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The Fair Trade Commission, the “prosecutor for the economy,” has declared war on illegal multilevel marketing firms that are causing harm by taking advantage of the economic crisis to target the unemployed, retired and university students experiencing difficulty finding jobs.

The Fair Trade Commission (FTC) announced Sunday a comprehensive set of measures directed at multilevel marketing (MLM) firms and are calling for broad, direct investigations of these firms. The FTC is also strengthening sanctions in order to use some firms as examples to others who have been subject to criminal complaints and investigations for breaking the law, to provide rewards for whistle-blowers, to raise fines for breaking the law, and to publicly release the names of companies that habitually break the law.

These measures come after the FTC designated the MLM sales market this year as an industry requiring focused monitoring and caught seven firms engaging in illegal operations targeting university students, and the elderly since the ruling did not dissuade firms from targeting these groups. The MLM market has been on the decline following the 2005, but since 2007 has been back on the upswing. Over the past year, 62 registered firms made 2.1956 trillion Won in sales, a 24 percent increase compared to the previous year. The number of registered salespeople last year was 3.09 million, and 664.7 billion Won in sales bonuses for sales to new clients were paid to 1.05 million sales persons.

The measures announced today call for a direct investigations of MLM firms in conjunction with local governments over October and November and a concentrated crackdown on illegal activities including the payment of excessive sales bonuses to employees, the sale of high-priced goods over 1.3 million Won in value, and unregistered firms. Since the FTC has decided to strengthen its penalties in order to make examples out of firms caught engaging in illegal activities, the firms will now be subject to criminal complaints and fines. According to current laws, sales bonuses are limited to 35 percent of the supply price and some MLM companies, including JU whose president was arrested in 2005, have been giving out excessively high bonuses of up to 84 percent of the sales price and speculation in the industry has risen as a result.

The FTC has also decided to launch a whistle-blowing system in October for illegal MLM firms that pays 300,000 to 1 million Won per tip-off.

Moreover, the FTC has decided in principle to file criminal complaints or order investigations of unregistered firms or firms that pay excessive sales bonuses. It has also decided to change regulations for joining mutual aid associations for firms that break the law, and will raise their collateral payments and check-off fees from 0.01 to 0.3 percent. The FTC also plans to regularly release information about firms that have repeatedly broken the law, at least three times in three years or twice in a single year.

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