The Anti-Pyramid Scheme Act in Malaysia: Act 500 Explained

What Act 500 is

The full name is the Direct Sales and Anti-Pyramid Scheme Act 1993. Its short citation is Act 500. In Bahasa Malaysia it is the Akta Jualan Langsung dan Skim Anti-Piramid 1993. The title itself tells you the Act has two halves: direct sales (the legal, licensed activity) and anti-pyramid scheme (the prohibited activity).

A few reference points are worth fixing. The Act was passed in 1993. It was amended in 2011 (by the Direct Sales (Amendment) Act 2010, in force on 1 March 2011), and that amendment is what added the modern anti-pyramid provisions, including the Section 27B offence. The regulator is KPDN, the Ministry of Domestic Trade and Cost of Living (formerly KPDNHEP), which issues the licences and enforces the criminal provisions.

So when you see Act 500 quoted in a news report, a KPDN notice, or a company's terms, this is the law being referred to: the single statute that governs both lawful direct selling and unlawful pyramid schemes in Malaysia. If you would rather skip the statute and just check a specific company, you can run the name through our company checker in under a minute. This page is general information, not legal advice; for the exact, current wording, refer to the official text on kpdn.gov.my or a qualified lawyer.

What the Act does

Act 500 is best understood as a permission system bolted to a prohibition. The first half licenses and regulates direct selling. Under the Act, a company that wants to run direct selling (Malay: jualan langsung), including multi-level marketing (MLM), which is one structure of direct selling, must hold a valid direct selling licence, commonly called the AJL licence (lesen jualan langsung), issued by KPDN. The Act sets the rules these licensed businesses operate under: how they may sell, what contracts and cooling-off rights buyers get, and the conduct expected of a licensed direct seller.

The practical upshot is simple. A direct selling or MLM company operating with a valid AJL is operating lawfully. One operating without an AJL is breaking the law, even if its products are perfectly real.

The second half of the Act bans pyramid schemes and chain-distribution schemes outright. This is the anti-pyramid part of the name, and it is where the criminal teeth are. The Act does not treat a pyramid scheme as a risky-but-legal venture to be regulated; it treats running or taking part in one as a crime. The central provision here is Section 27B, which we break down next.

The dividing line between the two halves is the one that matters to consumers, and it is the same test the whole law turns on. Does the money come from selling real products (legal direct selling) or from recruitment fees and paying to join (illegal pyramid)? For the consumer-facing version of that question, see our full guide on whether MLM is legal in Malaysia.

Section 27B explained: the pyramid-scheme offence

If you searched specifically for Section 27B of the Direct Sales Act, this is the provision that makes a pyramid scheme criminal rather than merely ill-advised. In plain terms, Section 27B makes it an offence to promote, operate, or take part in a pyramid scheme or chain-distribution scheme. That breadth is the point worth understanding: liability is not limited to the person who founded the scheme. Promoting it and participating in it are offences too. You do not have to be the mastermind at the top to be exposed; recruiting for one or actively pushing it can fall within the offence.

The hallmark of a pyramid or chain-distribution scheme is that the income flows from recruitment, not from genuine product sales. New members pay to join, and the money paid by later joiners is what rewards earlier ones. If there is a product at all, it tends to be overpriced, useless, or just a token wrapped around what is really a pay-to-join arrangement. That structure is unsustainable by design: each level needs ever more recruits than the last, until recruitment runs out and the lower levels lose. For the arithmetic of why that collapse is guaranteed, and a side-by-side comparison with a legitimate MLM, see pyramid scheme vs MLM in Malaysia.

Treating a pyramid scheme as a crime, rather than a civil dispute, reflects what it actually does: it transfers money from the many at the bottom to the few at the top, with mathematical certainty that most participants lose. Section 27B exists so that organisers and promoters can be prosecuted, and so that I was only recruiting is not a defence that gets anyone off the hook.

Penalties under the Act

Because a pyramid scheme is a criminal offence under Act 500, the penalties are heavy, and they apply to both individuals and companies. For an individual, a first offence carries a fine of not less than RM500,000 and not more than RM5 million, or imprisonment of up to 5 years, or both. A second or subsequent offence raises that to a fine of not less than RM1 million and not more than RM10 million, or up to 10 years in jail, or both.

For a company (body corporate, partnership, or society), a first offence carries a fine of not less than RM1 million and not more than RM10 million. A second or subsequent offence rises to a fine of not less than RM10 million and not more than RM50 million.

The headline for a would-be member: promoting or joining a pyramid scheme is not a grey area you can talk your way out of. It carries criminal liability, and the fines run into the millions of ringgit. If you are weighing an opportunity, that risk sits on you, not only on the founder.

How the Act protects consumers

Read as a whole, Act 500 protects ordinary Malaysians in three connected ways. The catch is that the Act only protects you if you use it, so the two practical moves (checking a licence and reporting a breach) follow below.

• A licensing gate. Only businesses vetted by KPDN get an AJL, so the licence is a baseline check that someone official has looked at the company before it sells to the public.
• A criminal backstop. The Section 27B prohibition means the worst actors (pyramid and chain-distribution schemes) can be prosecuted, not just sued, which is a far stronger deterrent.
• A public way to verify and report. The Act sits behind KPDN's public licence list and its complaint channels, so consumers can confirm a company before joining and report one after.

How to check a licence

KPDN publishes a Status of Direct Selling Companies list on its website (kpdn.gov.my). This is the authoritative source for whether a company holds a valid AJL. A genuine licensed direct seller should appear there with a current licence; a company that is not on the list at all is a serious warning sign.

One honest caveat: Malaysia has no single official public blacklist webpage. Be wary of any site claiming to be the definitive list of banned MLMs. The reliable move is to confirm a positive licence on KPDN's status list rather than trust an unofficial scam list. For how flagging actually works (only with a KPDN enforcement record or court case behind it), see our sourced notes on MLM scams in Malaysia, or browse the companies we have already flagged.

To skip the government PDFs, type a company name into our company checker and we will surface what we know about its licensing and standing in one place.

How to report a breach

If you believe a company is running an illegal scheme, you can report it. You do not have to be a victim to file. If you have lost more than RM10,000, lodge a police report as well, and you can also report a suspected scheme to us so it is on record.

• KPDN e-Aduan portal: e-aduan.kpdn.gov.my.
• KPDN toll-free line: 1-800-886-800.
• National Consumer Complaints Centre (NCCC).
• The nearest KPDN state office.

The bottom line

Act 500, the Direct Sales and Anti-Pyramid Scheme Act 1993, amended in 2011 and enforced by KPDN, does two things: it licenses legitimate direct selling through the AJL, and it makes pyramid schemes a crime under Section 27B. The line between the two is always the same: income from real product sales is legal; income from recruitment fees is a criminal pyramid.

You do not need to memorise the statute to use it. Confirm a company's AJL on KPDN's licence list, apply the money-source test, and report anything that fails. The fastest start is to check the company in our directory before you pay, join, or recruit. This page is informational and not legal advice; always verify a company's current licence status and the exact wording of Act 500 with KPDN, or consult a qualified lawyer.