Fair Trade Commission Sanctions Coway and J&Cosu for Multi-Level Marketing Operations
Fair Trade Commission Sanctions Unregistered Multi-Level Marketing Activities by Sponsoring Direct Sellers on the 31st
On the 31st, the Korea Fair Trade Commission (KFTC) imposed corrective orders to prevent recurrence on Coway and J&CoShu, who registered as sponsor door-to-door sales businesses but operated using a multi-level marketing method.
According to the KFTC, Coway has been paying sponsor commissions through a multi-level marketing method using its sales organization composed of three or more levels since September 2010, and J&CoShu has done the same since September 2017, selling cosmetics and other products. However, they only registered as sponsor door-to-door sales businesses and did not register as multi-level marketing businesses.
The multi-level marketing method involves recruiting subordinate salespeople through membership solicitation in "three or more levels" and paying sponsor commissions influenced by the transaction performance of other salespeople. Sponsor door-to-door sales businesses pay commissions in a way that the transaction performance of a salesperson only affects the commission of their immediate superior salesperson. In other words, if the sponsor commission payment method exceeds one level, it corresponds to a multi-level marketing business.
Operating a multi-level marketing business without registering as a multi-level marketing business violates the "Door-to-Door Sales Act," which stipulates the registration obligation for multi-level marketing businesses. Accordingly, the KFTC decided to impose corrective orders to prevent future violations of the law regarding the unregistered multi-level marketing operations of the two companies.
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The KFTC stated, "This case is significant as it sanctions sponsor door-to-door sales businesses for paying sponsor commissions using a multi-level marketing method, raising compliance awareness in the related industry and contributing to the establishment of a fair trade order," and added, "We will continue to monitor illegal activities such as unregistered multi-level marketing operations and impose strict sanctions if violations are detected."
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