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America routinely exports its worst ideas. That’s certainly the case with multi-level marketing monstrosity Amway, which has been plying its trade in Japan since the late 1970s. But Japan’s Consumer Affairs Agency has put a temporary halt to their hustle over what it says are deceptive business practices.
Amway’s long rap sheet of borderline behavior
Amway got its start in the 1940s and 50s when Jay Van Andel and Richard DeVos began hustling nutritional supplements. They renamed their company Amway – short for “American Way” – after critics lodged that they were selling useless snake oil. They now sell a variety of supplements, makeup, and general household goods.
Amway is a multi-level marketing company. Salespeople are independent distributors who are signed up by other distributors. Everyone makes a commission on what they sell. More importantly, distributors earn a commission on the sales of everyone underneath them who signed up.
If this sounds like a pyramid scheme…it isn’t. Technically. But it’s close. According to the US Federal Trade Commission, the difference is that pyramid schemes won’t pay any commissions on direct sales. You have to recruit more members to earn anything – and everyone below you loses. In other words, all of the money flows to the top and there’s never a payout.
(For the curious: “pyramid scheme” in Japanese is ねずみ講 [“nezumi-kou”], or “rat club”. Which, frankly, I think is a lot more accurate.)
In reality, however, even the FTC admits that few people in MLMs make any money. Most lose income, racking up credit card debt that they can’t pay off[3]. (One study found that 99% of people in Quixtar, the former name for Amway’s online operation, weren’t making any money[4].)
The most successful people in MLM networks are…wait for it…people who recruit a lot of new distributors under them.
The FTC ruled in 1979 that Amway was not, fundamentally, a pyramid scheme[5]. However, that doesn’t necessarily translate into a saintly business model. Truth in Advertising alleges that 97% of the MLM companies it investigated engage in deceptive practices[6]. And Amway itself has paid out tens of millions of dollars to settle lawsuits, some of which have necessitated changes to its business model.
Hiding Amway’s intent – and its name
Given this, it’s no surprise that some associated with Amway decided maybe the best way to promote the company was…not to talk about it. Or, you know, even mention its name.
And that’s apparently what some Amway distributors in Japan did. According to TV Asahi, the complaint alleges that a woman met a man who approached her on a dating app. After eating and talking, he told her he wanted to introduce her to his” circle”.
The man then led her to a space off-limits to the public, where another woman gave her a face massage and introduced her to a line of beauty products. The man pressed her repeatedly to make a purchase, ignoring her refusals. When she finally relented and agreed to buy, he told her she’d need to sign up for a “membership”. In other words, she needed to become an Amway distributor.
The woman told Japan’s Consumer Affairs Agency that she felt she wouldn’t be allowed to leave if she didn’t sign up. The Agency, after examining the case, ruled that the pair violated several different laws, including not divulging their company’s name, not divulging their intent, malicious solicitation, and refusing to divulge the contract before the woman signed it. They further ruled in two other cases that distributors had illegally used social media apps for solicitation.
As a result, the Consumer Affairs Agency ruled that Amway Japan must suspend some business operations for six months. The company can’t sign up new members nor sign multi-level marketing contracts. However, normal sales operations by individual distributors are still allowed.
In response to the decision, Amway says it will institute reforms to ensure its distributors conform to the law[7].
Is the Unification Church next?
Amway has been in business in Japan since 1979, where it sells products under the Nutrilite and Artistry labels, among others. And it’s no stranger to controversy. According to Asahi, in the past three years, consumers have lodged 953 complaints against the company. In other words, the company averages between 250 and 300 complaints every year.
The decision comes at an interesting time. In the wake of former PM Abe Shinzo’s assassination, many in Japan are questioning their political leadership’s ties to the South Korean-based Unification Church. Indeed, the lack of candidness from current Prime Minister Kishida Fumio on this subject is causing his ratings to tank.
This focus on the Unification Church has led many to question the church’s financial practices, particularly its selling of “spiritual” items. (Abe’s assassin says that the Church bankrupting his family is what led him to conduct the attack.) As a result, there’s now a growing movement to declare the church is violating Japan’s laws against fraudulent merchandising of spiritual goods and to shut it down.
The action against Amway is bolstering the Church’s critics. As one lawyer on Twitter put it, “If the net of the law can come down even on Amway and force cessation of business, naturally it can strip the Unification Church’s corporate status as well.”
With any luck, that will be tomorrow’s headline.
What to read next
Sources
[1] Amway. Wikipedia
[2] Multi-Level Marketing Businesses and Pyramid Schemes. US Federal Trade Commission
[3] Why multilevel marketing won’t make you rich. Washington Post
[4] The Mirage of Multilevel Marketing. QuackWatch
[5] In re Amway Corp. Wikipedia
[6] DSA Companies’ Income Claims. Truth in Advertising
[7] 日本アムウェイに6カ月の取引停止命令 違法勧誘で消費者庁. Asahi Shimbun
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