Is Digital MLM Legal in the Philippines?

Anti-Pyramid Law, DTI/SEC Rules, and Red Flags (Philippine context)

TL;DR Multi-level marketing (MLM) itself is not illegal in the Philippines—pyramid/ponzi schemes are. “Digital” (done through apps, social media, websites, or e-wallets) doesn’t change the legal test. A program is lawful only if it is product-driven (compensation comes mainly from genuine retail sales to real customers) and it complies with registration, consumer-protection, and tax rules. If pay-ins and rewards are driven by recruitment, headhunting, or passive ROI, expect SEC/DTI enforcement, possible criminal liability, and refunds/cease-and-desist orders.

1) The legal framework (what actually governs MLM)

There’s no single stand-alone “Anti-MLM Act.” Philippine authorities apply a bundle of laws and regulations—some general, some sector-specific:

Consumer Act of the Philippines (Republic Act No. 7394) Declares pyramid/chain distribution schemes unlawful. The core idea: if the plan’s benefits are derived primarily from recruiting (versus selling actual goods/services to end-users), it’s an illegal sales device. DTI enforces deceptive/misleading marketing, sales promotion, warranties, and product/labeling rules under this Act.
Securities Regulation Code (SRC) (RA 8799) If the plan involves “investment contracts”—i.e., members put in money, expect profit, and profits come primarily from others’ efforts—the offer is a security. Securities must be registered with the SEC and sales agents must be licensed. Unregistered investment-taking and ponzi-type promises violate the SRC’s registration and anti-fraud provisions.
Revised Corporation Code (RCC) (RA 11232) Sets corporate governance duties (directors/officers may be liable for fraudulent corporate acts), and requires proper corporate registration (or SEC licensing for foreign corporations “doing business” in the Philippines—even if activities are purely online).
Financial Products and Services Consumer Protection Act (RA 11765) Gives SEC, BSP, Insurance Commission, and Cooperative Development Authority stronger teeth against mis-selling, unfair practices, and abusive collection, especially when an MLM “drifts” into investment-style or financial-product territory.
E-Commerce Act (RA 8792) Electronic contracts and signatures are valid. Online sellers must still observe truthful advertising, disclose business identity/contacts, and honor electronic documentation.
Data Privacy Act (RA 10173) MLM operators and uplines who collect/process member or customer data need lawful basis, privacy notices, security measures, and (when applicable) a DPO. Unsolicited spam and doxxing can draw complaints and penalties.
Anti-Money Laundering Act (RA 9160, as amended) If the model touches e-money, remittances, or virtual assets, AML/CTF obligations may trigger—especially for payment flows through EMIs or VASP platforms (which themselves need BSP licensing). Large, circular, or suspicious transfers can lead to transaction monitoring and reports.
Sector-specific rules (as applicable)
- FDA (for cosmetics, food supplements, devices, drugs): licensing, product notification/registration, and no therapeutic claims for items not approved as drugs.
- DTI/DA/BPS: standards and labeling for consumer goods.
- NTC/Cybercrime (RA 10175): mass SMS spamming, phishing, or online deception may add separate liability.

Key point: “Digital” is just the channel. Whether the plan is legal is still judged by what is being sold and how participants earn.

2) What makes an MLM legitimate vs. an illegal pyramid?

A. Hallmarks of a legitimate MLM/direct selling plan

Compensation is primarily from retail sales of real, market-value products/services to end-consumers (not just to your recruits).
Reasonable pricing and real demand without forced inventory loading.
Buy-back/return policies (e.g., for unsold inventory) and clear cooling-off/refund practices.
Transparent, simple compensation plan—no mandatory “head-hunting fees,” “activation codes,” or pay-to-recruit bounties.
Business registrations in order (SEC or DTI; BIR for taxes; FDA/other regulators if applicable).
Truthful marketing with no income guarantees and no investment language (“double your money,” “fixed daily ROI,” etc.).

B. Characteristics of an illegal pyramid/ponzi (red-flag logic used by regulators)

Rewards are driven by recruitment (entry fees, slot purchases, “positioning”) rather than bona fide retail sales.
Pay-ins feed pay-outs (“robin-hooded” money), or promised passive returns not tied to any legitimate product value.
Token/crypto packages, staking pools, copy-trading, or arbitrage “AI bots” promising fixed ROI with no audited, verifiable activity.
Complex matrices/auto-pools where earnings depend on bringing in heads, not selling goods to real customers.
Hard to exercise refunds; inventory loading; or “comp plan” slides that never mention customer retail margins.
Unregistered securities pitch (investment contracts) or unlicensed financing/lending behaviors.
No physical office, fake addresses, or ever-changing corporate shells; evasive about registrations.

3) How “digital” changes compliance (not the legality test)

Online onboarding & KYC: Collecting IDs and e-wallet details triggers privacy and data security duties.
Social media selling: Influencers/uplines must avoid deceptive earnings claims; disclaim typical results; and keep copies of ads/posts.
E-money and crypto rails: If you hold customer funds, rebate wallets, or tokenize rewards, you may cross into BSP/SEC jurisdictions. Use only licensed payment partners; never custody client assets without authorization.
Cross-border: A foreign MLM marketing to Philippine residents online may be considered doing business locally; it may need an SEC license (branch/rep office) and to comply with Philippine consumer rules.

4) DTI vs. SEC: who does what?

DTI focuses on consumer protection and sales practices (misleading ads, unfair sales devices, product standards, price tags/labels, after-sales). Legitimate direct sellers often align with DTI-recognized good practices (e.g., returns, no inventory loading, clear disclosures).
SEC looks at investment-taking, corporate registration, and securities-law compliance. If your comp plan veers into investment contracts (passive ROI, pooling, profit shares), SEC registration and secondary licenses (and agent licensing) are required—or the offer must stop.

In a borderline digital MLM, both agencies may assert jurisdiction (plus FDA, BIR, and BSP depending on what you sell and how you pay).

5) A practical legality test you can run on any MLM (digital or not)

Answer YES to all of these to stay on the safe side:

Products first: Would this business still pay commissions if no one recruited anyone and all sales were to retail customers at market prices?
Comp plan: Do most payouts come from documented retail sales (not entry fees/placements/slots/packages)?
No ROI pitch: Are you never promising fixed or passive returns, doubling of money, or “earn while you sleep” profits from others’ efforts?
Registration fit: Is the company properly registered (SEC/DTI), BIR-registered, and (if relevant) SEC-licensed for any securities/investment components?
Refunds/returns: Are there clear written refund and buy-back policies (and do they work in practice)?
Truth in ads: Are income examples realistic, with disclaimers and no deceptive testimonials?
Data & payments: Are privacy, cybersecurity, and licensed payment partners in place?
Products with real value: Do products stand on their own—independent reviews, reasonable pricing, repeat consumption—without recruitment?

If you answer NO or “not sure” to any item, seek legal review before launch.

6) Common red flags regulators look for (Philippine context)

Upfront membership/activation fees where the main “benefit” is the right to recruit or to buy overpriced “starter kits.”
Income slides based on matrix filling or headcount, not customer sales volume.
Auto-ship quotas divorced from genuine demand; pressure to stockpile inventory.
“Investment” trappings: ROI tables, lock-ins, staking/yield, “capital back in X days,” “guaranteed daily %,” or binary options/forex/crypto without licenses.
No verifiable business registration, or a BIR/SEC/DTI registration shown as a “license to sell investments” (it isn’t).
Health/weight-loss/therapeutic claims for products that are not FDA-approved as drugs.
Compulsory purchases to qualify for commissions; placement fees; gift cheques that are never honored.
Moving goalposts: changing the comp plan or wallet withdrawals arbitrarily, “maintenance” deductions, or withdrawal throttling.

7) Setting up a compliant digital direct-selling/MLM program

Corporate/registrations

Register the entity (SEC for corporations/partnerships; DTI for sole proprietors).
For foreign firms marketing in PH: obtain SEC license to do business (branch/rep office) and appoint local compliance contacts.
Register with BIR; issue ORs/invoices; comply with withholding on commissions; handle VAT/percentage tax as applicable.

Product compliance

If selling cosmetics, supplements, devices, or foods, secure required FDA licenses and follow labeling/claims rules.
Maintain quality control and after-sales channels.

Compensation plan & disclosures

Tie commissions to verified retail sales.
Build buy-back/return provisions; prohibit inventory loading.
Publish plain-language comp plan, income disclosure, and refund policy; train field leaders not to make unapproved claims.

Digital operations

Adopt Terms of Use, Privacy Notice, and Data Processing Agreements with service providers.
Use licensed payment processors/e-wallets; never hold customer funds without authorization.
Implement anti-spam practices for email/SMS; maintain ad archives and compliance approvals.
For tokens/points, avoid transferable or tradable “investment-like” features unless you’re prepared to enter SEC/BSP territory.

Governance & monitoring

Compliance officer/DPO; training for upline leaders; mystery shopping and ad monitoring.
A process to investigate complaints, suspend distributors for violations, and self-report material incidents to regulators if needed.

8) If you’re joining a digital MLM: a quick due-diligence checklist

Look for a real, competitively priced product with independent demand.
Ask how much of commissions come from retail sales vs. recruitment.
Verify SEC/DTI registration, BIR registration, and where applicable FDA/other licenses.
Read the refund policy and try a test return.
Avoid any plan that asks you to “invest,” stake, or lock funds for guaranteed ROI.
Beware token/crypto “extras” that have trading/value promises.
Check whether you are being asked to spam, misrepresent income, or front money to “secure a position.”

9) Penalties & exposure (what can happen)

SEC actions: Public Advisories, Cease and Desist Orders, asset/account freezes (through AMLC), administrative fines, and criminal complaints (SRC violations carry fines and imprisonment).
DTI actions: Administrative fines, closure orders, seizure of non-compliant products, and referrals to prosecutors for deceptive practices.
Criminal exposure: Estafa (fraud) under the Revised Penal Code; Cybercrime add-ons if online deception/spamming is involved.
Civil liability: Rescission, refunds/damages, class/representative complaints.
Tax assessments: BIR back taxes, surcharges, and penalties on commissions and sales.

10) FAQs

Is MLM per se legal? Yes—if it’s product-centric and compliant. No—if it’s recruitment/ROI-centric (that’s a pyramid/ponzi).

Does doing it online make it legal/illegal? Neither. It only changes how you comply (privacy, e-payments, cyber-fraud risks), not whether it’s lawful.

Can we pay in crypto or run a tokenized rewards system? Proceed with caution. Tradable tokens or yield promises can turn the plan into a securities offering (SRC) or a virtual asset activity (BSP/AMLC scope).

Do we need a license from DTI? DTI doesn’t “license” MLM plans as investments; it enforces consumer-protection and sales practices rules. If your plan offers investments or pays passive returns, that’s SEC territory (registration/licensing).

What documents should participants see before joining?

Corporate/DTI registration, BIR registration
Compensation plan and policies
Income disclosure and refund/buy-back rules
Product approvals/notifications (e.g., FDA, if applicable)
Contact details for customer service and compliance

11) Bottom line

A digital MLM is lawful in the Philippines only when it is genuinely a retail-sales business, not a recruitment-or-ROI machine. Expect scrutiny from DTI (consumer practices) and SEC (investment/securities), plus FDA/BSP/AMLC/BIR depending on your products and payment flows. Build your plan so that most money is made from real customers, make returns/refunds easy, register properly, and ban investment-style promises.

This article is general information, Philippine context, based on widely applied rules and enforcement patterns as of mid-2024. It is not legal advice. For a borderline or fintech/crypto-adjacent model, consult Philippine counsel before launch.