The Office of Consumer Protection (OCP) is on the verge of completing its investigation against Enagic Water Ionizer ‘digital business’ and the Kangen water produced by it.
The OCP has so far found the business to come under the purview of unfair trade practices. There are 28 unfair practices listed in the Consumer Protection Rules and Regulation 2015.
OCP has already latched on to misleading and false advertising, doing a business without license, violation of e-commerce rules etc and is looking at more. It is also looking at its recruitment process.
The OCP is looking at what other unfair trade practices will apply as the list of 28 is quite broad and also includes a Pyramid business which is illegal in Bhutan.
It is also studying if this is a pyramid business and a final decision will come via an Internal Review Committee that will examine the OCP investigation report.
With pyramid business schemes like Enagic evolving much ahead of outdated regulations, a challenge before OCP is if its guidelines and rules can be used to point out the obvious. This paper has already pointed out certain Pyramid features of Enagic which are similar to some of the OCP’s own Pyramid Scheme Identification Guidelines.
However, the OCP wants to do its homework well enough to stand up in the court of law in case there is any legal challenge.
The OCP is also taking time as it wants to involve the Drug Regulatory Authority for the medical claims, BAFRA since the product is being consumed by people, trade for the licensing issues and also the RMA on the financial end.
The OCP is also looking at the decision of the Health Ministry of Malaysia which has stopped health claims being made by Kangen water produced from the Enagic water ionizers.
This paper in its investigation has already shown these medical claims not to be backed by credible science and many of the claims are fake.
The OCP has found Kangen water outlets in various parts of Bhutan selling the water making medicinal claims.
Pyramid Scheme Identification Guidelines and RMA notification
The Pyramid Scheme Identification Guidelines identifies a pyramid scheme saying, ‘Some schemes may purport to sell a product but they often simply use the product to hide their pyramid structure or disguise the scheme. Generally, a product sale is between the members or to the new recruits and there is little or no transfer of products in the markets. The incentive program of schemes compels recruits to continuously recruit additional down line members and buy or sell products often at inflated prices;”
It says, ‘Members are made to purchase products of the company periodically for a certain price. There is no product buy-back policy or other safeguards, if the members are unable to sell the goods. Members at the top of the structure receive substantial compensations and profits based on the recruitments and payments by the down line members.’
It also says there is very little or no revenue generated from the retail sales of the products and services that are associated with the scheme. The recruit’s income is dependent on payments by new members they enlist rather than from the sale of products or services.
From the above points, the Enagic business model fits into a pyramid model albeit a hybrid and modified one, but with still the same basic characteristics listed above.
A 2009 RMA Notification says there are two types of Pyramid schemes. One is product based and the other is financial. RMA says there are many variations of the pyramid scheme, and some try to pass themselves off as MLM or Direct Selling.
RMA says their products typically have little or no intrinsic value and and is sold at prices way above the market value. It says nobody would buy these products except as a way of joining the pyramid scheme itself. The ‘product’ may consist of household products, vitamins, cosmetics, etc.
In recent years there has been an explosion in a network of mainly women members on Facebook and Instagram describing themselves as ‘Digital Business Owners,’ who recruit other members via a facebook link going to their website and then selling them very expensive Enagic products, that is usually a water ionizer which claims to make Kangen water with a lot of false and unproven medical claims.
It is compulsory to buy such products to become a member and get an ID to be able to sell such machines. The cost of such products is around Nu 550,000.
Around half the price of the product goes as commission to the seller and up to 8 people above the seller which are his or her recruiters and their recruiters in return. The main way to make money is to recruit more people by making them buy these expensive machines.
Only a few top recruiters make money while the vast majority lose money.
The whole business model has been described anything from a scam to a pyramid model.
The Bhutanese did three investigative stories showing the whole business model to be a Multi Level Marketing Pyramid Scheme or even a scam, the medical claims as being blatantly false and misleading and the also exposed the two people behind it from Canada running the ‘Dream Team’ network in Bhutan which recruits people by using misleading advertising and expectations of making a lot of money when the reality is quite the opposite.
Even Facebook bans advertising of such businesses on its platform, and so members have to do indirect advertising, and even then they find their accounts being banned by Facebook and have to open new ones.