Japanese Multi-Level Marketing Law–Guilty Until Proven Innocent?

By Hisaka Yamamoto, J.D., M.B.A.

Originally effective on December 3, 1976, in response to widely published and continued trouble between consumers and direct sales companies, the Japanese government passed the Special Business Transactions Law (f/n/a Door-to-Door Sales Law). This law holds direct marketing companies responsible for misrepresentation or fraud in soliciting prospective customers.

The current Special Business Transactions Law essentially establishes a high standard for MLM companies’ marketing activities. When a claim over questionable sales materials arises, MLM companies must prove their quality and effectiveness about such materials. They must substantiate their product claims and financial guarantees by providing supporting evidence, such as scientific data or specific research. If an MLM company fails to provide the Ministry with the required evidence, they are considered guilty. Depending on the gravity of the offense, criminal sanctions for the violation of this Law include imprisonment (with hard labor) of up to two years and/or fines of up to three million Japanese Yen (up to three hundred million Japanese Yen for a legal entity). The Ministry also reserves the right to suspend the business.

For more information on Japanese MLM Law, contact Hisaka Yamamoto at hyamamoto@kmclaw.com or attend the International Business Transaction Seminar on this topic on Nov. 1, 2005.