Is Israel becoming a promised land of impunity for crooks and fraudsters?

Is Israel becoming a promised land of impunity for crooks and fraudsters?

Israel’s law enforcement bodies are not cooperating with their foreign counterparts in tackling financial fraud. Are they ‘only’ spectacularly incompetent, or something even worse?

Israel isn’t just a sanctuary for the world’s Jewish victims of persecution, it has also become a haven for financial fraudsters. Dealers in binary options and the like find law enforcement officers who are lenient or complicit, legislators who champion the illegal practice, and tax policies that encourage such conduct. Since Israel is a close ally of the US, it is unlikely that it will face sanctions from foreign governments, so it is up to Israel itself to clean its own house. Until it does so, it will have a welcome mat out for both homegrown and foreign fraudsters.

by Simona Weinglass and David Horovitz, Times of Israel

On a recent trip abroad, The Times of Israel spoke with law enforcement sources who confirmed what we have long suspected but preferred not to believe. While law enforcement bodies overseas are devoting considerable effort and resources to tackling binary options, forex, cryptocurrency and other financial fraud emanating from Israel, Israeli police and other law enforcement bodies are not cooperating effectively with these efforts, and at times are actively stonewalling them.

Requests from overseas for help in bringing binary options operatives to justice, for example, are met with an exceedingly slow and partial response, and in some cases with no response at all, the Times of Israel was told. The assertion that “we outlawed binary options” is frequently voiced by Israeli officials, we were told by overseas law enforcement personnel, as though the fact that Israel passed a law last October banning this particular form of fraud means there is no need to bring its many thousands of perpetrators to justice.

Over the last decade, Israel has become a global hub of investment scams, employing more than 10,000 citizens — many of them new immigrants and foreign-language speakers — in boiler rooms throughout the country, selling fraudulent binary options, forex, CFDs (contracts for differences) and cryptocurrency investments over the phone and internet to people abroad. Victims are lured into investments under false pretenses, and the vast majority lose their money. When the victim protests, the “broker” more often than not disappears with the money. Binary options fraud alone was estimated to be earning between $5 billion and $10 billion a year before it was banned by a Knesset law that took effect on January 26 of this year. Some binary options operatives have simply ignored the ban, continuing to offer the product from Israel, while others now sell fraudulent forex or cryptocurrency investments, and still others have moved their operations abroad to countries including Russia, Ukraine, Philippines, Panama, Poland, Albania, Bulgaria, Cyprus and Serbia.

What could possess Israel, a tiny country of fewer than 9 million people that is deeply dependent on trade, diplomatic and military ties with Western countries, to stonewall its allies’ efforts to thwart and bring to justice the Israeli criminals who are defrauding these countries’ citizens? In fact, shouldn’t Israel be grateful for any help it can get in tackling what a senior Israel Police officer has acknowledged is its escalating organized crime problem?

Police Superintendent Gabi Biton at an August 2, 2017, Knesset panel devoted to a proposed law to ban Israel’s binary options industry. (The law passed in October.) Biton told the panel that organized crime in Israel had grown to “monstrous proportions” as a result of online investment fraud. (Simona Weinglass/Times of Israel)

The overseas law enforcement sources with whom The Times of Israel spoke are frankly dumbfounded by the abiding extent of Israeli noncooperation, and cannot find an acceptable explanation for it. Arresting the guilty parties, for instance, in the binary options fraud — which is documented to have pushed vast numbers of victims worldwide into financial crisis and even led to cases of suicide — should be “like shooting fish in a barrel” for Israeli police, The Times of Israel was told. And yet not a single binary options fraudster has ever been indicted by Israel.

It has required the direct participation of the FBI for raids to be mounted on alleged key players here. What should be a straightforward process for overseas victims of Israeli-based fraud to file criminal complaints here has been rendered a near-impossible bureaucratic morass. And Israeli law enforcement routinely fails to respond, we were told, to even the most specific requests for assistance from overseas law enforcement in bringing alleged criminals to justice.

Experts with whom The Times of Israel has spoken overwhelmingly argue that it is most decidedly not in Israel’s interest to let thousands of financial fraudsters off the hook while obstructing foreign governments’ efforts to prosecute them. They offered two possible explanations for why this might nevertheless be happening.

Incompetence?

The first and more charitable explanation is incompetence. According to this explanation, Israeli law enforcement may have good intentions, but due to lack of funding and neglect over many years, the police and other law enforcement bodies here have deteriorated to a point where they barely tackle crime at all. While the streets in Israel are relatively safe, cases requiring complex investigations, or even simple investigations, tend to go unsolved and unprosecuted. Only one in five suspected criminals is prosecuted in Israel, compared to three in five in other developed countries, according to a recent study by Israel’s Finance Ministry.

The Times of Israel has heard from countless Israeli victims of crimes large and small, in all manner of fields, who received a letter several months after filing a police complaint that their case had been closed because “the perpetrator could not be identified,” or because there was a “lack of interest to the public.”

For instance, the Times of Israel recently spoke to a prominent political figure who received death threats over her political views and sought help from the police. “Sorry,” the police told her, “we couldn’t identify the perpetrator.”

Another example: Activists claim that police inaction has led to Israel becoming a haven for pedophiles from around the world. “The criminal justice system is dysfunctional and broken on every level. With rare exceptions, it takes 6-24 months (if ever) from a credible report of child sexual abuse until an arrest,” Tzviki Fleishman, an activist for the ultra-Orthodox organization Lo Tishtok, told The Times of Israel. “Until that point, the suspect is generally under no restrictions or monitoring and could abuse other children.”

Back in the realm of financial fraud, Nimrod Assif, an Israeli lawyer for forex and binary options victims, described a recent visit he made to police cybercrime headquarters in Tel Aviv — which he said has been tasked by the national police with investigating binary options fraud — to file a complaint on behalf of several foreign victims of an Israeli binary options firm.

“You’re wasting your time,” Assif said the police officer who took the complaint told him. “The victims are not even in Israel. How do you expect us to investigate this?”

“Besides,” the police officer went on, “how are we supposed to prove that the salespeople were in Israel?” The police officer also told Assif that binary options is a matter of civil law, not criminal law. “It’s like a couple that pays for a wedding and then the wedding hall goes bankrupt,” the police officer reportedly said.

Nimrod Assif (Facebook)

“It is nothing of the kind. It’s fraud,” replied Assif, but the police officer shrugged him off, he said.

To Assif’s surprise, three weeks later he did get a phone call from an Israel Police cyber investigator. “I see you gave us pages of correspondence between the binary options company and the alleged victim,” she said. “Could you have them translated into Hebrew?”

“I realized the police had assigned an investigator to the case who was eminently unqualified for the job,” Assif told The Times of Israel. “What kind of cyber fraud investigator doesn’t know how to read English?”

Regarding Israeli law enforcement hierarchies’ failure to cooperate with their foreign counterparts, Assif believes this is because they are under-resourced and out of their depth.

“These cases are hard,” he said. “Every time I want to take legal action against one of these binary options or forex companies, I have to conduct a whole investigation to figure out who the actual person is behind layers of false fronts and shell companies. It is obvious to me that an Israeli police investigator who can’t even read English is going to drown in this material.”

Corruption?

Some observers of Israeli law enforcement, however, have a different and less charitable explanation for the fecklessness in the battle against financial fraud: They fear that corruption may have penetrated Israel’s law enforcement hierarchies.

Ronen Bar-El, an economics professor at Israel’s Open University and a rare critic prepared to speak openly, told The Times of Israel why he has concerns that this may be the case.

“Let me tell you a story that seems unconnected but is very much connected. I know a woman who works in a bank. One day a customer came in accompanied by a loan shark. The loan shark sat down next to the customer and spoke on his behalf as if he were his lawyer. He said, ‘Listen, this person owes me money and we need you to write off his debt so he has enough money to pay me.’” The loan shark added menacingly, ‘If you don’t do it, something could happen to your family.’ The woman went to the bank manager and told him about the threat. She said she felt scared. The bank manager said, ‘Fine, do what he asks.’”

Ronen Bar-el (Facebook)

Bar-El told The Times of Israel that he then asked the woman the obvious question: “And what about the police? Why didn’t you just go to the police?”

“The bank manager knows from experience it is no use calling them,” she replied.

While there have been several highly publicized cases of Israeli police taking money from organized crime, the phenomenon, to the extent that it exists, is likely to be under-reported, said Bar-El, since corrupt police are unlikely to investigate themselves.

According to Transparency International’s 2013 Global Corruption Report, 51 percent of Israelis surveyed believe that Israeli police are corrupt or extremely corrupt. (The 2013 survey is the most recent one that includes data for Israel.)

Public perception of corruption is influenced by many factors and may or may not correlate with a country’s actual level of corruption. Nevertheless, the Israeli figure puts Israel in the company of much less developed countries like Albania (58 percent), Chile (53 percent), the Czech Republic (54 percent), Latvia (47 percent) and Romania (54 percent). By contrast, 5 percent of respondents in Finland thought their police were corrupt or extremely corrupt, 13 percent thought so in Switzerland and 32 percent thought so in the United Kingdom. At the other extreme, 90 percent of Mexican respondents believed their police to be corrupt or extremely corrupt while 89 percent of Russians thought so.

The Times of Israel has come across several cops and retired cops with relatives in the binary options business, and retired cops who work for the industry themselves as polygraph examiners or providers of security services. A former income-tax commissioner, Tali Yaron-Eldar, was a founder of Israel’s first binary options company, Etrader, which later spun off the company AnyOption. Are such connections harnessed to ensure that offenders are not investigated and brought to justice? We have no definitive answer.

The Times of Israel has been told of several instances in which the police did carry out major investigations into binary options fraudsters, but the investigations have not led to indictments to date because the state prosecutor has failed to act upon them. Is this a consequence of corruption in the state prosecution, as was alleged to The Times of Israel by one source familiar with these investigations, or is there a less damning explanation? Again, we have no definitive answer at this stage.

The law banning binary options was only introduced after The Times of Israel detailed the fraud to both the Israel Securities Authority and to the Knesset State Control Committee, and after Times of Israel reporting prompted an outcry from overseas law enforcement authorities. But the initial text of the legislation, which would have banned not only the entire binary options industry, but also forex and CFD companies that operate from Israel without a license, was watered down in a nontransparent process that involved consultations with people working in the widely fraudulent industry itself, and created a loophole through which fraudulent binary options companies could simply tweak the product they offer and continue to operate. What conclusion should one draw from that secretive process? Readers can decide for themselves.

Kulanu MK Rachel Azaria (Miriam Alster/Flash90)

Even the watered down law, it should be further noted, was vociferously protested by a leading Israeli legislator: Last August, shortly after the Knesset Reforms committee approved the final text of the law for its second and third readings in the Knesset, then-coalition chair MK David Bitan (Likud) walked into the committee room at the last minute, attempted to reopen the discussion and weaken the law still further, and then threatened to delay its passage. “I have had it up to here with the law against money laundering,” Bitan said. “You can’t even do anything in this country anymore.” The committee’s chair, MK Rachel Azaria (Kulanu), told Bitan the text was final, would not be changed, and should be brought to the Knesset urgently.

In the course of their conversation, Bitan told Azaria and other government officials that a family prominently involved in binary options is among the leaders of the Georgian faction of the Likud Central Committee, and that he needs their support to maintain his position in the Likud party. Not long after this conversation, Bitan was arrested by Israeli police on suspicion of taking bribes from organized crime figures unrelated to the binary options industry. He then resigned as coalition chair to concentrate on clearing his name.

What does that incident say about the seeping of corruption into the political echelons? Again, readers can judge. It might be recalled in this context, however, that last year, a Knesset member estimated to The Times of Israel that three-quarters of the 120 parliamentarians are in thrall to special interest groups, whose lobbyists and PR flaks crowd the halls of the Knesset, drowning out the public interest.

According to the Transparency International Global Corruption report cited above, 53 percent of Israelis believe the Knesset is corrupt or extremely corrupt, 60 percent feel public officials and civil servants are corrupt, and 79 percent of Israelis believe that the country’s political parties are corrupt or extremely corrupt. And those are figures from five years ago.

The interface between financial fraudsters and leading politicians and public figures is sometimes open for all to see. A case in point: Three years ago, the Tel Aviv Great Synagogue held a festive event to mark its 90th anniversary and its restoration. Among the dignitaries taking part were Knesset Speaker Yuli Edelstein, the aforementioned Bitan, MK Oren Hazan, Science and Technology Minister Ofir Akunis, Minister for Social Equality Gila Gamliel, Tel Aviv Mayor Ron Huldai, Tel Aviv Chief Rabbi Yisrael Meir Lau, former Tel Aviv district police commander Gabi Last and other senior serving police officers.

Four Torah scrolls had been donated, and a traditional ceremony was held in which dignitaries completed the writing of the final letters of the scrolls, after which a joyous crowd danced with the Torahs through the streets and into the synagogue.

A Torah scroll ceremony near Tel Aviv’s Great Synagogue sponsored by binary options firm SpotOption, August 24, 2015 (Facebook screenshot)

In an irony that was likely lost on most members of the crowd, the Torah scrolls — inscribed with Judaism’s most sacred text, including the admonition that proscribes stealing — were prominently displayed in front of the SpotOption logo. SpotOption was at the heart of Israel’s binary options industry, as the supplier of online trading platforms. According to an FBI affidavit issued last year, SpotOption allegedly “worked together” with its client firms “to increase the likelihood that particular customers would lose money on trades” and to “insure that clients who were having a high success rate of winning trades would lose future trades.” SpotOption, the affidavit further alleges, engaged in “the adjustment of customer risk settings” and “the manipulation of the option returns.”

Did the legislators at the event know from whose largesse the synagogue was benefiting? To the best of our information, at least some of them did. Did they sit alongside and mingle at that event with central figures in the industry? Yes. Have some of those central figures met with very senior Israeli politicians over the years? Indeed, they have. Have other causes close to the hearts of senior Israeli public figures benefited from donations from central figures in the world of financial fraud? Again, the answer is yes. Does this prove that those legislators and public figures have been corrupted? It does not. Does it show that allegedly ill-gotten gains have afforded alleged financial fraudsters atypical access to senior Israeli legislators and public officials? Yes, it does.

MK David Bitan at a Torah scroll dedication ceremony sponsored, among others, by binary options firm SpotOption, August 24, 2015 (Facebook screenshot)

When the government gave hundreds of thousands of shekels of taxpayers’ money — a negligible sum for the binary options industry — in grants in 2014-16 to SpotOption to expand into China, the ministers who approved the payments were taking funds from the public purse to enrich a fraud-blighted industry. Why would they have done that when the Economy Ministry that awarded the grants — and that continued the payments even after the Prime Minister’s Office called for the entire binary options industry to be closed down — had been warned in advance about the alleged illegalities? Has that money since been returned? Not as far as is known. Have the payments been investigated by the ministry’s comptroller or the State Comptroller? Again, not as far as is known.

Prompting further concerns about the seepage of corruption into the Israeli legislature is an Israeli tax law, popularly known as the “Milchan law,” that has made Israel, in the words of the official who until recently headed Israel’s own Tax Authority, “one of the world’s most generous tax havens”:

Moshe Asher, former Israel Tax Authority chief (Courtesy)

For the last decade Israel has maintained a tax policy that exempts new immigrants and returning Israelis not only from paying tax for 10 years on income earned abroad (a not-unreasonable incentive to encourage immigration) but also from declaring the sources of that income — a veritable magnet for criminals, encouraging the influx of dirty money. Moshe Asher, who stepped down earlier this year as director of the Israel Tax Authority, told The Times of Israel he tried each year to amend the law, but was unable to secure the necessary support in the Knesset. “We are not meeting the standards of the OECD,” he warned in an interview earlier this year. “Each time we undergo vetting by the OECD this comes up.”

Arnon Milchan (left) and Benjamin Netanyahu at a press conference in the Knesset on March 28, 2005. (Flash90)

Sofa Landver (Yisrael Beteynu), the immigration minister, has publicly opposed changes to the law. Far from supporting his tax authority chief’s efforts, Prime Minister Benjamin Netanyahu has been accused by Israeli police, in one of the corruption investigations against him, of trying to expand the exclusion on tax and reporting of foreign income from 10 years to 20 years, in order to help his billionaire friends. Netanyahu denies wrongdoing in all of the corruption cases for which he is under investigation.

A full 20 years ago, Israel Police was warning of efforts by organized crime syndicates to utilize Israel’s laudable Law of Return, which grants automatic citizenship to anyone with a Jewish grandparent, in order to obtain citizenship and pour in dirty money. Officers warned that billions were flowing in, and that the money was being utilized by the criminals, notably from the former Soviet Union, to gain influence in the banking system, in the media and communications industries, in real estate, and even in politics. One high-profile such instance was the case of Gregory Lerner (Zvi Ben-Ami), a convicted fraudster and money launderer. Another was the case of Arcadi Gaydamak, briefly a celebrity and the owner of the Beitar Jerusalem soccer club, who ran for mayor of Jerusalem 10 years ago before leaving the country amid financial scandal and then being jailed in France in 2015 for tax evasion.

Nothing strategic has been done in 20 years to address the concerns. (Israel passed an anti-money laundering law in 2000, but criminals have found myriad ways to circumvent it). Indeed, as a former top FBI officer told The Times of Israel earlier this year, criminals are attracted to Israel because of its “lax law enforcement and corruption.”

Police in Israel and the United States have described fraudulent forex and binary options activity as an example of “transnational organized crime” stemming from the cross-pollination of local Israeli criminals with crime syndicates from the former Soviet Union, France and elsewhere. Is mere incompetence a credible explanation for the insistent failure to face up to criminal forces that have exploited and targeted Israel for 20 years? Or does that strategic failure point to complicity?

A Torah dedication ceremony in Tel Aviv sponsored, among others, by binary options firm SpotOption, August 24, 2015 (Photo: Israel Bardugo)

Land of impunity

The Times of Israel spoke to several officials in the Justice Ministry, police and other law enforcement bodies about whether corruption has penetrated their hierarchies. All insisted their own place of work was clean; some pointed a concerned finger at others.

One source argued that financial fraud was incredibly complicated to investigate (true) and relatively minor (false) — and therefore not worth the necessary resources. “It’s a matter of priorities,” said this source. For example, “These binary options investigations are very complex and the crime is relatively small. Why take a team that could be investigating the prime minister’s corruption and have them investigate a group of French immigrants in an apartment somewhere?”

Another source said it was the responsibility of the Justice Ministry to direct the police to make investigations of financial fraud a priority, and that so far it had failed to do so.

A third source said material from the police languished unconscionably with the state prosecutor.

None of those with whom we spoke could explain the insistent refusal to cooperate with overseas law enforcement, the failure to effectively enforce the law banning binary options, or the refusal to amend legislation that makes life easy for immigrants with dirty money.

Potentially, Israel could face sanctions from foreign governments for an abiding failure to cooperate with overseas law enforcement bodies on binary options and other financial fraud investigations. But US experts told The Times of Israel that this is exceedingly unlikely given the strong political alliance between Israel and the United States. Rather, they said, Israel will have to find the internal will to clean up its own stables.

Despite having stolen billions of dollars from millions of victims worldwide, Israel’s binary options, forex and cryptocurrency fraudsters have to date enjoyed total impunity here. This sends a signal to both homegrown and foreign fraudsters that Israel is a hospitable place to do business. Over time, this signal will cause Israel’s criminal classes to grow in size and influence, and make life increasingly unpleasant for everyone else.

“If Israelis don’t reverse the trajectory of corruption,” Ronen Bar-El told The Times of Israel, “crime families will get even stronger and their long arms will reach into every corner — including the government, the Knesset and the police.”

Eventually, he warned, “if a country does not reverse the corruption, it ends up like Brazil or Russia.”

Note: The Times of Israel’s dealings with Israel’s law enforcement authorities

As it has sought to expose corruption, The Times of Israel’s interactions with some of Israel’s various law enforcement and legislative hierarchies have unfolded as follows in the past two years:

Israel Securities Authority: The ISA has proved approachable; its key officials were available to speak to reporters. It has appeared to be concerned by criminality, and it played the key role in drafting last year’s legislation outlawing binary options.

The State Attorney: The State Attorney’s office has proven unhelpful. The former deputy state attorney (financial enforcement), whose responsibilities include tackling money laundering, initially agreed to answer reporters’ questions about financial fraud and his office’s efforts, or lack thereof, to tackle it, but was then bizarrely barred from doing so, he said, by the Justice Ministry’s spokesman.

The Israel Tax Authority: Under its former director Moshe Asher, the Authority was approachable and forthcoming with reporters, and was willing to detail its unsuccessful efforts to close Israel’s money laundering loopholes.

MKs, ministers and the Prime Minister’s Office: Knesset members Karine Elharrar (Yesh Atid) and Rachel Azaria (Kulanu) were central to the passage of the binary options law. The prime minister and his office backed the legislation, and issued an important statement in late 2016 urging that the entire binary options industry be closed down worldwide.

Israel Police: With a handful of notable exceptions, the Israel Police was and remains strikingly unhelpful and unavailable to reporters trying to obtain information about enforcement efforts concerning financial fraud. Senior police officers, from the police commissioner on down, refuse to give interviews on the issue.


Related reading:

Corruption permeates Israel under Netanyahu, goes back decades

Israel finally ends $10 billion binary options scam – or does it?

Israeli kingpins behind “monstrous” international financial scam “binary operations”