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

Gizachew Silesh Chane; Gizachew Silesh Chane

doi:10.20372/bdujol.v10i2.1352

Gizachew Silesh Chane Editor-in-Chief
Gizachew Silesh Chane LL B, LLM (Addis Ababa University), LL M (University of Oslo), Assistant Professor in Law, Bahir Dar University, School of Law. https://orcid.org/0000-0003-4177-1920

DOI: https://doi.org/10.20372/bdujol.v10i2.1352

Keywords: Direct selling; Multilevel marketing; Network marketing; pyramidal scheme; referral selling

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 â€“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.

Author Biography

Gizachew Silesh Chane, Editor-in-Chief

Gizachew Silesh Chane

Gizachew has earned LL.M in Maritime Law from University of Oslo (2017), LL.M in Business Law from Addis Ababa University (2010), LL.B degree from Addis Ababa University School of Law (2006), and BA degree in economics from Bahir Dar University (2015).

Gizachew is currently working as assistant professor of Business Law at Bahir Dar University, and as Consultant and attorney at Law. With over 15 years working experience in teaching and advisory services, he has been engaged in teaching and training activities extensively. He teaches law of business organizations, corporate governance and finance, alternative dispute resolution (ADR), and Law of Financial Institutions and Markets, among others. He also advises postgraduate students in different universities of Ethiopia on their dissertation.

Specifically for the last 3 years, as of October 2019, he is serving as director of legal service directorate for technology institutes of Bahir Dar University, responsible for advising the administration human resource management, training the staff and the administration on employment issues, among others. He has also undertaken problem solving research on legal matters in collaboration with NGOs, notably with USAID Ethiopia in which he won and delivered, together with associates, two successive researches in 2021 and 2022. Gizachew has published a number of research works in various areas of law.