of them and their MLS activities for this is also a compulsory requirement to participate in MLS activities. When applying dossiers to register for MLS activities, enterprises have to attach documents proving that the applicant’s website meets the requirements according to regulations.

Regarding documents proving the applicant’s communications system used for receiving and handling complaints or queries of MLS participants, before, Decree 42 only stipulated that enterprises are responsible for resolving complaints of MLS participants and consumers but did not set up a machanism to assure that enterprises perform this obligation. Decree 40 requested enterprises to have documents proving communication system to receive, handle queries, complaints of multi-level sale participants when they apply for for MLS activities.

Thirdly, on operating MLS activities at local level:

The enterprises need to perform the registration procedures at Departments of Industry and Trade with a more specific and more complicated dossier and procedure than in Decree 42. In Decree 40, enterprises are allowed to do MLS activities if they have headquarters, branches, representative offices in the province, or authorizing an individual who is local resident (if there are no headquarters, banches, local representative offices) to be the representative on behalf of the enterprise to work with local authorities.

Fourthly, on the requirements to be MLS participants:

Decree 40 has supplemented cases of persons not allowed to participate in MLS, including: A person who has participated in the MLS and is faced with administrative penalties for committing violations against regulations in Clause 2, Clause 3 and Clause 4 Article 5 herein but the sanctioning duration has not ended; officers and civil servants according to officers, civil servants regulations.

Fifthly, on method of commission payment and other economic benefit:

MLS enterprises takes responsible for paying commissions, bonuses, promotion and other economic benefits in money to multi-level sale participants by bank transfer.

Sixthly, on requirements to be satisfied by Trainers:

Trainers must have a certificate of completion of training course in laws on MLS. The certificate of completion of training course in laws on MLS (as prescribed in Circular 10) is compulsory for trainers and have the same validity as the certificate of completion of training course (as prescribed in Circular 24).

As regulated in Circular 10, procedures for issuance of certificates of knowledge of law on MLS is closely held by the step of examinating of knowledge of law on MLS organized by VCCA or by authorized MLS training instututes. Meanwhile, according to Circular 24, this examination was held in a basic way at training institutes appointed by VCCPA and VCCPA would issue Certificates of Trainers as the request of enterprises.

It can be seen that Circular 10 has strict control at stage of examination of knowledge of trainers to ensure that they have a good knowledge of MLS activities that they will train MLS participants.

Seventhly, on transition terms of Decree 40:

In the term of 09 months since Decree 40 comes into force, enterprises issued MLS registration certificate according to Decree 42 have to fulfill sufficiently conditions in Decree 40.

It can be seen that Decree 40 and Circular 10 have revealed the more strict management of compentent authority towards MLS activities, have bring a solution for transparency in MLS business. Since the date Decree 40 came into force, MLS enterprises have exerted themselves to their utmost to meet the requirements of this Decree in the regulated term.