# Affiliate Referral Legal

> SKILL 68: Affiliate & Referral Program Compliance

- Skill: `nickgallick/affiliate-referral-legal` (Agent Skill)
- Install (CLI): `npx skillmds@latest add nickgallick/affiliate-referral-legal`
- Raw SKILL.md: https://api.skillmd.com/api/skills/nickgallick/affiliate-referral-legal/raw
- Safety review: pending (external: skill-scanner PASS, skillspector PASS)
- Works with: Claude Code, Claude.ai, OpenAI Codex
- Category: Coding & Dev Tools
- Author: nickgallick (https://skillmd.com/u/nickgallick)
- Updated: 2026-09-21
- Page: https://skillmd.com/skills/nickgallick/affiliate-referral-legal

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# SKILL 68: Affiliate & Referral Program Compliance

## Purpose
Run affiliate and referral programs that comply with FTC endorsement rules, state restrictions, anti-pyramid-scheme laws, and tax reporting requirements.

## State-by-State Legality
- **Most states**: referral bonuses are legal as a standard marketing expense
- **Iowa**: no specific prohibition on referral bonuses for skill-based competitions ✅
- **New York**: DFS referral programs permitted under NY DFS rules ✅
- **Washington**: online gambling is a felony → referral programs for gambling platforms also illegal ❌ (geo-block WA anyway)
- **Gambling context**: some states restrict referral programs for gambling platforms — not a concern if your platform is classified as skill-based

## FTC Compliance — The 2023 Endorsement Guides (16 C.F.R. Part 255)

### What Triggers Disclosure
- **Any compensation** to anyone who promotes your platform: free access, tokens, referral bonuses, affiliate commissions, discounts, even gifts
- "Compensation" is broad — if they get ANYTHING for promoting you, they must disclose

### What Disclosure Looks Like
- **Clear and conspicuous**: visible without clicking "more" or scrolling
- **Beginning of content**: `#ad` or `#sponsored` at the START of the post, not buried at the end
- **Same medium**: if video → verbal disclosure in the video; if tweet → in the tweet text; if blog post → at the beginning
- **NOT acceptable**: buried hashtags, disclosure only in bio, disclosure in description of a video without verbal disclosure

### Platform Liability
- You are LIABLE for affiliates' false claims about your platform IF you knew or should have known
- **Mitigation**: 
  1. Affiliate agreement REQUIRES FTC-compliant disclosure language
  2. Affiliate agreement PROHIBITS false claims about your platform
  3. Monitor affiliate content periodically for compliance
  4. Maintain termination rights for non-compliant affiliates
  5. Document your monitoring program

### Affiliate Agreement Required Provisions
> "Affiliate represents that all promotional content will include a clear and conspicuous disclosure of the affiliate relationship in compliance with FTC Endorsement Guides (16 C.F.R. Part 255). Acceptable disclosure language: '#ad', '#sponsored', or 'I earn a bonus when you sign up using my link.' Affiliate shall not make any false or misleading claims about the Platform. Platform may terminate this agreement immediately for any non-compliant promotion."

## Anti-Pyramid Scheme Analysis

### Legal Referral Program (Safe)
- One-time bonus for introducing a new user who registers and makes a qualifying transaction
- Bonus is paid ONCE per referred user
- Economic structure: marketing cost to acquire a user
- Example: "Refer a friend — you each get $20 when they deposit $50"

### Illegal Pyramid Scheme (Avoid)
- Ongoing income from recruiting "downline" members (income from recruits' recruits)
- Multi-level: you get a bonus for YOUR referral's referrals (two+ levels)
- Primary income comes from recruitment, not product use

### The Bright Line
**Keep it simple**: flat one-time bonus for one successful referral. One level only. No ongoing income from referred users' activity. This is legal everywhere and cannot be characterized as a pyramid scheme.

**Never implement**: multi-level referral programs, ongoing percentage of referred users' trading fees, "build your downline" language.

## Bonus Structures — What's Legal

| Structure | Legal Status | Notes |
|-----------|------------|-------|
| Flat bonus for registering a new user | ✅ Legal | Simple, clean |
| Bonus for referring a user who makes first deposit | ✅ Legal | Most common structure |
| Bonus for referring user + bonus when that user refers someone | ❌ Pyramid risk | Two-level = pyramid territory |
| Ongoing % of referred user's trading fees | ❌ Pyramid risk | Ongoing income from recruit |
| Tiered bonus (refer 10 = bigger bonus) | ✅ Legal | Volume discount on marketing, not MLM |

## Tax Implications

### For the Recipient (Referred User / Affiliate)
- Referral bonus received: ordinary income
- 1099-MISC required if total bonuses >$600 in a calendar year
- Crypto bonuses: ordinary income at fair market value on date of receipt

### For the Platform
- Referral bonuses: marketing expense (deductible under IRC §162)
- Must collect W-9 from any affiliate receiving >$600/year

## Monitoring Requirements
- Log all affiliate promotional content URLs
- Spot check for FTC disclosure compliance monthly
- Document: date checked, content reviewed, compliance status, any corrective action
- This documentation is your defense if FTC investigates an affiliate's non-compliant promotion

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*This is legal research and intelligence, not legal advice. Consult qualified legal counsel before taking action.*