THIRTEENTH CONGRESS OF THE 
REPUBLIC OF THE .PHILIPPINES 
First Regular Session 
'04 
SENATE 
S. No. 
~~ 
INTRODUCED BY HON. MANUEL B. VILLAR, JR. 
EXPLANATORY NOTE 
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The country's economic slump saw the proliferation of corporations engaged in various 
forms of economic fraud like chain distribution or pyramid schemes. We have 
witnessed the havoc brought about by these corporations to their investors, who find 
themselves unable to recover their money once the scheme collapses. 
Unfortunately, pyramid schemes are likely to continue existing due to the inadequacy 
of our laws. Republic Act No. 7394 or the Consumer Act of the Philippines declares 
Multilevel Marketing as an accepted and legal way of marketing. However, the 
distinction between MLM and pyramid schemes is not distinct, causing confusion in 
implementing and apprehending persons engaged in pyramiding schemes. 
This measure aims to curb the proliferation of investment schemes by providing a 
clear definition and distinction between Multi Level Marketing (MLM) and pyramid 
schemes. 
It shall give the Department of Trade and Industry sufficient resources to pursue and 
monitor such schemes by requiring firms engaged in MLM to register for their 
business plan for approval of the DTI. The DTI shall likewise have original jurisdiction 
over charges of the employment of pyramid sales schemes. 
Finally, any person, firm, company, association, or any other business entity engaged 
in pyramiding schemes shall be imposed a fine of not less that Phpl million but not 
more than Php5 million and a penalty of imprisonment from 12 to 20 years without 
bail. More importantly, the pyramiding entity shall be ordered to return to the 
investors any and all considerations given, with interest charges. 
In view of the foregoing, immediate passage of this bill is earnestly sought. 


THIRTEENTH CONGRESS OF THE 
REPUBLIC OF THE PHILIPPINES 
First Regular Session 
I. *- 
I 
SENATE 
INTRODUCED BY HON. MANUEL B, VILLAR, JR. 
r 
ANT ACT 
AMENDING CERTAIN SECTIONS OF REPUBLIC ACT N0.7394 OTHERWISE 
KNOWN AS THE CONSUMER ACT OF THE PHILIPPINES , PROHIBITING 
PYFWMID SALES SCHEME, PROVIDING HIGHER PENALTIES THEREFORE 
AND FOR OTHER PURPOSE 
SECTION 1. Title I, Article 4, paragraph (k) of Republic Act No. 7394 is hereby 
amended to read as follows: 
"Art. 4. Definition of Terms. - For purposes of this Act, the 
term: 
xxa. 
k) 
"CHAIN 
DISTRIBUTION 
PLANS" 
OR 
"PYRAMID SCHEMES" MEANS SALES DEVICES WHEREBY A PERSON, 
UPON A CONDITION THAT HE MAKES AN INVESTMENT, IS GRANTED 
BY THE MANUFACTURFR OR HIS REPRESENTATIVE, A RIGHT TO 
RECRUIT FOR PROFIT ONE OR MORE ADDITIONAL PERSONS WHO 
WILL ALSO BE GRANTED SUCH RIGHT TO RECRUIT UPON CONDITION 
OF MAKING SIMILAR INVESTMENTS; PROVIDED, THAT THE PROFITS 
OF THE PERSON EMPLOYING SUCH A PLAN ARE DERIVED PRIMARILY 
FROM THE RECRUITMENT AND INVESTMENT OF OTHER PERSONS 
INTO THE PLAN RATHER THAN FROM THE SALE OF CONSUMER 
PRODUCTS, SERVICES, AND CREDIT. 
A LIMITATION AS TO THE NUMBER OF PERSONS WHO MAY 
PARTICIPATE, OR THE PRESENCE OF ADDITIONAL CONDITIONS 
AFFECTING THE ELIGIBILITY FOR THE RIGHT TO RECRUIT OR 
RECEIVE PROFITS THEREFROM, DOES NOT CHANGE THE NATURE 
OF THE PLAN. 
ACQUISITION, 
FOR CONSIDERATION OTHER THAN PERSONAL 
SERVICES, OF PROPERTY, TANGIBLE OR INTANGIBLE 
AND 
INCLUDES 
WITHOUT 
LIMITATION, 
FRANCHISES, 
BUSINESS 
OPPORTUNITIES AND SERVICES7 AND ANY OTHER MEANS, MEDIUM, 
FORM OR CHANNEL FOR THE TRANSFERRING OF FUNDS, WHETHER 
OR NOT RELATED TO THE PRODUCTION OR DISTRIBUTION OF 
"CONSIDERATION" MEANS THE PAYMENT OF MONEY OR ITS 
EQUIVALENT, OR THE PURCHASE OF GOODS, SERVICES, CREDITS 
OR INTANGIBLE PROPERTY BUT DOES NOT INCLUDE: 
a. THE PURCHASE OF GOODS OR SERVICES FURNISHED AT 
COST TO BE USED IN MAKING SALES AND NOT FOR 
RESALE; AND 
b. TIME AND EFFORT SPENT IN PURSUIT OF SALES OR 
RECRUITING ACTIVITIES. 
"AS 
USED HEREIN, 
"INVESTM ENTI 
MEANS 
ANY 
GOODS OR SERVICES. 
(k- 
1) "MULTILEVEL 
DISTRIBUTION" 
OR 
"MULTILEVEL 
MARKETING" IS A SALES DEVICE WHEREBY ANY PERSON, FIRM, 
CORPORATION OR ASSOCIATION OR OTHER BUSINESS ENTITY 


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WHICH SELLS, DISTRIBUTES, MANUFACTURES, OR SUPPLIES FOR 
VALUABLE CONSIDERATION, GOODS OR SERVICES THROUGH 
INDEPENDENT AGENTS, CONTRACTORS OR DISTRIBUTORS AT 
DIFFERENT LEVELS WHEREIN SUCH PARTICIPANTS MAY RECRUIT 
OTHER 
PARTICIPANTS 
WITHOUT 
REQUIRING, 
THE 
PAYMENT 
CHARGES, FEES, OR CONTRIBUTIONS AS A PREREQUISITE FOR 
BONUSES, 
REFUNDS, 
DISCOUNTS, 
DIVIDENDS, 
OR 
OTHER 
CONSIDERATIONS IN THE PROGRAM ARE OR MAY BE PAID AS A 
RESULT OF THE SALE OF SUCH GOODS OR SERVICES OR THE 
RECRUITMENT, ACTIONS OR PERFORMANCES CF ADDITIONAL 
PARTICIPANTS .’, 
ACCEPTANCE, AND WHEREIN COMMISSIONS, CROSS-COMMISSIONS, 
SECTION 2. Title 111, Chapter I, Article 53 is hereby amended to read as follows: 
“ART. 53. CHAIN DISTRIBUTION PLANS OR PYRAMID SALES 
ESTABLISH, 
OPERATE, 
ADVERTISE 
OR 
PROMOTE 
A 
CHAIN 
DISTRIBUTION PLAN OR PYRAMID SALES SCHEME.” 
SCHEMES. - NO 
PERSON, NATURAL 
OR JURIDICAL, SHALL 
SECTION 3. Registration Requirements. - Any person, firm, company, 
association, or other business entity engaged in multi-level marketing shall file such 
plan with the Department of Trade and Industry (DTI) for approval by the Secretary or 
his duly authorized representative before its actual operation or implementation. 
It shall be the duty of tile DTI to regulate and monitor multi-level marketing 
plans and set the parameters for this purpose in order to determine the presence of 
the following factors that gives rise to the prima facie presumption that the person, 
firm, company, association, or other business entity .is engaged in pyramiding scheme: 
a. 
b. 
C. 
d. 
e. 
f. 
€5 
Prohibitive entry requirements or headhunting fees 
Undisclosed drawback policies 
Front inventory loading 
Profits primarily derived from recruitment 
Unjust claims of unusually large returns on investments or get-rich-quick 
promises 
Absence of real market for a product; and 
Other similar pyramiding scheme 
The presence of any or all factors shall automatically be a ground for the denial 
in the application for registration of business. 
All existing multilevel marketing plans or schemes shall be registered to the 
Department within one (1) year from the date of the effectivity of this Act. Failure to 
comply herewith shall be a ground for revocation of any business certification or 
permit issued by the Department. 
SECTION 4. Jurisdiction over prosecution. - The Department of Trade and 
Industry shall have original jurisdiction over charges of the employment of pyramid 
sales schemes. This does not deprive other government commissions, agencies and 
offices of jurisdiction granted by existing laws. 


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SECTION 5. Penalties. - Any person, firm, company, association or any other 
business entity engaged in pyramiding scheme shall be imposed with a fine of not less 
than One Million Pesos (P1,000,000.00) but not more than Five Million Pesos 
(P5,000,000.00) and a penalty of imprisonment from twelve (12) to twenty (20) years, 
without the benefit of bail, for violations of this Act. In case of violation by a firm, 
company, association or any other business entity, the penalty of imprisonment shall 
be imposed on the responsible president, manger, director or officer. This is without 
prejudice to other actions and remedies available to aggrieved parties and penalties 
imposed by existing laws. In addition, upon finality of conviction, all business licenses 
and permits issued shall be considered revoked. 
In addition, the pyramiding entity shall he likewise ordered to return to the 
participants any and all considerations given, with interest charges at a rate to be 
computed from the time such payments were made. For purposes of the aforesaid 
reimbursement, the participants shall be considered preferred creditors under the New 
Civil Code. 
SECTION 6 .  Repealing Clause. - All laws, presidential decrees, executive orders, 
presidential proclamations, rules and regulations or parts thereof inconsistent with 
this Act are hereby repealed or modified according. 
SECTION 7. Separability Clause. - If any provision of this Act is declared 
unconstitutional, the same shall not affect the validity and effectivity of the other 
provisions hereof. 
SECTION 8. Effectivity. - This Act shall take effect fifteen (15) days after its 
publication in at least (2) newspapers of general circulation. 
Approved,