Fair Trade Commission Guidelines on Investigations in Multi-levels Sales Cases	Guidelines

Prescribed by the 278th Commissioners' Meeting of February 26, 1997
Circulation by Letter (86) Kung San Tzu No. 00861 of March 11, 1997
Revised by the 354th Commissioners' Meeting of August 19, 1998
Circulation by Letter (87) Kung Fa Tzu No. 03242 of August 26, 1998
Revised by the 389th Commissioners' Meeting of April 21, 1999
Circulation by Letter (88) Kung San Tzu No. 01134 of April 26, 1999
Revised by the 417th Commissioners' Meeting of November 3, 1999
Circulation by Letter (88) Kung Fa Tzu No. 03182 November 9, 1998
Revised by the 493th Commissioners' Meeting of April 20, 2001
Circulation by Letter (90) Kung San Tzu No. 01650 of June 1, 2001

1. Purpose

With a view toward discovering unlawful acts in a timely fashion, managing relevant information, expediting the investigation process, and minimizing the harm done to the economic order of society by illegal multi-level sales, the Fair Trade Commission (the "Commission") adopts these principles for investigations in multi-level sales cases.

2. Principles for Judging Violations

A violation of Article 23 of the Fair Trade Act (the "Law") shall be found where the participants [the senior members] of a multi-level sales organization generate income primarily through their introduction of new participants and receiving commissions from the latter's membership fees, rather than generate income from the marketing or sale of the goods or services at reasonable market prices. The terms "primarily" and "reasonable market prices" are to be construed in accordance with the Commission's Interpretation Ref. Kung Yen Shih No. 008.

3. Commission's Authority to Conduct Investigations

The Commission shall initiate ex officio investigations of multi-level sales organizations in response to complaints from the public or press coverage provided the Commission believes that the Law has been violated; written form or substantial evidence is not required for a complaint.

4. Reporting

The Commission shall review with due care all information reported by multi-level sales organizations. If the reported information is incomplete or does not comply with the Supervisory Regulations Governing Multi-Level Sales (the "Regulations"), the Commission shall immediately notify the organization to correct or supplement that information within a limited time period. If the applicant fails to correct or supplement within the prescribed time period, the Commission shall copy and file the report, return the original report to the application, and instruct the applicant to file a new report after supplementing the report.

5. Inspection of Business Operations

When the Commission dispatches personnel to the business premises of a multi-level sales organization to inspect the documentation required to be kept on the premise under Article 23 of the Regulations, the personnel shall not only verify whether the organization's actual operations conforms to its reports, but also give appropriate explanations and guidance to the organization if it has questions regarding the relevant laws, regulations and administrative policies.

6. Priority Supervision

If the Commission has reasonable grounds to believe that a reporting multi-level sales organization may be violating the Law or injuring the rights of its participants, the Commission may place that organization under priority supervision. Pursuant to Article 27 of the Law and Article 23 of the Regulations, the Commission may request the organization to provide relevant information on a regular basis or dispatch Commission's personnel to the premises of the organization to inspect the documentation that the organization is required to keep on its premises.

7. Discretion of Other Government Agencies

If the goods, services, or practices reported by a multi-level sales organization fall within the jurisdiction of another government agency, the Commission may transfer the relevant materials and information to that agency and request that agency to handle the matter. The Commission and the agency may handle the matter jointly if necessary.

With respect to a multi-level sales organization that, using multi-level sales techniques, sells or promotes goods or services that require special permits from another government agency, the Commission may refer the matter to that government agency for disposition in addition to its own investigation and disposition under the Law and the Regulations.

8. Criminal Liability

If a multi-level sales organization is found to have violated Article 23 of the Law or other criminal laws based on information obtained by an investigation, the Commission may, upon its internal reporting and approval, refer the matter to investigative or law enforcement agencies for investigative assistance.

9. Violation of Other Provisions of the Fair Trade Act

Violations of other provisions of the Law not directly regulating multi-level sales shall be investigated and disposed.

10. Termination of Investigation

If the multi-level sales organization under investigation [1] no longer exists, has been suspended operations, has ceased operations, or has moved to an unknown location, or [2] the investigation fails to obtain material evidence of violations, the investigating unit may file for reference or close the case upon the Commission's internal approval, with regular general reports on these cases at the meetings of the Commission.

11. Streamlined Procedures (I)

If the Commission discovers any of the following circumstances as the result of a complaint from the public, an ex officio investigation, a routine inspection, or a report by a multi-level sales organization to the Commission, the Commission may, at its discretion, handle the matter under the streamlined procedures.

(1) Violation of Article 5(1), Article 6(3), Article 7, or Article 8 of the Regulations by failure to meet reporting requirements before commencing multi-level sales, to make corrections to reports, supplements to reports, or alteration to reports, or to cease multi-level sales in accordance with the reporting procedures prescribed in Chapter 2 of the Regulations;

(2) Failure to execute a written participation contract with participants, incompleteness of participation contract, or failure to include provisions, as required by Article 13 of the Regulations, for withdrawal of participants from the sales organization or plan and return of goods, in violation of Articles 12 and 13(1) of the Regulations;

(3) Failure to display final accounting reports in a prominent place in the principle place of business pursuant to Article 15 of the Regulations and written information prepared in accordance with Article 22 of the Regulations.

12. Streamlined Procedures (II)

Dispositions may be drafted immediately in cases disposed under streamlined procedures and reviewed in turn by the reviewing Commissioner, the Vice-Chairman, and the Chairman. If there is no dissenting opinion, the disposition can be issued after approval and reported to the Commissioners Meeting the following week (for retroactive adoption). If there is dissenting opinion, the streamlined procedures shall be reapplied after supplementation, and the case may considered by the Commissioners Meeting if necessary.

13. Standards for Imposing Fines under Streamlined Procedures

For cases disposed under the streamlined procedures, fines shall be imposed according to the following standards:

(1) Cases involving violation of Article 5(1) of the Regulations

(i) Cases not discovered through the Commission's own investigation or in response to public complaint: A fine of not less than NT$50,000 but not more than NT$100,000 shall be imposed. If the period of violation is at least six months but less than 12 months, a fine not less than NT$100,000 but not more than NT$200,000 shall be imposed. If the period of violation is longer than 12 months, the fine shall be not less than NT$200,000 but not more than NT$300,000.

(ii) In cases involving discovery of failure to report in compliance with the law in response to a complaint or through an investigation, fines shall be imposed based on operational circumstances as follows:

(a) For organizations with turnover of NT$5 million or more that were in violation for less than 3 months, a fine of not less than NT$300,000 but not more than NT$400,000 shall be imposed; for organizations with turnover of NT$5 million or more that were in violation for at least 3 months but less than 6 months, a fine of not less than NT$400,000 but not more than NT$500,000 shall be imposed; for organizations with more than NT$5 million turnover that were in violation for more than 6 months, a fine of not less than NT$500,000 but not more than NT$600,000 shall be imposed.

(b) For organizations with turnover under NT$5 million that were in violation for at least 6 months, a fine of not less than NT$300,000 but not more than NT$400,000 shall be imposed. For those in violation for less than 6 months, a fine of not less than NT$200,000 and not more than NT$300,000 shall be imposed. For organizations with turnover under NT$100,000, a fine of not less than NT$50,000 and not more than NT$100,000 shall be imposed. For organizations with turnover between NT$100,000 and NT$200,000, a fine of not less than NT$100,000 and not more than NT$200,000 shall be imposed.

(2) The amounts of these fines may be less than these standards in cases involving violation of Articles 6(3), 7 and 8 of the Regulations.

(3) In cases involving violation of Article 12 or Article 13(1) of the Regulations, a fine of not less than NT$200,000 but not more than NT$300,000 shall be imposed.

(4) In cases involving violations of Article 15 or Article 22 of the Regulations, a fine of not less than NT$50,000 but not more than NT$100,000 shall be imposed.

If a fine is not imposed in accordance with these standards, then the case may not be handled under streamlined procedures and must be heard by the Commissioners Meeting.

14. Safety Considerations

When the circumstances of a case make it necessary for personnel to be dispatched to a multi-level sale organization's place of business to investigate, at least two personnel shall be dispatched. If necessary, local law enforcement agencies and government agencies with relevant jurisdictions may be asked to cooperate in the investigation so as to facilitate the progress of the investigation and protect the safety of the Commission's personnel.