MULTI-LEVEL MARKETING AND PYRAMID SELLING (PROHIBITION) (AMENDMENT) BILL

Order for Second Reading read. 4.14 pm

The Minister of State for Trade and Industry (Mr Lim Swee Say): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

Sir, the Bill before the House aims to bring the Multi-level Marketing and Selling (Prohibition) Act up to date and, at the same time, make it more responsive to changes in technology and the business environment.

[Mr Deputy Speaker in the Chair]

4.15 pm

The Minister of State for Trade and Industry (Mr Lim Swee Say): Sir, this Act was first enacted in 1973. The purpose of the Act is to prohibit the objectionable features of pyramid selling. These are schemes where participants are required to pay a lump sum upfront to join, but the driving force to recoup their upfront payment is the recruitment of more and more members, as opposed to the selling of more and more goods and services. To illustrate, members of the House will recall the recent S888.com case, where participants pay $27,000 to join the scheme, and receive a fixed commission of $3,000 from S888 for every additional member they recruited. This right to receive the commission subsists down to five levels for each participant.

Such schemes will ultimately collapse, because the supply of willing recruits will run out. When that happens, many participants will lose their upfront payment.

The existing Act needs to be updated, Sir. The definition in the Act on multi-level marketing and pyramid selling is too narrow. The penalty provided for under the Act is inadequate. In coming up with the Amendment Bill, the Ministry has consulted relevant industry parties and studied relevant trends overseas. Parties consulted include the Direct Selling Association of Singapore (DSAS), the Consumers Association of Singapore (CASE), the Monetary Authority of Singapore (MAS) for inputs on the insurance industry and the Trade Development Board (TDB) for inputs on franchising schemes.

Sir, I shall now go through some of the amendments. The thrust of the amendment in clause 2(a), 2(b) and 2(c) is to have a general definition of multi-level marketing and pyramid selling in the Act. This would remove the rigidities in the current legislation, such as a participant must be required to share his commission with another participant, before the scheme is deemed as pyramid selling.

At the same time, clause 2(d) of the Bill will allow the Minister to exclude, by order, legitimate schemes and arrangements from the ambit of the Act.

Clauses 3 to 6 provide for the increase of the maximum fines prescribed for the offences from $30,000 to $200,000. Clause 7 introduced a mechanism whereby a court needs to impose a penalty in addition to any fine and/or imprisonment ordered as punishment for an offence committed under section 3(2) of the Act. The amount of the penalty takes into consideration the amount of profit made by the promoter or participant of an illegal pyramid scheme and caters for a situation where the maximum of $200,000 fine would manifestly be inadequate. This is critical to ensure that the Act serves as an effective deterrent to potential offenders. The proposed amendment will make our legislation more responsive in acting against pyramid schemes. At the same time, to give assurances to legitimate businesses that they are not unwittingly caught by the Act, the Ministry has crafted the first Exemption Order.

The businesses to be exempted under the first Order are:

(a) insurance businesses registered or approved by MAS under the Insurance Act and the Insurance Intermediaries Act;

(b) master franchise schemes which satisfy stated conditions; and

(c) direct selling schemes which satisfy the following conditions will also be exempted from the Act:

First, the benefit received by any promoter or participant is as a result of the sale, lease, licence or other distribution of a commodity and not as a result of the recruitment of additional participants;

Second, the promoter of the scheme shall not knowingly make false or misleading representation or omission relating to the scheme or the commodity;

Third, the promoter shall not make any representation on the benefits of the scheme other than the sale, lease, licence or other distribution of a commodity; and

Lastly, there should be a clearly stated policy on refund or buy-back guarantee.

The order will come into effect on the same date as the new Act. At the same time, we will also take this opportunity to transfer the Act from the Ministry of Finance to the Ministry of Trade and Industry, as the Act deals mainly with trade transactions.

Sir, the Bill before the House today reflects the determination of the Government to act against fraudulent schemes in the market. Our legislation is, by and large, adequate in this area. Where necessary, we will improve them.

CASE has informed the House earlier that they will be putting up a proposal for a Fair Trading Act for Singapore. CASE is currently studying the Fair Trading Acts adopted by countries such as Australia and New Zealand. MTI will study CASE's proposal when it is ready. We will, of course, have to bear in mind the principles of minimal intervention to the market and caveat emptor. If we do over-regulate, we may stifle innovation and push up compliance cost for businesses which would eventually be borne by consumers. We must therefore weigh the pros and cons. Ultimately, the key is for the Government to promote competition in the market place and for consumers to stay alert and not be exploited.

Sir, I beg to move.

Question proposed.

Mr Leong Horn Kee: Mr Deputy Speaker, Sir, I would like to speak in support of this Bill.

As the Minister of State has explained, the Bill is meant to enable the Government to prohibit pyramid selling schemes under a wider form of definition. This is to protect unsuspecting persons from being recruited or made use of by undesirable pyramid selling promoters. I also agree with the change of the maximum fines from $30,000 to $200,000 as the value of the benefit from such schemes has escalated over the years. Therefore, a higher limit of fine is needed to act as a more effective deterrent.

While I support this Bill, I would like to take this opportunity to pose a few issues to the Minister.

My first query is to ask the Minister what form of protection or control can his Ministry exercise if the pyramid selling scheme is perpetuated through the Internet. If a syndicate operates from another country and uses the Net to sell pyramid selling schemes in Singapore, how are we going to take such overseas operators to task? With more and more Singaporeans being wired up through the Internet, goods and services can now be easily transacted through the Net, without the promoters themselves of such pyramid selling schemes being physically present in Singapore.

Sir, the second issue I would like to pose to the Minister is whether his Ministry has plans to look into some form of competition law or anti-trust law. In some countries, there are laws that prohibit monopolistic practices, or unfair competition or unfair competitive practices. For example, if a certain group manages to monopolise or corner a specific product or service, then they can manipulate the market or charge unfair prices. Under such circumstances, the consumers will suffer. This form of undesirable trading practices is no different from pyramid selling schemes as ultimately the end-users are taken advantage of.

Can the Minister kindly enlighten the House on the above issues?

I support the Bill.

Mrs Lim Hwee Hua: Sir, even as I rise to support the intent of the amendments, I am mindful of the proliferation of trading and marketing arrangements in cyberspace in all form and manner beyond the now conventional B2B and B2C relationships.

In this context, and against clause 2, which seeks to broaden and simplify the definition of "pyramid selling scheme or arrangement", the incidence of unwitting participation could in fact be raised. This really boils down to ignorance of the technical definition on the part of an increasingly Net-savvy population.

I agree with the Government's philosophy of not over-regulating. However, I believe there is plenty of room for guidance, counsel and clarification for the man-in-the-street. Let me explain the challenges.

Online retailing and marketing schemes emanating offshore

As my colleague, Mr Leong, has alluded to, this poses a challenge. I believe many Singaporeans have e-mail accounts offered outside Singapore and are frequently presented with special deals. When a Singaporean participates in such a scheme, it seems straightforward enough. He is a wise and prudent shopper. Suppose he is asked to email as many of his friends as possible to urge them to join this shopping club for a small fee so as to take advantage of this privilege as well. In return for his effort, he gets credits which he can utilise to secure other goods and services. And the scheme goes on with more recruitment.

Sir, would this now be considered as pyramid selling? This is not your typical get-rich-quick scheme with its telltale "make some easy money" carrot. Given the fact that many of these schemes are truly globalised and somewhat outside the jurisdiction of Singapore, how would such schemes and perpetrators be treated?

Need for public education

Where it is not clear cut, can Singaporeans get access to some counsel and advice? These efforts can be Government driven or supported. For example, the US Postal Inspection Service has posted on its website, a simple test of a scheme whether the basis of the promotion is the sale of a product at the retail level, or an emphasis on recruiting more and more distributors to help one increase one's income.

Likewise, the Federal Trade Commission provides useful tips on its website, along with toll-free lines for consumers to file complaints, and publishes brochures as well on these and other consumer matters.

Sir, in future, the Internet is likely to be the theatre where the greatest selling scams will be played out, and home to various pyramid schemes. Given this inevitable scenario and the limitations to bring such perpetrators to justice, it would appear that consumer awareness is one of the better defences. Towards this end, I would like to urge the Minister to devote more resources for public education.

On that note, Sir, I support the amendments.

Mr Lim Swee Say: Sir, I would like to thank Mr Leong Horn Kee and Mrs Lim Hwee Hua for their comments and support for the Bill.

Sir, both Mr Leong Horn Kee and Mrs Lim Hwee Hua asked what if the pyramid selling scheme originates from overseas via the Internet. The first question is whether this will be covered under the law. Sir, if a pyramid selling scheme originates from a foreign jurisdiction, the Act would not apply to affected persons and activities occurring overseas. However, if a Singaporean takes part in such a scheme and subsequently tries to perpetuate the scheme within Singapore, then our law would apply.

In that regard, I would like to respond to Mrs Lim Hwee Hua's second point, ie, is there a danger that Singaporeans may unwittingly take part in such a scheme that originates from overseas. Sir, if Singaporeans take part in such a scheme and perpetuate the scheme in Singapore, they will be covered under the law. Therefore, it is very important that Singaporeans are fully aware of such a law and do not get themselves involved in such a scheme.

Hopefully, following the passage of the law in this House today, the media and the consumer group would play their part in helping to create public awareness. I want to assure both Members that even though the amended law would cover all forms of pyramid selling, as I have mentioned in my speech earlier, the Minister can provide for exemption through an order and the first Exemption Order will come into effect at the same time as the Act. This means that for Singaporeans who take part in any pyramid selling scheme, as long as the scheme aims to generate benefit for the members not through the recruitment of additional members but through the selling or leasing of more commodities, as provided for under the Exemption Order, they will be all right.

Mr Leong Horn Kee brought up a broader issue of competition law and anti-trust law. His concern is whether some businesses may monopolise the market and therefore introduce undesirable selling tactics which could be as undesirable as the pyramid selling scheme. Mr Leong's point is well taken. Over time, with advances in technology, competition will get keener and companies are likely to introduce more new ways of doing business.

Mrs Lim Hwee Hua also made the same point that besides B2C and C2C, there will be new business models. This morning I was at an Internet conference and I commented to the participants that in the past we used to talk about B2B, B2C, C2C. Today, companies are introducing new concepts, for example, E2E (end to end), or M2M (marketplace to marketplace). We do not know what kind of new business models will be introduced tomorrow. But what I do know is that from A2A to Z2Z, there are 676 possible combinations. Therefore, we can all be rest assured that in the coming months and years, many companies will be thinking of all kinds of creative ideas in order to gain advantage in the marketplace.

Sir, on the part of the Government, we have basically taken three types of measures. The first measure we have taken is to introduce competition in the marketplace so as to reduce the possibility of a monopoly situation. We have done so with the telecommunications market; the financial market is now being liberalised progressively; and my Minister has announced the impending liberalisation for power generation, water desalination, and so on and so forth. So liberalisation is the way to go to ensure that there will be enough healthy competition in the marketplace.

Secondly, as we liberalise our market, we are also introducing measures to regulate the healthy development of various sectors. Take, for example, in the area of telecommunications, we have IDA as the regulatory authority. If any business or company wants to enter this particular market, it will have to apply for licences and abide by the rules of the industry. This will hopefully minimise the possibility of undesirable market practices. However, notwithstanding the setting up of a regulatory body, it is true that the marketplace may still see the emergence of some of these undesirable anti-competition measures. For example, in some European countries, they set up a regulatory authority, the NRA (National Regulatory Authority), to regulate various vertical sectors within each country. And, at the same time, they have a National Competition Commission that will look into anti-competition measures across all sectors.

In the case of Singapore, over time, as we continue to liberalise our market, as we continue to set up more regulatory bodies, I think it is also relevant for us to look into the need for the introduction of a competition law as well as the need to set up a Competition Commission. So the Member may be pleased to hear that this is an area MTI is actively looking into.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. - [Mr Lim Swee Say].

Bill considered in Committee; reported without amendment; read a Third time and passed.