Republic of the Philippines 
HOUSE OF REPRESENTATIVES 
Quezon City 
EIGHTEENTH CONGRESS 
Second Regular Session 
House Bill No. _______ 
________________________________________________________ 
Introduced by REPRESENTATIVE MANUEL ANTONIO F. ZUBIRI 
________________________________________________________ 
EXPLANATORY NOTE 
Various forms of businesses engaged in deceptive and fraudulent sales acts and practices 
particularly “pyramid sales schemes” or “chain distribution plans” continue to proliferate despite 
government efforts to restrict such activities. Numerous individual investors and participants still 
fall victim to these companies and are unable to recover their hard-earned savings and borrowed 
money once these companies collapse. 
RA 7394 or The Consumer Act of the Philippines does not have adequate provisions to 
identify, monitor and penalize companies or businesses engaged in pyramiding. The law does not 
provide a clear definition and distinction between “multi-level marketing” or “networking” as a 
legitimate way of marketing products, services and credit as against “pyramid schemes” or “chain 
distribution plans.”  Multinational and local companies are getting more sophisticated in their 
business models in masquerading and passing their company off as legitimate multi-level 
marketing companies. 
Therefore, this measure seeks to enable the Department of Trade and Industry in 
curtailing the growing number of business companies engaged in “Pyramid Schemes” or “Chain 
Distribution Plans” by expanding its regulatory powers.  This proposed measure enumerates 
indicators and/or conditions of “Pyramid Schemes” or “Chain Distribution Plans” so that the public 
will be on guard against these companies. To curtail the use of pyramiding sales devices, stiffer 
penalties are provided for in this proposed Act. 
In view of the foregoing, the passage of this bill is earnestly sought. 
MANUEL ANTONIO F. ZUBIRI 
May 19, 2021
5:42 pm
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Republic of the Philippines 
HOUSE OF REPRESENTATIVES 
Quezon City 
EIGHTEENTH CONGRESS 
Second Regular Session 
House Bill No. _______ 
________________________________________________________ 
Introduced by REPRESENTATIVE MANUEL ANTONIO F. ZUBIRI 
________________________________________________________ 
AN ACT 
PROHIBITING THE USE OF PYRAMID SCHEMES OR CHAIN DISTRIBUTION PLANS IN 
DOING BUSINESS AND PROVIDING PENALTIES THEREFORE AND FOR OTHER 
PURPOSES 
Be it enacted by the Senate and House of Representatives of the Philippines in Congress 
assembled:  
SECTION 1. Short Title. – This Act shall be known as the “Anti-Pyramiding Act of 
2021”. 
SEC. 2. Declaration of Policy. – It is the policy of the state to promote and support 
fair and honest business transactions and prevent the employment of pyramid schemes 
or chain distribution plans which continue to wreck the economic lives of countless 
Filipinos who aspire to have a thriving business of their own. To this end, the state shall 
implement measures to achieve the following objectives: 
a) To define pyramid schemes or chain distribution plans and differentiate such illegal
activities from multi-level marketing or networking as a legitimate way of doing
business;
b) To provide indicators and parameters to identify pyramid schemes or chain
distribution plans;
c) To establish a mechanism to monitor and prevent pyramid schemes or chain
distribution plans; and
d) To impose stiffer penalties for violations of the provisions of this Act.
SEC. 3. Definition of Terms. – For purposes of this Act, the following term shall
be defined as: 
a) “Binary MLM Plan” refers to a binary plan or a multi-level marketing compensation
plan which allows independent distributors to have only two front line distributors
in the binary tree. If a distributor sponsors more than two distributors, the excess
are placed at levels below the front line of the sponsoring distributors in a binary
tree. To be legitimate, distributors can earn by balancing sales volume and not
balancing number of recruits which is not allowed as the latter is construed as
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"headhunting" wherein commissions are paid by the mere act of recruitment under 
the two legs. 
b) “Consideration” refers to payment of money or its equivalent, or purchase of 
goods, services, credits or intangible property but excluding purchase of goods or 
services furnished at cost to be used in making sales, and time and effort spent in 
pursuit of sales or recruiting activities; 
c) “Drawback Policy” refers to definitive guidelines for the return of marketable 
products within a reasonable time; 
d) “Fair Market Value” refers to the amount a willing and reasonable buyer would pay 
for goods in a competitive marketplace; 
e) “Front Inventory Loading” refers to purchase of more products than what can 
reasonably be used or sold to retail customers in a month; 
f) “Headhunting Fee” refers to amount paid to the direct sponsor of each successful 
recruit to a network marketing company; 
g) “Investment” refers to any acquisition, for consideration other than personal 
services, of property, tangible or intangible, and includes without limitation, 
franchises, business opportunities and services, and any other means, medium, 
form or channel for the transfer of funds, whether or not related to production or 
distribution of goods or services; 
h) “Joining, Registration, or Entry Fee” refers to a required amount to be paid by a 
person to become a member of an independent sales force of a multi-level 
marketing company, regardless of whether such person receives products or not; 
i) “Match or pair recruits” refers to pairing of recruits on the left and right legs of a 
binary tree to qualify for a commission;  
j) “MLM Company’s Plan” refers to a company’s Compensation Plan outlining earning 
opportunities available to members; 
k) “Multi-level Marketing” (MLM) “ or “Network Marketing” refers to a legitimate sales 
device whereby any person, firm, corporation, association or other business entity, 
who sells, distributes, manufactures or supplies, for valuable consideration, goods 
or services through independent agents, contractors or distributors, at different 
rank levels, wherein such participants may recruit other participants without 
requiring payment charges, fees, or contributions, as a pre-requisite for 
acceptance, and wherein commissions, 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 by the independent agents, contractors or  distributors or 
other people they bring into the business. Multi-level Marketing shall also refer to 


 
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a form of Direct Selling whereby goods or services are sold on a person-to-person 
basis; 
l) “Multiple registration fees’” refers to an amount paid for the acquisition of multiple 
slots or positions; 
m) “Multiple slots or positions” refers to enrollment of the same person in several 
positions in the same binary and enrollment trees; 
n) “Participants” refers to members of an independent sales force of the network 
marketing company; 
o) “Pyramid Scheme” or “Chain Distribution Plan” refers to a sales device whereby a 
person, upon condition that such person makes an investment, is granted by a 
business entity, distributor, supplier, manufacturer or a 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 a 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; Provided further, That 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; 
p) “Recruitment Bonus” refers to bonus or commission paid for each successful 
personal recruit made; and 
q) “Sponsorship” refers to direct recruitment of members to join a network marketing 
company. 
SEC. 4. Prohibiting Pyramid Sales Schemes. – No person, natural or juridical, shall 
establish, operate, advertise or promote pyramid sales schemes or chain distribution 
plans in its business operations. 
SEC. 5. Other forms of Pyramid Sales Schemes. – Without limiting the coverage 
of pyramid schemes as defined in Section 3(a) of this Act, companies, sales or marketing 
plans or schemes shall be considered Pyramid Schemes or Chain Distribution Plans if: 
A) A promoter persuades recruits to purchase products, services, credit, title or rank 
whereby such recruits receive income primarily from the mere introduction, 
recruitment or sponsorship of other participants into a pyramid scheme or chain 
distribution plan rather than from marketing and sale of products; or 
B) The profits of a person are derived primarily from recruitment of other persons 
into a pyramid scheme or chain distribution plan rather than from sale of consumer 


 
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products, services and credit. Such plan or scheme shall include but not be limited 
to one or more of the following attributes: 
a) Revenue or income is derived mainly from the entry fees of the participants 
of such companies; 
b) Participants must sponsor a fixed number of other participants in order to 
earn, each of whom must in turn sponsor a fixed number of participants, 
as in a pyramid scheme compensating participants by balancing number of 
recruits rather than number of sales volumes; 
c) Income of participant is dependent primarily upon a slot or position within 
the company as determined by the time, date and order of participation; 
d) Participants are not allowed to return marketable and unused products for 
refund within a period of six (6) months from the time of purchase; 
e) There is no fair market value for the goods received; 
f) Participants are allowed to purchase multiple slots or positions by paying 
multiple registration fees; 
g) MLM company operates without valid licenses, permits or authorizations 
from concerned national government agencies or local government units; 
and 
h) MLM company fails to submit its marketing plan to DTI. 
SEC. 6. Monitoring and Regulation of MLM companies. – 
A) Corporations or partnerships using multi-level marketing or networking in carrying 
out the purposes of their business shall disclose such information in their Articles 
of Incorporation or Partnership.  Sole proprietorships shall likewise disclose in their 
registration with DTI if they use multi-level marketing or networking in the conduct 
of their business.  Failure to comply herewith shall be a ground for the cancellation 
of SEC or DTI registration. 
B) Registered multi-level marketing companies shall register and file their MLM plans 
with the DTI within sixty (60) days prior to start of business operations: Provided, 
That all existing companies engaged in multi-level marketing or networking shall 
submit their MLM plans with the DTI within ninety (90) days from the effectivity 
of this Act; Provided further, That in case there are revisions, amendments or 
modifications in the MLM plans, companies shall submit a report to DTI within 
sixty(60) days prior to the implementation thereof; Provided finally, That failure to 
comply herewith shall be a ground for cancellation of registration with the DTI and 
the SEC. 


 
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C) The DTI shall monitor and regulate multi-level marketing plans and set indicators 
and parameters in order to determine whether there is prima facie evidence that 
a company is engaged in pyramid schemes or chain distribution plans, such as but 
not limited to the following: 
a. Prohibitive entry requirements or head hunting fees and/or joining fees. 
The entire joining fee that is paid to participate in a plan is considered as 
entry or registration fee, notwithstanding the inclusion of products as part 
of the registration fee; 
b. Undisclosed drawback policy; 
c. Front inventory loading; 
d. Profits of a company or independent sales force primarily derived from 
recruitment; 
e. Unjust claims of unusually large returns on investments; 
f. Absence of real market for a product; 
g. Payment of recruitment bonus such as in a scheme compensating 
independent distributors who are able to “match/pair” recruits; 
h. Absence, undisclosed or unreasonable product return policy; 
i. Sale of multiple slots or positions through the payment of multiple 
registration fees by one independent distributor; and 
j. Such other activities which the DTI may deem pyramid schemes or chain 
distribution plans. 
 
SEC. 7. DTI’s Jurisdiction Over Prosecution. – The DTI shall have original 
jurisdiction over complaints on pyramid sales schemes and shall conduct investigations 
on companies engaging in, any, some or all of the foregoing prohibited practices that 
may come to its knowledge, with or without a formal complaint filed. 
 
The jurisdiction of DTI on complaints about pyramid activities, however, shall not 
exclude other government institutions of jurisdiction granted to them by existing laws on 
matters related to pyramid activities. 
SEC. 8. Creation of a Task Force. – There shall be created a Task Force to be 
spearhead and organized by the DTI to identify emerging pyramid schemes or chain 
distribution plans and formulate rules and regulations to facilitate the investigation and 
prosecution of companies employing pyramiding sales schemes and chain distribution 
plans.  The DTI may designate private sector representatives as members of the Task 
Force.  


 
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SEC. 9. Cease and Desist Order. – Pending investigation of a company suspected 
of employing a pyramiding scheme or chain distribution plan, a cease and desist order 
shall be issued against the company from continuing its business operations. 
 
SEC. 10. Penalties. – 
A) Any person, natural or juridical, engaged in pyramiding schemes or chain 
distribution plans shall, upon conviction, be imposed with a penalty of 
imprisonment of twelve (12) years to twenty (20) years and/or a fine of not less 
than One Million Pesos (P1,000,000.00) but not more than Five Million Pesos 
(P5,000,000.00): Provided, That in case the violation is committed by a 
corporation, association or partnership, the penalty of imprisonment shall be 
imposed on the members of the board, partners, officers and individuals personally 
responsible, notwithstanding other remedies available to the victims and other 
penalties imposed by existing laws; Provided further, That such violation shall be 
non-bailable offenses;  
B) All business licenses, permits and authorizations issued by government agencies 
shall be revoked; 
C) All persons found guilty for pyramiding shall be ordered to return any and all 
considerations given by the victims, with interest computed from the time 
payments were made. The victims shall be deemed preferred creditors as provided 
for in the New Civil Code of the Philippines. 
SEC. 11. Prescription Period. – All claims or actions against pyramiding schemes 
shall prescribe within five (5) years from the time the pyramiding acts and practices 
have been employed or upon discovery thereof. 
 
SEC. 12. Appropriations. – The amount of Twenty Million Pesos (P20,000,000.00) 
as additional funding for DTI to be charged against the unexpended Contingency Fund 
of the Office of the President is hereby appropriated for the initial implementation of this 
Act. Thereafter, the amount needed for the implementation of this Act shall be included 
in the annual General Appropriations Act. 
SEC. 13. Implementing Rules and Regulations. - The Department of Trade and 
Industry shall, in consultation with concerned government agencies, issue the 
Implementing Rules and Regulations within ninety (90) days from the effectivity of this 
Act. 
SEC. 14. Separability Clause. – If any provision of this Act is subsequently 
declared unconstitutional, the validity of the remaining provisions hereof shall remain in 
full force and effect.  


 
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SEC. 15. Repealing Clause. – All laws, decrees, orders, and issuances, or 
portions thereof, which are inconsistent with the provisions of this Act, are hereby 
repealed, amended or modified accordingly. 
 
SEC. 16.  Effectivity Clause.– This Act shall take effect immediately after its 
complete publication either in the Official Gazette or in a newspaper of general circulation 
in the Philippines.  
 
Approved,