Mark-e-Dir: Bringing Market to Consumers Wednesday, 17 th April, 2013 New Delhi

1. Panel Discussion on International RegulationJohn P. Venardos, Senior Vice President, Herbalife International India Pvt. Ltd. Mark-e-Dir: Bringing Market to Consumers Wednesday, 17th April, 2013 New Delhi

2. WFDSA Draft Definition of Direct Selling • “Direct selling“ is a business model that offers opportunities to individuals acting as independent entrepreneurs to market and/or sell products/services away from a fixed retail establishment through one-to-one selling away from a fixed location. For example, by in-home product demonstrations or online. • Direct sellers may be called distributors, representatives, consultants or various other titles. They participate and derive financial benefit in various ways, including purchasing products and services for personal use, referring customers to the company or reselling products themselves directly or through sales organizations to which they provide training and leadership. All compensation is paid for product sales, none for recruiting.

3. Canadian Direct Selling Regulations • Compensation representations: No person who operates or participates in a MLM plan shall make any compensation representations to a prospective participant unless representations constitute or include fair, reasonable and timely disclosure of info within the knowledge of the person making the representations relating to: •   (a) compensation actually received by typical participants in the plan; or •   (b) compensation likely to be received by typical participants relating to: • the nature of the product, including its price and availability; • the nature of the relevant market for the product; • the nature of the plan and similar plans; and • if the person operating the plan is a corporation, partnership, sole proprietorship or other form of business organization.

4. Canadian Direct Selling Regulations • Competition Act: Regulates structure of MLM plans, prohibits pyramid selling • MLM plan definition: A plan where participants receive compensation for supplying product to another participant in the plan who receives compensation for the sale of that product or another product to other participants in the plan • Act requires disclosures MLM plans must make regarding products, compensation typically paid under the plan, the market for the products, and other information • Act prohibits payment of compensation for recruiting, prohibits purchase of product in a commercially unreasonable amount, and requires implementation of a commercially reasonably buy-back policy • 55. (1): For the purposes of this section and section 55.1, “multi-level marketing plan” means a plan for the supply of a product whereby a participant in the plan receives compensation for the supply of the product to another participant in the plan who, in turn, receives compensation for the supply of the same or another product to other participants in the plan

5. Canadian Direct Selling Regulations • Due diligence defense: •  A person accused of an offence under subsection (2.1) shall not be convicted if the accused establishes that he/she took reasonable precautions and exercised due diligence to ensure: • (a) that no representations relating to compensation under the plan were made by participants in the plan or by representatives of the accused; or • (b) that any representations relating to compensation in the plan made by participants or by representatives of the accused constituted or included fair, reasonable and timely disclosure of info referred to in that subsection. • 55.1 (1) “Scheme of pyramid selling” means a MLM plan whereby a participant in the plan gives consideration for the right to receive compensation by reason of the recruitment of another participant who gives consideration for the same right; and a participant in the plan gives consideration, as a condition of participating in the plan, for a specified amount of product, other than a specified amount of the product that is bought at the seller’s cost price for the purpose only of facilitating sales

6. Canadian Direct Selling Regulations • Other aspects of illegal pyramid schemes: •  Do not have a buy-back guarantee that is exercisable on reasonable commercial terms or a right to return the product in saleable condition on reasonable commercial terms, or • Participant is not informed of the existence of a guarantee or right of return and the manner in which it can be exercised • Penalties: • No person shall establish, operate, advertise or promote a scheme of pyramid selling. • On conviction on indictment, such person subject to a fine in the discretion of the court or to imprisonment for a term not exceeding five years or to both; or • On summary conviction, to a fine not exceeding $200,000 or to imprisonment for a term not exceeding one year, or to both

7. Mexico Direct Selling Regulations • NOM 035 SCFI-2003 regulation defines commercial practices, and information criteria for home sale systems: • Consumer; • Independent authorized distributor; • Direct sales system; and • Catalogue sales • “Direct sales activity” defined as a sales system out of a commercial facility in which the product or service to the consumer is conducted by an independent authorized distributor, usually through a demonstration or explanation. In this case, the authorized independent distributor or supplier representative can take the order, arrange delivery of the product or service and receive the correspondent payment or payments.

8. Mexico Direct Selling Regulations • “Independent authorized distributor” is defined as a physical or moral person who has a commercial contract with a supplier, and who promotes , distribute and sells goods or services in the consumer’s home • The company does not have a legal labor (employment) relation with distributors since they are independent distributors with a commercial contract • Customers are protected by the Consumers Protection Regulation and its bureau

9. South American Direct Selling Regulations • In general, there is no formal regulation for Direct Selling • Local DSAs adopt the WFDSA guidelines for establishing Code of Ethics • Ecuador includes a direct selling definition in its draft Consumers Law: • “Direct Sales. - Is marketing outside a trade of goods and services directly to consumers through personalized demonstration of a product or equipment, or presentation of a catalog and products by a dealer or independent consultant to personally, registered in the seller.” • Argentina legislator wants to “regulate” direct selling, classifying independent distributors as employees • Costa Rica’s Social Security agency is trying to classify independent distributors as employees of the company

10. United States Direct Selling Regulations • Members of the US Direct Selling Association adhere to a strict Code of Ethics administered by an independent Code Administer to ensure self-regulation • Direct selling firms distribute products and/or services to customers through or with the assistance of independent salespersons who demonstrate and explain those products to the consumer, usually in the home or work place • FTC has regulatory authority over many U.S. business activities, including direct selling; that authority has been used to set anti-pyramid standards and has been instrumental in determining the business standards used by legitimate MLM firms

11. United States Direct Selling Regulations • Koscot Interplanetary Inc., 86 F.T.C. 11106 (1975), found that pyramid schemes are inherently deceptive and in contravention of §5 of the FTC Act, 15 U.S.C. §45. See also, In re Ger-Ro-Mar, Inc., 84 F.T.C. 95 (1974) rev’d 518 F.2d 33 (2d Cir. 1974), Holiday Magic Inc., 84 F.T.C. 748 (1974). • FTC’s decisions in Koscot provided a broad definition of unlawful pyramid schemes; the Commission’s basic test was that a pyramid rewards recruiting alone “unrelated to the sale of product to ultimate users” through headhunting fees and inventory loading. Violations of the Koscot standard must be determined using an analysis of whether or not sales of product to ultimate users are taking place and driving the compensation mechanism, and in light of what features exist in the plan to prevent the evils of a pyramid scheme. • In 2013, FTC staff said there is nothing inherently wrong with internal consumption; FTC said there should be more “transparency” re: who is buying product (whether distributors for their own use primarily/exclusively or other consumers)

12. Thank You For Your Time