DCHL 'looking to clean up its image'

Insider at distributor of beauty products says it will reform marketing tactics amid claims it is running a pyramid scheme

PUBLISHED : Monday, 30 September, 2013, 12:00am
UPDATED : Monday, 30 September, 2013, 4:53am

Health-and-beauty products distributor Digital Crown Holdings HK (DCHL) is said to be trying to reform its controversial marketing tactics, amid allegations it exploited a loophole in Hong Kong's laws regulating multi-level sales.

An insider related to the chain said a report on legal issues facing the company would be completed next month, and would offer opinions on how it could clean up its image after the claims that it is running a pyramid scheme.

"The company knows there are doubts and allegations against them, due to the complex scheme offered to individual distributors," the source said.

"They want to find a way … so that people know they are doing clean business."

Police in Guangdong said DCHL used a strategy of encouraging distributors to recruit salespeople aggressively and collect membership fees from them - which is illegal on the mainland.

But the system is allowed in Hong Kong.

No one at the company has ever been charged, despite complaints over DCHL's membership scheme and selling tactics, including hundreds of complaints collected by the Democratic Party and Federation of Trade Unions.

According to a source from the Customs and Excise Department, authorities could potentially look into possible infringement by DCHL under three laws - the Pyramid Schemes Prohibition Bill, Trade Descriptions Ordinance and trademark regulations. But the source said so far none had been applicable.

The bill on pyramid schemes introduced last year permits multi-level marketing tactics provided they are selling legitimate products or services and that members are not being paid just to recruit new members.

Lawyer and lawmaker James To Kun-sun said the marketing system, in which salespeople sometimes receive a share of the proceeds from sales by sellers they recruit, should be allowed for such products.

"But in pyramid schemes, any reward is entirely or substantially based on the recruitment of new members. Any product or service offered will have little or no real value," he said. "If DCHL is transacting a real product with value, such as fragrance, it is hard to prove that they are doing something illegal under this law."

Federation of Trade Unions lawmaker Wong Kwok-hing said there might be a loophole in the law and that he and other legislators had urged officials to learn from the European Union and Macau and introduce a strict ban on both pyramid schemes and multi-level operations.

"Any kind of disguised or deceitful operations should be stopped," he said.

Operating a pyramid scheme is punishable with a fine of up to HK$1 million and imprisonment for seven years.

DCHL's customer service manager did not respond to Post inquiries on the matter.

Tomorrow: Lampe Berger Paris commissions investigation into DCHL