A Payis lottery kiosk
A Payis lottery kiosk: No more money-laundering, thank you. Photo by Alon Ron
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After years of scathing criticism from the State Comptroller over how Mifal Hapayis national lottery is run, the Finance Ministry is taking charge. The treasury and lottery have reached agreement on a new operating license, which radically reforms the relationship between the state and the national lottery.

Mifal Hapayis has a near monopoly on legal gambling in Israel, and enjoys revenues of about NIS 5 billion a year. But there has been limited public supervision of its management over the years, except for occasional reports from the State Comptroller.

After one such report in 2007, State Comptroller Micha Lindenstrauss called to consider ending the tenure of then Payis director general Shaul Sutnik. But thanks to the state's lack of control over Mifal Hapayis, Sutnik did not leave for another four years.

Accountant general Michal Abadi-Boiangiu oversees the new license, which requires government approval of every senior appointment at the lottery. It grants the Finance Ministry broad oversight, which is already being put into practice. The accountant general's office.

The cabinet decided this week to establish an authority to supervise legal gambling in Israel, at Mifal Hapayis and the other legal gambling body: Toto - Israel Council for Sports Gambling.

The new license also sets out how the money the lottery raises will be distributed - possibly the most important issue involving Mifal Hapayis. Today the money is distributed to various projects in local authorities. Every year Mifal Hapayis distributes 46% of its "profits" or 10% of revenues - whichever is the higher - for building classrooms and day-care centers. Another 46% goes to local authorities and 7.5% is distributed to other projects.

As to which local authorities will receive money in any given year, the new license requires Mifal Hapayis to publish criteria for allocating the funds. These criteria will be set by a public committee, headed by former Supreme Court President Meir Shamgar.

Preventing money laundering

The lottery will also have to say how much it actually allocated - and to whom. It willl also have to publish procedures as to how it will allocate all its other funds, including those given for culture and art, scholarships and various other public projects.

A part of the money allocated by the lottery to local authorities never reaches its intended targets, it was revealed recently. The unused sum totals NIS 2.7 billion. The money is still sitting in Mifal Hapayis' bank accounts because many local authorities have problems in carrying out the approved - and budgeted - projects for various reasons. The treasury has already ordered Mifal Hapayis to prepare a plan as to how to utilize these accumulated funds within two months. The Finance Ministry had thought to appropriate the money for state coffers, but backtracked.

The treasury will also limit the lottery's expenses, including salaries and commissions paid to the agents in charge of selling lottery tickets. Mifal Hapayis spends about 20% of revenues on operating expenses, or about NIS 1 billion a year. The treasury wants to keep such expenses at under 18% of revenues - at about the same NIS 1 billion, even if the lottery's revenues increase significantly. But the treasury's real goal is to force Mifal Hapayis to become more efficient and lower operating expenses.

Agents in charge of marketing and selling lottery tickets collect some 10% of total lottery revenues, and the franchise is considered to be extremely profitable. But despite the large sums involved, there are no clear rules for choosing the franchisees or any supervision of them. The new license places requirements for choosing these agents, including approval by the treasury and a clean bill of health from the police.

Also to be included in the new regime are strict plans to prevent money laundering via the lottery. It seems there are cases where a winning ticket is sold at a premium by the original winner to someone who wishes to hide their income. For example, a wining ticket worth NIS 1 million may be sold to a criminal for NIS 1.1-1.2 million, who then uses it to hide his illegal or unreported income from the authorities. It may cost the criminal a few hundred thousand shekels to launder his money, but this is cheap compared to the taxes due, and easier than providing explanations to the police on how he earned the money in the first place. One of the new requirements to prevent such money laundering will include identifying every lottery ticket purchaser by means of an identity card or other ID.

The new license will also require the appointment of officials to supervise Mifal Hapayis from within, including a legal adviser, internal auditor, CFO and audit committee. All these positions are required of public companies by law, and now Mifal Hapayis will also have to meet such standards. And the treasury will have to approve all these appointments.

The new license also places limits on lottery advertising, such as banning advertising aimed at children and ads that glorify gambling.

Finally, the license grants the Finance Ministry broad powers to act against Mifal Hapayis if it violates the terms, including even revoking the license or cancelling lottery draws.