… directs promoters and distributors to immediately stop it
Both online and offline scheme in Bhutan that deals with Enagic machines or Kangen water filter is a pyramid scheme, according to the Office of Consumer Protection (OCP).
The office directed the existing promoters and distributors, whether operating online or offline, to immediately stop such business practices.
In a press release OCP issued yesterday afternoon, it stated that participating in a pyramid scheme is prohibited and will be dealt with as per the Consumer Protection Act of Bhutan 2012 and other relevant laws of the country.
It also stated that OCP holds the mode of business operation, online and offline, adopted by the promoters and distributors of Enagic Alkaline Ionizer and water filtration machines or Kangen Water machines as a pyramid scheme.
The issue came to the limelight when some social media users alerted people to be cautious of the online digital business earlier this year.
According to the OCP, the scheme is primarily based on enticing individuals to purchase machines, claiming health benefits of the Kangen Water, which is not validated by any competent authority.
Besides, it states that the scheme entices buyers to register as members by promising compensation (commission) when they register new members. “To become a member, buying one of the products is mandatory, such practice violates section 38 (xiii) of the Consumer Protection Rules and Regulations 2015.”
The section states that establishing, operating or promoting a pyramid promotional scheme where a consumer receives compensation that is derived primarily from the introduction of other consumers into the scheme rather than from the sale or consumption of products is classified as unfair trade practice and illegal.
OCP, however, ruled that importing and selling the machine through retail or online sales of Enagic products is permissible
after obtaining a valid trade license or an e-commerce license to assure that they will not engage in scouting and registering new members.
The office asked the public to refrain from engaging in this scheme by becoming a member to promote the scheme further by introducing downline members.
Before advertising their products as having health benefits, the OCP asked the retailers or e-commerce businesses of these products are informed to seek prior approval from competent authorities, keeping in accord with the Medicines Act of the Kingdom of Bhutan 2003.
The Enagic business, both online and offline, started in Bhutan in 2019.
According to the OCP’s chief programme officer, Jigme Dorji, the online method that began in 2020 is operated and promoted by a business entity called “Digital Business” and uses the Enagic business model to sell the Enagic products and provide compensation to the members.
The prospective online members are first introduced to the “Digital Business” and encouraged to undergo activities such as attending webinar sessions, and pre-coaching, after paying USD 149.
Then a mentor and coach introduce the Enagic business models and the products involved (Enagic Alkaline Ionizer and Water Filtration Machine or Kangen Water Machine).
He said that in the offline method, the members do not have to undergo prescribed activities of “Digital Business”, and there is no requirement to pay a fee of USD149.
The registered distributor promotes Enagic business, Enagic machines and Kangen Water. The distributors promote the prospect and benefits of Kangen water or alkaline water through product demonstration, face-to-face presentations, and focused group presentations using various platforms claiming health benefits, selling products and looking for prospective members to join as distributors and members.
Jigme Dorji said to participate in the scheme as a distributor or member and earn commissions, both methods require the members first to purchase the Enagic machines and register with the company using the referral code of the upline distributor or member.
According to him, the compensation or commission is paid on both direct and indirect sales based on the Patented 8-Point compensation system based on the ranks of the distributors and the model of the products. “For every sale, the commission is split into eight portions and is paid to eight upline distributors or members. To remain active in the scheme and earn a commission, the distributor must make direct sales within a specified time frame.”
It was found that the scheme emphasises the introduction of downline members and the commission is based on downline members, besides direct sales. “But the scheme also provides an option of direct sales to achieve certain ranks.”
As per OCP’s findings, the scheme mandates the distributor to remain active or risk the deduction or non-receipt of the commission. The conditions include the distributor making direct sales within six months to receive full commission. If there is no direct sale within six months but makes a direct sale within two years, the distributor gets half of the commission. “The commission is not paid if there is no sale within two years. In such case, the distributorship gets terminated.”
Jigme Dorji said that it was mandatory to buy a product to become a registered distributor and participate in the scheme, adding that such practice has sustainability issues as the scheme requires the recruitment of downline members which will exhaust at one point of time in any given geographical location.
He said that the recent entrants, which form the major groups, will be affected the most if the scheme collapses.
“There is an affordability issue given that the Enagic products are expensive, which will limit the entry of new entrants or distributors.”
According to OCP, the cost of Enagic products ranges between USD 2,890 and USD 5,980.
Jigme Dorji said a few entities had availed trade licenses to import and distribute Enagic products, notably the Kangen Water Machines and around 15 commodities sell bottled Kangen Water.
He said that more than 150 online members, including the Bhutanese living overseas in places such as Australia, the Middle East, USA and Canada, are selling Enagic products online without a valid e-commerce license.
Jigme Dorji said that the distributors and promoters were directed to immediately stop the sale and promotion of Enagic products through the pyramid scheme. “Non-compliance will lead to the imposition of penalty as per the Consumer Protection Act 2012, which will entail fines for the first violation and cancellation of business license and prosecution for repeat violations.”
He said that the online promoters who do not possess a valid e-commerce license and continue to engage in the pyramid scheme should lead to penalties and prosecution for repeated violations as per the CPA 2012 and other laws.
Drug Regulatory Authority
The director of the Drug Regulatory Authority, Wangdi Gyeltshen, said that if the distributers claim the device has medicinal values, they should register with DRA as the equipment becomes a medicinal device.
He said that the DRA and distributor reached an understanding that if they claim medicinal values, they cannot sell the device and if they want to claim medicinal values, they must register with DRA. “The distributors agreed not to claim medicinal values and sell the device like any water filter. They have to remove the posters claiming that the machine has medicinal values.”
The director said that only technical authorised individuals such as pharmacists, technicians, and doctors certified by DRA could sell or distribute devices with medicinal values. “Any product that claims medicinal values can be sold by retail pharmacy and authorised suppliers only.”