Direct selling refers to a business where goods or services are sold directly to consumers in a non-traditional retail setting. Direct selling is an effective and popular business model to set up a low-cost business, avoid expensive business costs and reduce advertising costs.
Myanmar has no specific law with regards to ‘direct selling’. However, multi-level marketing (“MLM”), being a variation of the direct sales model, has been prohibited by way of Notification No. 46/2018 dated 18 September 2018 (“MLM Notification”), issued by the Ministry of Commerce (“MOC”). The MLM notification does not set out the definition and features of MLM business. Due to the absence of specific laws governing MLM, any penalties for violations of the MLM Notification comes under section 5 of the Essential Supplies and Services Law 2012. This section provides that any violation upon conviction, is punishable with imprisonment for a term from a minimum of six months to a maximum of three years and shall also be liable to a fine not exceeding MMK 500,000. However, it remained unclear how authorities would enforce the MLM Notification given that “MLM” or its features are not defined in the MLM Notification.
Following this MLM notification, the Draft Direct Selling Law (“Draft DS Law”) was issued in 2020 regulating direct selling activities within a legal framework. Whilst it does not completely prohibit direct selling or MLM strategies, the law ensures that such activities are not ‘pyramid schemes’ or employ other fraudulent strategies. The Draft DS Law defines direct selling as ‘offering and selling of goods or services to consumers either by meeting with the consumers, by ordering, or by communicating via an electronic system rather than display at the stores’.
Conditions for the setting up of direct selling business
Under the Draft DS Law, goods refers to object that is tangible or insufficiently tangible, movable or immovable, which is enable to trade and services means an action which fulfills the need of consumer in the form of work or performance whether it has value or not.
Entrepreneurs are required to apply to the Department of Consumer Affairs (“DCA”) under the MOC for a registration certificate to operate a direct selling business. The entrepreneur is defined as an individual, a company, or an organisation that has registered with the DCA to operate the direct selling business. Thus, it may be presumed that foreign companies and/or joint venture companies will also be allowed to operate. With regards to the wholesale and retail business, MOC has extended the list to 25 types of goods in 2021.
A detailed operating procedure will be issued later as necessary after the enactment of the Draft DS Law.
Obligations of entrepreneur
Under the Draft DS Law, there are certain obligations that entrepreneurs must follow. These includes, executing and complying with terms and conditions of a sales contract with sales agent, reporting to DCA, guarantee the quality of the goods and so on. Failure to comply with the obligations, DCA will impose administrative penalties which includes warnings, fines, suspension or permanent termination of the registration certificate of the direct selling business.
Prohibition of MLM under Draft DS Law
Although, there is no definition of MLM under the Draft DS Law, section 20 of the Draft DS Law provides a list of prohibited activities which are likely to be interpreted or construed by authorities as a breach of the MLM Notification. These includes:
- charging sales agent fees, training fees, or other expenses exceeding the amount set by the DCA;
- selling to agents to buy more than the terms of the sales contract;
- upselling of goods or services to become a sale agent;
- exaggerate or withhold information related to the goods when selling them;
- excessively guaranteeing beyond the specified quality of the goods or service to sell such goods or service;
- persuade by giving incentives to engage in direct sales;
- cash flow occurs from recruitment of new members without having to sell any goods or service;
- transfer any of the benefits received from the direct selling business to another person;
- operate direct selling businesses without registration certificate;
- close a registered direct selling business without permission of the DCA; and
- continue operating direct selling business during the revocation of registration certificate temporarily or for a limited period of time or permanently.
Prohibitions and penalties
The Draft DS Law sets out prohibitions relating to direct-selling activities and penalties for the violation of such activities:
1. Imprisonment for a term not exceeding six months or a fine not exceeding MMK 100 million or both.
- Exceed the amount of sales agent fees, training fees, other expenses set by the DCA.
- Make sales agent buy more than the terms of the sales contract.
- Forced to buy goods or services in order to become a sale agent.
2. Imprisonment for a term not exceeding one year or a fine not exceeding MMK 150 million or both.
- Exaggerate or withhold information related to the goods when selling it.
- Excessively guarantee beyond the quality of the goods or service specified.
3. Imprisonment for a term not exceeding one year or a fine not exceeding MMK 200 million or both.
- Persuade by giving incentives to engage in direct sales.
- Cash flow comes from the recruitment of new members without having goods or services to sell.
- Transfer any of the benefits received from direct selling business to another person.
4. Imprisonment for a term not exceeding two years or a fine not exceeding MMK 300 million or both.
- Operate direct selling businesses without registration certificate.
- Close a registered direct selling business without permission of the department.
- Continue operating direct selling business during the revocation of registration certificate temporarily or for a limited period of time or permanently.
Direct selling offers self-employment opportunities to a large number of people. Consumers can also benefit from direct selling due to the convenience and service it provides, such as explanation of the goods and home delivery. While direct sales may be referred to as MLM, as MLM is a form of direct sales, not all direct sales systems involve MLM. The Myanmar Direct Selling Association, incorporated and registered with the Directorate of Investment and Company Administration, in 2020 has given prior notice to the related companies not to operate direct selling by way of pyramid schemes.
With the release of the Draft DS Law, authorities are able to supervise direct selling business in accordance with the law, protect any loss for the state and citizens as a result of the direct selling business and support the economic development of the state by way of the operating direct selling business methodically. Currently, many companies are operating direct selling business and although there are no specific rules governing direct selling, the Draft DS Law may be taken into consideration by the authorities when determining whether any direct-selling business has breached the law and exercising of their enforcement powers under the MLM Notification.
We will continue to monitor further developments of the law and provide updates accordingly.
If you have any questions or require any additional information, please contact Thuzar Tin or the ZICO Law Myanmar partner you usually deal with.
This alert is for general information only and is not a substitute for legal advice