Fair Trade Commission, Reports 3 Illegal Multi-Level Marketing Companies in Gangnam and Geumcheon-gu, Seoul
A high-risk group facility posting a prohibition order on a door of a door-to-door sales company. (Photo by Asia Economy DB)
[Asia Economy Reporter Moon Chaeseok]
#D Company, a door-to-door sales business located in Seoul, was caught by the police but disregarded the situation and gathered about 30 people to sell high-priced bedding sets costing 3.5 million KRW each, along with telecommunications products and health functional foods. Eventually, a confirmed case of COVID-19 occurred.
According to an inspection by the Fair Trade Commission (FTC), D Company was revealed to be an illegal business that registered as a door-to-door sales company but actually operated as a multi-level marketing (MLM) company. Although it was caught by the Seoul Suseo Police Station on the 8th for violating the assembly ban order, about 30 people gathered and continued their activities during an on-site inspection the next day. Ultimately, a COVID-19 case was confirmed on the 14th. The FTC filed a complaint against this company with the police.
On the 23rd, the FTC announced that it conducted joint inspections with the Suseo Police Station over five days?on the 4th, 9th-10th, and 16th-17th?in Gangnam-gu and Geumcheon-gu, Seoul, targeting suspected illegal door-to-door and MLM sales companies. They identified and reported three companies suspected of violating the Door-to-Door Sales Act. Although three companies were reported during the first inspection from the 19th to 31st of last month, illegal operations continued.
The FTC stated that the inspection results confirmed that illegal door-to-door sales companies induced purchases of high-priced products disproportionate to their quality and recognition by using salesperson qualifications as bait. Salespersons encouraged many people to purchase products to recover their purchase costs and receive sponsorship commissions.
D Company, caught this time, had a typical three-tier MLM structure consisting of 'dealers (lower-level salespersons) - branch managers (upper-level salespersons) - directors,' where sponsorship commissions were paid based on the performance of lower-ranked salespersons. They only registered as a door-to-door sales business but operated illegally. To qualify as a branch manager, one had to recruit 10 lower-level dealers or achieve purchase performance of 4.4 million KRW.
E Company operated an illegal MLM with a structure of four or more levels, including 'regular members - dealers - branches - directors,' paying sponsorship commissions and selling health supplements such as nano calcium at 400,000 KRW for two bottles. To become a branch, one had to achieve sales of 40 million KRW, and to become a director, one had to recruit five branches.
F Company also only registered as a door-to-door sales business but was caught selling a 30ml serum bottle for 165,000 KRW. This company had a structure of five or more levels, including 'members - general distributors - branch managers - directors - center managers,' paying sponsorship commissions. To become a director, one had to achieve sales of 300 million KRW and recruit 10 lower-level general distributors.
The FTC filed complaints against these companies with the police for violating the Door-to-Door Sales Act. Unregistered MLM sales are punishable by up to seven years in prison or fines up to 200 million KRW. Gangnam-gu and Geumcheon-gu inspected two high-risk facilities with door-to-door sales promotion centers on-site for compliance with quarantine rules and imposed assembly ban orders. Violating the assembly ban results not only in complaints but also in liability for damages.
On this day, the FTC announced plans to expand the reward system for reporting violations. Previously, it was operated targeting 'illegal pyramid companies,' but the scope will be expanded to include 'door-to-door sales companies violating assembly ban orders.'
If reports on door-to-door sales companies violating assembly ban orders are made to the mutual aid association, rewards will be given based on confirmation and action results by local governments. Reports can also be made through the Safety Report app operated by the Ministry of the Interior and Safety. The ministry plans to start issuing rewards from the end of this month.
Additionally, the FTC will continue joint inspections of door-to-door sales companies with local governments and police. Considering the COVID-19 situation, the joint inspections, originally scheduled until the 18th, will be extended. They plan to monitor illegal door-to-door sales activities through various channels such as the reporting center and related agencies and conduct on-site inspections. Unregistered door-to-door sales and MLM activities will be reported or investigated immediately upon detection.
Ryu Yongrae, head of the FTC’s Special Transactions Division, stated, "We are concerned that if illegal door-to-door sales companies disappear or go bankrupt, it will be difficult for victims to receive compensation, causing serious consumer damage." He pointed out, "Because they operate by gathering many people in confined spaces and encouraging purchases, they are very vulnerable to infectious diseases."
Ryu urged, "Please be especially cautious not to visit presentations or promotion centers hosted by such illegal door-to-door sales companies or purchase their products."
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