Legal Aspects of Multi-level Marketing (MLM) and Pyramid Schemes: Overview of the Ethiopian Legal Framework

Abstract

The Multi-level marketing (also known as Network Marketing) has evolved as an alternative marketing strategy, modeled on the basic idea of the  classical direct selling-the door-to-door selling. The MLM design compensates the door-to-door sellers not just for the sales they personally  generate but for the sales generated by the people they recruit. This compensation scheme in MLM brought it close to pyramid scheme in design;  makes it prone to abuse in the form of pyramid scheme. Indeed, it has been abusively used for operating pyramidal schemes; Regulators have been  plagued with the problem of distinguishing MLM from pyramid scheme and sanctioning the misuses. No careful legal drafting is likely to  provide a simple solution but reduces the perplexity in the factual analysis and enforcement decision making. The author in this article examined,  using the doctrinal research method, the position of Ethiopian law regarding network marketing and how it deals with potential manipulation of  network marketing for operating pyramid scheme. Ethiopian law on pyramidal scheme is drafted so generically and briefly, and without even  mention of network marketing – the very mask in which pyramidal schemes operate. The researcher found out that such a design of Ethiopian law  has resulted in legal uncertainty about the implication of operating MLM. Essential parametrizations of what is within the legal limit and when it is  out there in the pyramid scheme are either vague or omitted. The author recommended the need for further elaborate rules on pyramid schemes and inclusion of some guiding standards on network marketing.