In First, Israel Police Admit Crime Syndicates Are Behind Binary Options Industry

The crackdown has begun, but enforcement is difficult

A burgeoning binary options market in Israel?
Haaretz

Israel’s police admitted for the first time ever on Wednesday that the country’s large binary trading industry is backed by criminal organizations and that authorities have begun criminal investigations.

“In recent years the phenomenon has turned into a monster. There has been a massive movement of criminal elements that gravitate from one field to another and have now come to this,” Chief Superintendent Rafi Biton told the Knesset as it debated legislation that would effectively shut down the industry by banning the sale of the financial products overseas.

Binary options involve placing a bet on whether the value of a financial asset – a currency, commodity or stock – will rise or fall in a fixed time frame, sometimes as short as a minute. Their sale to Israelis was banned in April last year by the Israel Securities Authority, but it has lacked the authority to stop Israeli-based companies from selling the products overseas. The new law would give it broader authority.

The securities authority, which until now has taken the lead in cracking down on binary options, regards them more like gambling than investing because the broker is far more likely to profit than the investor and no knowledge of the markets is required.

Biton agreed with that characterization. “It’s true that there are some countries that allow activities like this, like they allow prostitution, drugs, etc. But in Israel gambling isn’t permitted,” he said.

He told the Knesset Reform Committee, which is debating the legislation, that the police had now become more involved in investigating binary options traders, sharing information with Israeli regulators and with foreign governments with the aim of creating enough intelligence to pursue key figures.

Media reports last month said that a least 12 figures in the binary options industry were under police investigation or have been referred to the state prosecutor for possible indictments. But Biton conceded that investigating the industry is difficult.

“It’s tremendously difficult to assemble enough evidence for filing an indictment. They establish companies in countries where the law allows them to, and the servers they use are largely not in Israel,” Biton explained. “The victims are in Arab and other countries where it is difficult to obtain testimonies.”

He also cited anecdotal evidence that binary traders only hire employees after they have taken polygraph tests that root out job candidates likely to go to the police or other authorities to reveal practices. He said former police officers who have sought jobs were automatically turned down.

Closing down the industry will eliminate thousands of jobs in Israel, but lawmakers said there wasn’t a choice. “The phenomenon has to come to an end,” said Rachel Azaria (Kulanu), the committee’s chairwoman.

“It’s causing huge damage to Israel’s image in the world,” she said. “We’ve been shown that the problem is bigger and more significant than we thought, an industry that turns over billions of dollars by exploiting clients and employees.”