Recently, news has continuously reported about situations that undergraduates are deceived into the false model of the multi-level marketing (the “MLM”). The fraudulent MLM model has occurred for ages and has been widely discussed, the caution of society to it has also been raised to some certain extents. This criminal activity, however, are being more subtle with new more tricks.
It is necessary to affirm that MLM is legalized in Vietnam and governed as a conditional business line. Accordingly, this activity must be granted a certificate of registration for operation as stipulated by the Government. Yet, some people deliberately operate this business model in a false way for self-interest purpose in the first place. These persons seduce prey into investing money to them before vanishing safely with the money. They incorporate a multi-level marketing company which is publicly known as “fraudulent multi-level marketing model” or, shortly, “Ponzi scheme”. Normally, fraudulent MLM companies offer investors with a fantastic interest for investment in an impeccably drawn business plan. These companies keep luring new investor and take money from them to pay profit to the former investors as promised until the fraud is revealed.
From time to time, fraudulent MLM companies find different cunning ways to seduce investment. Needless to say, undergraduates are always lucrative prey these companies hunt. Frist-year students, who have just finished their high school and are living away from parents, show eagerness to assert themselves and to be financially independent. As a result, it leads to high demand for part-time jobs amongst undergraduates. Deceiving students into buying goods which are exaggerated the function and prices has been exposed for years. Therefore, a part-time job recruitment becomes more effective.
When undergraduates join into an interview as employment information posted on social network, a recruitment website or leaflets, Ponzi-scheme-based companies will charge the interviewee an amount for an employee identification card, a uniform, training or vocational classes, etc. These undergraduates, once they pay the money, will be stuck in such companies or brainwashed or compelled to figure out ways to take back their money. The most ordinary way, as usual, is seeking and introducing friends and relatives to be a part of the system, or the undergraduates must accept the loss if they decide to quit.
Pursuant to stipulatory regulations, MLM model shall only be operated to sell goods other than any other subject, including medicines, medical equipment, digital information product, etc.  However, there are several businesses use the Ponzi scheme to provide cryptocurrency, namely, IFan, Vncoin, Skymining, or other companies offer stakes like Univest, or job placement firms such as “Team khoi nghiep 360”, etc. Obviously, these companies violate the Vietnamese laws.
How to identify disguising MLM companies
Firstly, understanding the MLM model
MLM is a business model that is operated based on a network of participants, which includes multi-levels and branches. The participants enjoy commissions, bonus and other economic benefits generated from their sales and from that of the other ones.  If an investment offer or a company shows these characteristics, it should be recognised that it is an MLM model. Accordingly, it is necessary to find out whether such company is eligible to run that business under Vietnamese law.
Secondly, MLM companies shall be granted a certificate of registration
As reported by Vietnam Competition and Consumer Authority (VCCA), only 33 incorporations across the country are eligible to operate MLM model, some of which have been shut down.  Thus, before joining into any MLM network, participants should check the legality of the company running it. This is important because a certified MLM company must fulfil stipulatory conditions applied to the participation contract template and to its operation, including a bonus payment scheme and a training schedule which must be transparent and legal. Also, this company is required to have a communication system to receive, answer and settle inquiries and claims from participants.  Internal regulations and business policies of MLM companies are scrutinized by the licensing authority before being applied. This is to ensure that they comply with laws and participants, who are the weaker side in the relationship with MLM companies, would not be at risk. Additionally, MLM companies are responsible for opening a margin account at a commercial bank or a branch of oversea bank where they must deposit an amount equivalent to 5% of their charter capital, but it should not be lower than 10 billion (ten billion) Vietnam dongs. The MLM companies shall only withdraw their deposit in case they are not approved to operate or their operations are legally closed. The deposit is to bind these companies to their obligations with participants and the State.
Information about eligible MLM companies can be checked at the website of VCCA: https://qlct.gov.vn/DNBHDC.aspx?CateID=424.
Thirdly, participants are required to deposit, purchase goods or pay a certain amount to join the system
Any requirement to buy products, deposit or pay fees as a condition of participation is considered as a manifestation of disguising MLM, which violates laws. As stipulated in the Vietnamese labour code, employers are not entitled to demand employees to make any guarantee by money or asset as a part of employment contract performance. In addition to this, any kind of training to work for the employees shall not be charged any tuition fee.  Hence, companies that request undergraduates to pay for employee ID cards, uniforms, training classes, guarantee, etc. when recruiting break the labour law.
The fourth sign is a promise of a considerable interest and profit. Fascinating words are used to convince such as “việc nhẹ lương cao” (easy work, easy money); “doanh nhân thành công” (a successful entrepreneur), “tự do tài chính” (financial freedom), etc.
A fundamental principle in economics is “the higher the profit is, the greater the risk is and vice versa”. If the interest rate and profit are high to a level that it is barely reasonable, investors are likely to be ended up empty-handed eventually. Initially, frauds pay the interest and profit as promised to gain trust from participants and to trigger the greediness nature of human beings, which completely blind them. Once the trust is raised to a considerable degree that investors would keep blindly investing and persuade the surrounding people to follow. Unfortunately, they would continue doing without knowing a fact that the money to pay interest and profit is from new participants.
Recently, courses about the success or start-up programme are massively increased, which truly pushes the ambition of a number of the youth to own a start-up and become self-employed rather than being an employee. Nonetheless, this turns out to be weakness of young people which can be easily abused. Disguising MLM companies always attempt to brainwash participants by repeating speeches like “you decide your future”, “do not let anyone block your road even though that are your parents or friends”, “success comes from action even if it is wrong such as taking parent’s money and saying lies”, or “the investment makes a person an owner”, etc. A piece of recruitment information to lure undergraduates, and an office with full of departments, leaders in various ranks are set up as a perfect trap, from which is difficult to escape. Thus, students must search for the information of a company where they intend to join, including information relating to its head office address, business lines. They also have to ensure that they are not invited to a location which is highly suspecting or changed for many times. The profile of any company is always published on the National Portal of Business Registration: https://dangkykinhdoanh.gov.vn/vn/Pages/Trangchu.aspx.
The fifth sign is a fraudulent MLM company only focuses on seeking new participants
Inputting cash flow is the key point to keep the Ponzi scheme surviving, which is why hunting new participants is the highest goal of fraudulent MLM companies. For this reason, the Government forbids MLM companies paying participants commissions or other economic benefits for introducing new participants rather than for selling goods to these people. 
Finally, a fraudulent MLM company may not deliver products or not allow the return of already purchased ones.
As mentioned, MLM model is only permitted to be applied to sell goods, which is different from conventional goods trade in some points. Specifically:
- An MLM company is obligated to deliver goods fully and participants are responsible to receive purchased ones within 30 days from the date of purchase payment. Shipping and receiving obligations are of both the company and the participants. In case the delivery is not performed or overdue, the company must terminate the transaction and reimburse money to participants.  and;
- Participants are entitled to return purchased products to the company, including ones which are bought in a promotional programme, within 30 days from the receiving date. The return of goods could be done without any reason, and the company must buy back at the lowest price which is equivalent to 90% of the amount paid by such participants. 
Therefore, an MLM company is considered to violate stipulatory regulations if it does not deliver products participants or not allow them to return purchased products.
Remedies and approaches to prevent from being deceived into the Ponzi scheme
The heaviest fine to violations in terms of MLM activities under Decree No. 185/2013/ND-CP and 141/2018/ND-CP is only VND 200,000,000. This amount is not deterrent enough because the profit from applying the Ponzi scheme could be up to thousands billion dongs. Although the Criminal Code imposes life sentence as the heaviest penalty to fraud or abuse of trust to appropriate assets, not all cases concerning MLM are prosecuted.
The investigation body is, apparently, afraid of “criminalizing civil and economic transactions”, which leads to the escape of criminals. Thus, disguising MLM companies which are in small scale, usually appear in promote countryside, operate silently and aim to prey such as students are really difficult to be brought to the light. Normally, fraudulent MLM companies only exist for a short period of time, they continually relocate, deceiving a group of participants until their crime is revealed. Then, they close the companies and incorporate a new one. So, to prevent losses caused by disguising MLM companies, the cooperation of society is definitely required.
- Undergraduates should learn about the MLM model and the law which governs this business method to protect themselves from risks.
- The media and press agencies must regularly accurately report on the false MLM model incidents and phenomena.
- Local police offices and State’s authorities must quickly investigate and clarify matters as soon as there are signs of suspicion of newcomers in their localities organizing events, groups or as soon as possible, or there is a charge from the people.
In addition, the application for temporary emergency measures to the blockade, ban property transfers, ban on exit also need to be done easier and faster than the current time. Just in case that the fraudulent companies intend to disperse their assets and flee.
If you have any questions or require any additional information, please contact Apolat Legal – An International Law Firm in Viet Nam.
This article is for general information only and is not a substitute for legal advice.
 Clause 4.1 and 4.2 of the Decree No. 40/2018/ND-CP
 Clause 3.1 of the Decree No. 40/2018/ND-CP
 Clause 7.1 of the Decree No. 40/2018/ND-CP
 Clause 50.1 of the Decree No. 40/2018/ND-CP
 Clause 20.1, Labor Code
 Clause 5.1 of the Decree No. 40/2018/ND-CP
 Clause 46 of the Decree No. 40/2018/ND-CP
 Clause 47.1 of the Decree No. 40/2018/ND-CP