Is MLM legal? What EU law says about network marketing

When you say you do network marketing, sooner or later the question comes: “And is that even legal?”

I understand. I really do.

I’m 44 and I’ll happily be the first to say that you have every right to ask. Today I take it as a healthy signal. Whoever asks is thinking. And whoever thinks isn’t easily caught out.

So let’s look at whether MLM is legal and what EU law says about it. In plain words and without legal riddles.

Is MLM legal?

Network marketing (MLM) is legal in the EU if the company sells real products to customers and the reward comes mainly from their sales and consumption. What is illegal is a pyramid scheme, not the way of selling through a network of partners itself.

That is the important nuance. The law doesn’t forbid people to recommend products onward and to have a team. It forbids a fraudulent system that merely hides behind selling.

In the EU, network marketing is judged mainly under the rules on consumer protection. What MLM is, you can find in the article What is MLM.

What does EU law say about network marketing?

The Unfair Commercial Practices Directive (2005/29/EC) bans unfair commercial practices across the EU. Among those prohibited in all circumstances is the pyramid promotional scheme. Every EU country has transposed the directive into its own law.

Annex I of the directive describes a pyramid scheme as a scheme in which a consumer pays for the chance to receive a reward that depends primarily on bringing in other consumers, and not on the sale or consumption of products.

In practice: it isn’t enough for a company to pose as a shop. What decides is what the system really stands on.

What the law deals with and what to watch out for

Question	What is fine	What is a problem
What the reward is paid for	Selling and consuming products.	Mainly bringing in more people.
Who buys	Customers, outside the team too.	Almost only members of the system.
What they promise	Clear rules in writing.	Guaranteed results and pressure to decide quickly.
How the law judges it	Legal business.	A prohibited practice.

Is a pyramid scheme a crime in the EU?

A pyramid scheme is prohibited as an unfair commercial practice, and depending on the circumstances it can also be treated as fraud. Fraud is a crime in every EU country, and the specific assessment is always made by the police, the prosecutor and the court of that country.

A plain note: I won’t quote any specific sections here. The criminal law differs from country to country, I’m not a lawyer, and on such a serious matter I don’t want to risk oversimplifying. What matters is that responsibility lies mainly with whoever creates or runs such a system.

I write about how to recognise a pyramid in practice in the article Is MLM a pyramid scheme?.

Who supervises network marketing?

Compliance with consumer protection rules, including the ban on unfair commercial practices, is supervised by the national consumer authorities of each EU country. Some areas are also watched by other bodies, for example food by food safety authorities.

A trader who breaks the ban on unfair practices faces sanctions. I won’t go into amounts here, that is a matter for the authority and the company.

One thing is useful for you: if you feel a company is behaving dishonestly, you have somewhere to turn. If the company is based in another EU country, the European Consumer Centres Network (ECC-Net) can help you with a cross-border consumer dispute.

What should I ask before I join something?

Before you join network marketing, ask about the source of the rewards, about compulsory purchases, about the conditions for leaving and whether the company will give you the rules in writing. An honest company has no problem answering. Anyone who avoids answers or tells you not to ask is giving you a clear signal.

I would never take it as an insult. A good question is proof that you are serious. And whoever is teaching you should be glad that you think.

1. What is the reward paid for? I want to see it in a document, not in a presentation.
2. Do I have to buy anything? And how much, how often and why.
3. What if I stop? How are returns of goods and the ending of the cooperation handled.
4. Who is offering it to me? A person who teaches me, or a person who is only supposed to register me.
5. What about taxes and trade registration? Don’t sort this out on the internet, ask an accountant.

You will find more specific questions in the article How to choose an MLM company.

Frequently asked questions

Is network marketing legal in the EU?

Yes, network marketing is legal in the EU if the company sells real products and the rewards come mainly from their sales and consumption. A pyramid scheme, in which people are paid for recruiting more people, is prohibited. How it is with a specific company, judge by its rules and, if in doubt, consult a professional.

Is a pyramid scheme a crime?

A pyramid scheme is prohibited as an unfair commercial practice and, depending on the circumstances, can also be treated as fraud, which is a crime in every EU country. The specific assessment belongs to the police, the prosecutor and the court. This is not legal advice; if in any doubt, turn to a lawyer.

Who supervises network marketing and pyramid schemes?

Unfair commercial practices are supervised by the national consumer authorities of each EU country. If someone has deceived you, you can turn to them. If you suspect a crime, the police are the right place. If the company is in another EU country, the European Consumer Centres Network can advise you. If you aren’t sure, start with your national consumer authority or a lawyer.

Is MLM a scam?

Network marketing itself is not a scam. A system is fraudulent if it deceives people about essential matters or poses as selling but in reality pays mainly for recruiting. That is why it is important to choose a company with your head, ask about the rules and not let yourself be pushed into a quick decision.

Do I need a trade registration for MLM and do I pay taxes?

That depends on your specific situation, on your country and on the rules of cooperation with the company, so I don’t want to oversimplify. Doing business usually means obligations towards the authorities. An accountant or tax adviser will tell you reliably the right form and the tax obligations before you start.

So is it legal, or not?

Honest network marketing is legal. A pyramid is not. And the law looks at what really goes on in the system, not at how nice its name is.

With a terrace it is similar. I don’t care how nice the plan looks. I care what lies beneath it.

If you want to see how I do it, arrange a private presentation. Ask about anything, even this.

Sources

• Directive 2005/29/EC concerning unfair business-to-consumer commercial practices (Annex I)
• European Commission: European Consumer Centres Network (ECC-Net)

Tom