Here's how some of the other big countries deal with Amway
CNBC TV/April 21, 2022
Amway's multi-level marketing model has come under scrutiny by various countries time and again. But the company finds ways to make its products reach consumers' doorsteps, earning $8.5 billion in revenue. Amway's website says it has over 15,000 employees and 1,000,000 business owners worldwide. Here we look at how the company has managed to work its way around various laws and how some of the other countries have tackled the company.
Amway paid heavy fines to continue operations in the US
In its domestic market, the US, Amway has had frequent run-ins with investigation authorities. The company manages to still sell in the country due to its products. The company was started in 1959 in Michigan. After deliberations, the Federal Trade Commission let the company function. It said Amway did not fit the definition of a pyramid scheme because "distributors were not paid to recruit people". The FTC, however, levelled charges of price-fixing and prohibited it from misrepresenting profit, earnings or sales. Amway had to pay a $100,00 fine for violating the order in a 1986 ad campaign. In 2010, Amway agreed to pay $56 million to settle a 2007 class-action suit alleging it operates a pyramid scheme.
Tried physical stores to avoid China's direct-selling ban
Amway entered China in 1995, a few years before it entered India. But within four years, it ran into trouble after riots over allegations of an "illegal pyramid model", and, eventually, it had to stop direct selling due to a blanket ban on all direct sellers. Amway managed to operate through some retail stores against its global marketing model. After China enacted new direct selling laws, Amway restarted business as usual. However, China restricted government employees from becoming members of the firm and barred agents from collecting commissions from sales made by those they recruited.
Stayed in business in UK by cracking down on 'non-Amway ads'
Amway's business in the United Kingdom and Ireland hit a speedbump in 2007 after investigators halted its operations on charges of deceptive marketing, presenting inflated earnings estimates, and luring distributors into buying bogus "motivation and training" tools. But the UK Department of Trade and Industry's charge was dropped by a court, saying reforms by the firm (including banning non-Amway-approved motivational events and materials) had fixed faults that favoured selling training materials over products and misrepresented earnings.
Paid heavy fines to Canadian taxmen for Customs violations
Amway entered Canada in 1962. In the early 1980s, it ran into trouble. Authorities charged the firm with setting up dummy companies and creating fictitious levels of trade and a fraudulent price list to convince Customs officials to accept lower value for goods imported mainly from the US. In 1983, the firm agreed it had defrauded the government to more than Canadian $28 million. It was slapped with a fine of $25 million, believed to be the largest fine ever assessed for a fraud conviction in Canada. A separate suit asked Amway to pay nearly $148 million in unpaid duties, sales tax, and penalties, but the firm paid $45 million. In 2009, the company also managed to steer clear of a class action suit.
Keeps business sailing in Australia on 'minimal complaints'
Amway entered Australia in 1971, and the firm's direct selling model was also under scrutiny in Australia. Even after complaints about distribution practices using dishonest, unethical and inappropriate behaviour, the consumer affairs ministry held that "complaints against Amway or Amway distributors are very few and indicate little cause for concern".
Also Read: Explained: Why ED attached Amway assets worth over Rs 750 crore?
Amway dreams of taking India business from Rs 2kcr to Rs 25kcr
Amway entered India in 1996-97 with Rs 21.39 crore as share capital. Between 2002-03 and 2021-22, it made Rs 27,562 crore from its India business. It paid a little more than a quarter of that to its army of distributors and members in the US and India. In December, Amway India CEO Milind Pant told PTI the company had designated India as one of the top three priority markets, including the US and China. "The conversation we are having with the India team is how we take the India business, which is a Rs 2,000 crore business today, to a Rs 20,000 crore business before (we complete) 25 years in India." The firm has two innovation centres in Delhi and Tamil Nadu and four distribution warehouses Sonipat, Mumbai, Bengaluru, and Kolkata.
But runs into trouble with Enforcement Directorate crackdown
In April 2022, India's Enforcement Directorate (ED) attached assets worth over Rs 757.77 crore of direct-selling consumer goods company Amway India in connection with a marketing scam. The investigation agency attached bank balances worth Rs 345.94 crore from 36 different accounts and immovable and movable properties worth Rs 411.83 crore under the Prevention of Money Laundering Act (PMLA). The ED said there is no focus on products and focus is only on propagating how people can become rich by becoming members. "The company only uses the products to masquerade the pyramid fraud," the ED said.
India office says 'old case' but no response from HQ on the path ahead
Despite repeated emails, Amway headquarters did not respond to CNBC-TV18 queries on what it plans to do now and if it will change its marketing model. The Indian business has told the media that the ED's steps were regarding an investigation dating back to 2011. It said that since then, the company has been cooperating with the department. Further, it said the direct selling under the Consumer Protection Act (Direct Selling) rules, 2021, has given the industry legal and regulatory clarity. The company advised everyone to be cautious as a misleading impression about the business could impact the livelihoods of over 5.5 lakh direct sellers in the country.
