Israel Bans Binary Options Industry That Defrauded Millions

The new law forbids Israeli companies from marketing binary options and gives them three months to shut down their work

Illustration: Binary options.

The Knesset passed a law Monday unanimously that effectively wipes out the controversial Israel-based binary options industry that has defrauded millions of people, most of them foreign clients.

The law passed despite heavy pressure exerted by the companies themselves, whose lobbyists tried to present their work as a part of the broader high-tech sector in Israel, rather than a cover for fraud and exploitation of innocent customers, as the Israeli Securities Authority had argued in pushing the Knesset to take action.

“Today we are removing the disgrace,” said MK Rachel Azaria (Kulanu) who sponsored the bill. “When we vote for this law we know that we’re doing something good.”

The new law forbids Israeli companies from marketing binary options and gives them three months to shut down their work. All 53 Knesset members present voted in favor of the law which makes working in the industry punishable by up to two years in prison.

Binary options are basically bets marketed to customers as potentially profitable short-term investments on the performance of a specific commodity, currency or share at a given time. Through price manipulations, refusal to pay and other scams, firms trading in binary options conned the vast majority of customers out of most of their money.

Much of the global binary options industry was based in Israel, which was damaging the reputation of the country and its securities industry. Its critics argued the field was even worse than gambling – which is illegal in Israel – because it presented what they were doing as a financial investment that deceived customers into thinking they were involved in a legitimate activity.

To act against Israeli companies that were allegedly fleecing foreign customers, the securities authority needed its enforcement powers expanded. It drafted the bill and persuaded the government to back it, and got the tax authority on board as well, so that the bill could define marketing binary options as a source offense under money laundering laws.

This legislation follows an earlier law that banned the marketing of binary options to Israelis that went into effect a year-and-a-half ago. But the Israeli Securities Authority was not satisfied with just protecting Israeli clients, especially since the authority was being flooded with complaints from foreign law enforcement agencies about the damage being done by Israeli companies in the field.

At its height, the industry was generating revenues of billions of dollars annually. The huge sums of money also attracted organized crime elements, police said.

The law’s drafters were careful to eliminate any loopholes that would allow companies to claim that they are only providing services – such as clearing transactions – for binary options firms. Officials say that numerous Israeli-owned binary options firms have already begun moving to countries where the activity has not yet been banned.