Certain activities, whether legal or illegal. Pursuant to the DMCA, we will terminate, in appropriate circumstances, users and account holders of our. Defenders of multi-level marketing (MLM) are often heard saying that it's a legitimate business method! Even government regulators say MLM is legitimate. And it is true that state and federal.
ByStephen O'Regan
Senior Associate, International Business Advisory
Dezan Shira & Associates, Guangzhou
The Chinese government has launched a three-month campaign to crack down on pyramid schemes. The campaign follows a series of frauds that recently led to four deaths, and associated protests that erupted in downtown Beijing this summer.
The campaign, which will last until November 15, 2017, aims to eliminate gangs and scammers that lure and mislead job seekers into participating in pyramid schemes. The government's announcement of the crackdown sent stocks of Multi-Level Marketing (MLM) companies – such as Herbalife and Nu Skin – tumbling, due to fears that the campaign could disrupt their operations.
Businesses in China with organizations similar to MLM structures should scrutinize their internal practices and study relevant regulations to avoid non-compliance with government regulators.
MLM organizations
MLM, a type of direct selling system, is a marketing strategy where the company's sales force is highly dependent on the salespersons they have hired in different tiers of selling. The sales force is compensated not only for sales they generate, but also for the sales of the other salespeople that they recruit in this marketing strategy.
This recruited sales force is referred to as the participant's 'down-line'�, and can provide multiple levels of compensation. This type of organizational structure can be quite enticing as it has the opportunity to build up a big networking distribution without investing a considerable and consistent amount of money.
The key features followed by MLM organizations are:
- Organizers, or operators, who take in new members calculate and pay salaries to a member on a different level according to the number of new members they have introduced either directly or indirectly, as well as the sales performance of the member;
- Organizers request new members to hand in a sum of money as a precondition to joining;
- The organizers, or the operators, encourage members to invite more people join, forming a multi-level relationship;
- The salaries of members at a certain level are based on the sales of members at a lower level.
The main factors that need to be taken into account before setting up any networking and marketing plan for an enterprise are the size of the market, high quality products to sell, and efficient internal training. The base concept of these activities is that the salesperson's gain is in proportion to the quantity and quality of the products that he or she is able to sell to potential clients.
However, with the MLM pyramidal structure, the highest position always gets a percentage of the sales from those who are in the bottom positions. Some companies that wish to set up this type of structure want to incorporate a five or more level system.
MLM and direct sales in China
From our experience, a large number of foreign companies have expressed interest in entering into the Chinese market through this MLM structure. However, they are going to be disappointed.
In 2005, Chinese government enacted a law called Regulation of Direct Sales and Regulation on Prohibition of Chuanxiao (Chuanxiao stands for MLM). With this regulation, China makes clear that while Direct Sales is permitted in the mainland, MLM is not.
Even if allowed, Direct Sales must follow several rules. The company is required to:
- have a business license;
- only pay out one level of commission;
- offer an advanced training course to sellers, where they have to get a license by the end of the course; and,
- direct sellers must wear a badge to prove their status.
In addition, the personal seller's commission it set at 30 percent of the sales, including bonuses, commission, and other benefits. According to regulations, MLM organizers, and the members at top level, obtain interest illegally, and according to the Chinese government, disturb normal economic order, thereby affecting social stability.
Contrarily, MLM is legal in in Taiwan and Hong Kong. It is common to see salespeople from these regions selling in the mainland using Taiwanese or Hong Kong addresses and banks to become sales representatives in these jurisdictions, while at all times living and working in China. The legality of this is questionable.
Even after the application of Regulation of Direct Sales and Regulation on Prohibition of Chuanxiao, many companies are still operating under the MLM structure, and this does not seem to be changing. Nu Skin Enterprise, for example, was under investigation for an illegal pyramid scheme. Regulators accused them of relying more on signing up new salespeople than actually selling products to customers. Nonetheless, they still play an important role in China's marketplace.
They are not the only company who are following this sales model; many other such enterprises act within the Chinese market with MLM structures. With the new crackdown on pyramid schemes, however, companies with MLM structures will find themselves under even harsher scrutiny from the authorities should they fail to adopt compliant structures.
This article was originally published on July 16, 2015 and has been updated with the latest regulatory changes.
China Briefing is published by Asia Briefing, a subsidiary of Dezan Shira & Associates. We produce material for foreign investors throughout Asia, including ASEAN, India, Indonesia, Russia, the Silk Road, and Vietnam. For editorial matters please contact us here, and for a complimentary subscription to our products, please click here. Dezan Shira & Associates is a full service practice in China, providing business intelligence, due diligence, legal, tax, IT, HR, payroll, and advisory services throughout the China and Asian region. For assistance with China business issues or investments into China, please contact us at china@dezshira.com or visit us at www.dezshira.com |
Dezan Shira & Associates is a pan-Asia, multi-disciplinary professional services firm, providing legal, tax and operational advisory to international corporate investors. Operational throughout China, ASEAN and India, our mission is to guide foreign companies through Asia's complex regulatory environment and assist them with all aspects of establishing, maintaining and growing their business operations in the region. This brochure provides an overview of the services and expertise Dezan Shira & Associates can provide.
This Dezan Shira & Associates 2017 China guide provides a comprehensive background and details of all aspects of setting up and operating an American business in China, including due diligence and compliance issues, IP protection, corporate establishment options, calculating tax liabilities, as well as discussing on-going operational issues such as managing bookkeeping, accounts, banking, HR, Payroll, annual license renewals, audit, FCPA compliance and consolidation with US standards and Head Office reporting.
In this issue of China Briefing magazine, we provide foreign investors with best practices for implementing internal controls in China. We explain what makes China's internal control environment distinct, and why China-based operations need to prioritize internal control. We then outline how to execute an internal control review to gauge organizational resiliency and identify gaps in control points, and introduce practical internal controls for day-to-day operations. Finally, we explore why ERP systems are becoming increasingly integral to companies' internal control regimes.
Previous Article
« How China's VAT System Skews Financial Reporting
Next Article
Prospects for UK FTA with China, Revitalization of Commonwealth »
Gnoming, whilst it doesn't sound something based upon Matched Betting, is a core aspect of keeping your profits alive.
Gnoming is the term used for a member which is operating many different accounts using the same bookmaker.
It's also called Multi Accounting & it's always in discussion as nobody is sure on the legal stance of gnoming.
Undoubtedly, the bookmakers will not allow you to operate many different accounts as it means that you're accessing many different bonuses & ultimately, taking more money from them.
However, it's also potentially fraudulent. Bookmakers have the technology in place now so that you can't open many accounts up in your own name.
Is Multi Accounting Illegal Immigration
Their software would trace your addresses and advise you that you already have an account.
Instead, Multi Accounting is where you're actively using somebodies account to exploit specific bonuses.
Is Multi Accounting or Gnoming Legal?
Multi Accounting is actually a grey area when it comes to Matched Betting.
There isn't a single piece of information that tells us that it's definitely illegal.
What becomes a very murky topic is when you're actively placing bets on another users account, pretending to be that person.
In addition to this, is it fraudulent to open an email address in the name of someone else, including sending verification documents to bookmakers?
MLM, a type of direct selling system, is a marketing strategy where the company's sales force is highly dependent on the salespersons they have hired in different tiers of selling. The sales force is compensated not only for sales they generate, but also for the sales of the other salespeople that they recruit in this marketing strategy.
This recruited sales force is referred to as the participant's 'down-line'�, and can provide multiple levels of compensation. This type of organizational structure can be quite enticing as it has the opportunity to build up a big networking distribution without investing a considerable and consistent amount of money.
The key features followed by MLM organizations are:
- Organizers, or operators, who take in new members calculate and pay salaries to a member on a different level according to the number of new members they have introduced either directly or indirectly, as well as the sales performance of the member;
- Organizers request new members to hand in a sum of money as a precondition to joining;
- The organizers, or the operators, encourage members to invite more people join, forming a multi-level relationship;
- The salaries of members at a certain level are based on the sales of members at a lower level.
The main factors that need to be taken into account before setting up any networking and marketing plan for an enterprise are the size of the market, high quality products to sell, and efficient internal training. The base concept of these activities is that the salesperson's gain is in proportion to the quantity and quality of the products that he or she is able to sell to potential clients.
However, with the MLM pyramidal structure, the highest position always gets a percentage of the sales from those who are in the bottom positions. Some companies that wish to set up this type of structure want to incorporate a five or more level system.
MLM and direct sales in China
From our experience, a large number of foreign companies have expressed interest in entering into the Chinese market through this MLM structure. However, they are going to be disappointed.
In 2005, Chinese government enacted a law called Regulation of Direct Sales and Regulation on Prohibition of Chuanxiao (Chuanxiao stands for MLM). With this regulation, China makes clear that while Direct Sales is permitted in the mainland, MLM is not.
Even if allowed, Direct Sales must follow several rules. The company is required to:
- have a business license;
- only pay out one level of commission;
- offer an advanced training course to sellers, where they have to get a license by the end of the course; and,
- direct sellers must wear a badge to prove their status.
In addition, the personal seller's commission it set at 30 percent of the sales, including bonuses, commission, and other benefits. According to regulations, MLM organizers, and the members at top level, obtain interest illegally, and according to the Chinese government, disturb normal economic order, thereby affecting social stability.
Contrarily, MLM is legal in in Taiwan and Hong Kong. It is common to see salespeople from these regions selling in the mainland using Taiwanese or Hong Kong addresses and banks to become sales representatives in these jurisdictions, while at all times living and working in China. The legality of this is questionable.
Even after the application of Regulation of Direct Sales and Regulation on Prohibition of Chuanxiao, many companies are still operating under the MLM structure, and this does not seem to be changing. Nu Skin Enterprise, for example, was under investigation for an illegal pyramid scheme. Regulators accused them of relying more on signing up new salespeople than actually selling products to customers. Nonetheless, they still play an important role in China's marketplace.
They are not the only company who are following this sales model; many other such enterprises act within the Chinese market with MLM structures. With the new crackdown on pyramid schemes, however, companies with MLM structures will find themselves under even harsher scrutiny from the authorities should they fail to adopt compliant structures.
This article was originally published on July 16, 2015 and has been updated with the latest regulatory changes.
China Briefing is published by Asia Briefing, a subsidiary of Dezan Shira & Associates. We produce material for foreign investors throughout Asia, including ASEAN, India, Indonesia, Russia, the Silk Road, and Vietnam. For editorial matters please contact us here, and for a complimentary subscription to our products, please click here. Dezan Shira & Associates is a full service practice in China, providing business intelligence, due diligence, legal, tax, IT, HR, payroll, and advisory services throughout the China and Asian region. For assistance with China business issues or investments into China, please contact us at china@dezshira.com or visit us at www.dezshira.com |
Dezan Shira & Associates is a pan-Asia, multi-disciplinary professional services firm, providing legal, tax and operational advisory to international corporate investors. Operational throughout China, ASEAN and India, our mission is to guide foreign companies through Asia's complex regulatory environment and assist them with all aspects of establishing, maintaining and growing their business operations in the region. This brochure provides an overview of the services and expertise Dezan Shira & Associates can provide.
This Dezan Shira & Associates 2017 China guide provides a comprehensive background and details of all aspects of setting up and operating an American business in China, including due diligence and compliance issues, IP protection, corporate establishment options, calculating tax liabilities, as well as discussing on-going operational issues such as managing bookkeeping, accounts, banking, HR, Payroll, annual license renewals, audit, FCPA compliance and consolidation with US standards and Head Office reporting.
In this issue of China Briefing magazine, we provide foreign investors with best practices for implementing internal controls in China. We explain what makes China's internal control environment distinct, and why China-based operations need to prioritize internal control. We then outline how to execute an internal control review to gauge organizational resiliency and identify gaps in control points, and introduce practical internal controls for day-to-day operations. Finally, we explore why ERP systems are becoming increasingly integral to companies' internal control regimes.
Previous Article
« How China's VAT System Skews Financial Reporting
Next Article
Prospects for UK FTA with China, Revitalization of Commonwealth »
Gnoming, whilst it doesn't sound something based upon Matched Betting, is a core aspect of keeping your profits alive.
Gnoming is the term used for a member which is operating many different accounts using the same bookmaker.
It's also called Multi Accounting & it's always in discussion as nobody is sure on the legal stance of gnoming.
Undoubtedly, the bookmakers will not allow you to operate many different accounts as it means that you're accessing many different bonuses & ultimately, taking more money from them.
However, it's also potentially fraudulent. Bookmakers have the technology in place now so that you can't open many accounts up in your own name.
Is Multi Accounting Illegal Immigration
Their software would trace your addresses and advise you that you already have an account.
Instead, Multi Accounting is where you're actively using somebodies account to exploit specific bonuses.
Is Multi Accounting or Gnoming Legal?
Multi Accounting is actually a grey area when it comes to Matched Betting.
There isn't a single piece of information that tells us that it's definitely illegal.
What becomes a very murky topic is when you're actively placing bets on another users account, pretending to be that person.
In addition to this, is it fraudulent to open an email address in the name of someone else, including sending verification documents to bookmakers?
If you have the users permission (and presumably you're splitting the profits) I don't see anything wrong with this personally.
Help Friends & Family earn an income
I have tried to get my friends and family involved in Matched Betting, completing offers themselves.
They just didn't understand.
They thought they were putting money into a pyramid scheme, so I couldn't persuade them further.
You may be in a similar position, as it's hard to sell matched betting to someone that just doesn't want to listen.
An alternative for you, it to offer family members a split of the profits, if you were to do it for them.
This seems to be the most popular method of Multi Accounting when Matched Betting.
- Offer them a lump sum upfront
- Or offer them a split of the profits going forward, on a monthly basis.
A lump sum upfront could prove costly, if their matched betting accounts are closed quickly.
Offering a split of the profits is often the best scenario, as you haven't got to give them any of your own money, just a percentage of money that you've earnt.
Benefits of Multi Accounting Matched Betting
The benefits of Multi Accounting are quite clear to see on the surface.
When I receive a Bet365 £100 Sign Up offer, I get a £100 Free bet.
If someone has access to a network of say 10 friends, they're able to take advantage of many more sign up bonuses.
In this instance, 10 x £100 bets!
Money is always going to be a positive of multi accounting, but the drawbacks cannot be ignored.
Consequences of Multi Accounting Matched Betting
I'm not sure if consequences is the right word to use here…
Is Multi Accounting Illegal Definition
In reality, you aren't going to have the Police knocking your door down over this matter.
However, if you are caught multi accounting, the bookmakers will certainly ban you from their website.
The worst case scenario is having the account closed and the funds in the account seized with it.
However, if you're multi accounting you should already be aware of this, ensuring that money is rarely kept in bookmaker Balances.
Final Multi Accounting & Gnoming Tips
It's possible to get very rich from multi accounting.
It requires elite level planning & management, as you'll be completing much more offers, over and over again.
I can't personally advise you start multi accounting, due to the grey area that this topic sits.
I also wouldn't recommend that you shout it from the rooftops, just to protect yourself.
You can get gubbed at any time.
Get a VPN as this will hide your I.P Address, making it look like you are in a different location.
Use a separate device.
Place your bets on a mobile device with mobile data, as mobile data is often Dynamic, meaning the I.P isn't fixed. It also stores cookies which bookmakers can track.
Trust only those close to you, as you will require access to a bank account of theirs, plus identity documents, I would advise only doing this with trusted friends.
Ensure you have learnt the basics of Matched Betting before starting with Gnoming.
Is Multi Accounting Illegal Act
It's not for beginners, but it's very lucrative.
