You're reading: Promise of easy money draws Ukrainians to MLM

For many Ukrainians struggling to make ends meet on meager, irregular salaries, the offer of easy money for only a few hours of work is hard to pass up.

So when multi-level marketing (MLM) firms first penetrated the virgin territory of the former Soviet Union promising big profits with little effort, thousands of people were willing to sell everything from vitamins to trust funds.

Raisa Piven was one of them. A former teacher, she couldn’t live on her $30 monthly salary, so an offer to work for MLM firm Neways seemed like a godsend.

MLM firms operate by enticing people to sell products to family, friends and even to strangers door to door. But in addition to selling the products, employees get bonuses by signing up others to sell, too.

It took Piven several months to raise the $100 she needed to buy a Neways distributor kit. Eventually she began selling personal care products. ‘I was in seventh heaven at that moment,’ she said. Her euphoria was short-lived, however.

Like most ex-Soviet citizens, Piven had become used to receiving a regular monthly salary, even if it wasn’t always worth much. After two months on the Neways program, and little to show for her effort, she became disillusioned.

‘I realized the program wasn’t as good as it was supposed to be,’ Piven said bitterly. But she stuck with the scheme, found some clients, enrolled some of them in the program and herself became a Neways supervisor.

The MLM sales technique has a 50-year history in the United States, but is still relatively new to Ukraine. In a society where people were used to waiting in long lines for scarce goods, selling directly to friends and acquaintances in their own homes was appealing.

‘This was new to Ukrainians,’ said Roman Kolyadyuk, strategic planning and research director at Ark Thompson. ‘The goods came to your own house. Humans are very lazy by nature, so they appreciate attention like that.’

Sometimes MLM sellers become very persistent – too persistent, in fact, according to Thompson. They wouldn’t take no for an answer.

But pushy salespeople are not the biggest problem with some MLM schemes. Too often, the point of such a scheme is not to sell products, but to enroll people in the sales structure. The fees they pay to join the MLM scheme drift up to the top of the sales pyramid, accumulate, and make the few at the top a lot of money – whether the actual products are sold or not.

According to Serhy Vsekhsvyatsky of the MLM-perspective research center, if an MLM firm has mostly employees and no end-users, it’s probably a typical pyramid scheme.

Pyramid financial scams, such as those in neighboring Russia, have already hurt thousands of pensioners across the former Soviet Union. In the early 1990s, a host of finance companies and trust funds sprang up. Impoverished pensioners, students and the unemployed invested their dwindling savings in such schemes. But in 1994, most of the schemes collapsed, enriching a few on the top, but leaving thousands of investors with worthless share certificates.

Naturally, this tarnished the reputation of legitimate MLM schemes, and salespeople soon found it even harder to make decent wages. Signs appeared on office doors reading ‘No MLM!’

Nevertheless, MLM schemes are still alive and are even expanding into other areas. Along with cosmetics and slimming formulae, MLM sellers are now hawking pension and investment schemes.

Save-Invest, a Swiss company, is one of the MLM firms that has recently entered the Ukrainian market for financial services.

According to Save-Invest salespeople, clients invest $1,000 or more every year in the company for 15 years, after which they receive their savings, plus interest and a bonus. Clients also are invited to become Save-Invest salespeople, with the promise of a two-day training seminar in Hungary.

Too good to be true? As more such schemes start up in Ukraine, potential clients and salespeople are going to have to answer that question themselves. But do any of these MLM salespeople actually make money?

‘Paradoxically, some of them do,’ Anatoly Koryak, a professor from the Ukrainian Finance and Banking School claims. ‘Such people are usually short of funds, so they sell their homes and cars or even borrow money from their friends and relatives. Then, they have to work like dogs to return their investments. Most of them go bankrupt, but the most ambitious and hard-working succeed.’

The problem is that there is no guarantee that investors will get their money back.

U.S. law draws a distinction between MLM schemes, which are mainly focused on selling products, and illegal pyramid schemes, in which the focus is not the product, but recruiting more people into the pyramid. If a scheme charges participants a fee to join, it is deemed illegal. Ukrainian legislation is less clear-cut.

‘As long as MLM companies pay taxes, their activity is legitimate,’ said Anton Limar of law firm Altheimer & Gray.

Essentially, the law says that only Ukrainian companies may provide insurance services here. Non-residents may have no more than a 49 percent stake in Ukrainian insurance companies.

Reputation is a definite plus. Firms like Neways, Mary Kay, Vitamax and Dr. Nona have legions of satisfied customers in Ukraine and worldwide.

‘These companies have been in full compliance with the Ukrainian legislation, and so far we haven’t heard complaints from their customers,’ Limar said.