Binary options fraud is tied to transnational organized crime, a former senior FBI official told The Times of Israel, and some of the money stolen from victims may be funding even “darker” criminal actors such as kleptocratic regimes, human traffickers, arms traffickers and terrorists.
Speaking from his office in Washington, DC, Joseph Campbell, aformer assistant director of the Criminal Investigative Division of the FBI, who oversaw 6,000 special agents including operations of the Internet Crime Complaint Center until August 2016, said transnational organized crime networks (mafias from all over the world working in collaboration) have been attracted to Israel because “they identify corruption and lax law enforcement.”
He said that an FBI team’s visit to binary options firm SpotOption in Israel earlier this month indicates to him that the FBI is taking Israel-based binary options fraud “very seriously,” and that Israel must strengthen its law enforcement and regulation of businesses if it wants to avoid becoming increasingly afflicted by organized crime as well as political corruption.
Campbell also said the FBI team’s visit to Israel, in which it also questioned Yukom Communications owner Yossi Herzog, was not a step that was taken lightly, but one that would have been carefully prepared in advance in coordination with Israeli authorities.
“When I was at the FBI, we had robust contacts with the Shin Bet, the Mossad, the IDF and Israeli police,” Campbell said. “The raid was coordinated by the US State Department and done in accordance with Israeli legal processes. There is no way the United States was working unilaterally.”
In fact, said Campbell, based on his knowledge of how the FBI works, the FBI would have established a joint task force with Israeli police and conducted a lengthy, cooperative investigation to establish a probable cause for sending agents to SpotOption, questioning Herzog and organizing other work the agents are carrying out in Israel.
“The FBI and Israeli authorities are working together,” he said. “The fact that the FBI sent a team to Israel means that Israeli and US authorities have been sharing information for some time, weaving the threads together, analyzing the evidence, and making sure the standards of probable cause are achieved.”
Asked about statements in the Hebrew press made by SpotOption’s Pini Peter and Yukom’s Herzog in which Peter said “this wasn’t a raid, they just came to gather some documents” (Herzog’s lawyers said that his questioning by the FBI was part of a general information-gathering process into the binary options industry and did not specifically target him), Campbell replied: “Those are self-serving statements. Of course everyone is innocent until proven guilty but the suspects have no way of knowing how extensive or wide-ranging the investigation is.”
Added Campbell, “Based on my experience, if the FBI is expending resources, this is a significant investigation for them.”
Many American victims
Asked why the FBI is expending significant resources on investigating binary options fraud, Campbell said it is most likely because there have been a lot of victims in the United States.
“I assume there were a lot of complaints though the Internet Crime Complaints Center. The FBI knit the information together, followed the trail, looked at the types of language used on different websites and at the scenarios used to defraud victims. They also followed the money — who are the binary options suspects affiliated with? Is the money being used for terrorism, human trafficking, narcotics, weapons?”
After conducting this analysis, the FBI decided that tackling binary options fraud would be a priority.
Campbell said that based on his own research, part of the binary options industry is run by organized crime, while some companies are run by individuals who are not connected to crime organizations. He said the very large amounts of cash involved have attracted not just local criminals, but transnational organized crime (networks of mafias from all over the world working in collaboration) who engage in “international smurfing,” and laundering, of funds. (International smurfing is a money-laundering technique in which dirty funds are divided into smaller amounts and deposited in various bank accounts internationally.)
He said the second stage of the FBI’s investigation will involve a worldwide search for the money stolen and seizure of the criminals’ assets.
“There are ways of tracing the money; we can see what assets were bought with the money and where they were purchased. The United States has international treaties with many countries and we can seize some of those assets.”
Corruption and lax law enforcement
Asked which organized crime groups benefit from binary options fraud, Campbell declined to cite specifics but suggested looking at the Panama Papers, where many binary options companies appear, to get a sense of the nationalities of some of the beneficial owners.
Asked why international criminals might be attracted to Israel. Campbell said “they identify corruption and lax law enforcement. They’re very savvy. They identify the places where they can operate and where they’re unlikely to be identified. That’s why you had a lot of hacking coming from Eastern Europe and 419 scams from Nigeria.”
A 419 or an advance-fee scam is a type of fraud where the perpetrator offers the victim a share of a large sum of money if the victim advances some money ostensibly needed in order to retrieve the large sum. The number 419 refers to the section of the Nigerian penal code that concerns fraud.
Campbell warned that to the extent that massive fraud goes unchecked, the revenue may be used to perpetrate even darker crimes.
“When we speak of transnational organized crime we are speaking of money going to kleptocratic regimes, human trafficking, arms trafficking and terror financing. Also, when you have this unregulated industry generating a lot of money, it leads to public corruption. The availability of cash attracts a lot of bad actors and this eats away at good governance.”
Campbell suggested that if Israel wants to avoid becoming an ever-greater magnet for organized crime and corruption, the country may need to implement reforms.
“This may mean that you need increased development of regulations in Israel, consumer rights, as well as civil actions brought against fraudulent actors.”
He cited the US Bank Secrecy Act as a law Israel may want to adopt, as well as state and federal anti-corruption laws.
In general, he said, Israel should exercise better oversight over its business sector and comply with international anti-money laundering standards, using the guidelines of the FATF, an international anti-money laundering body Israel seeks to join, as a template. In addition, said Campbell, Israel needs to make sure its fintech companies comply with existing anti-money laundering rules.
Asked what would happen if Israel fails to crack down on the layer of fraud that produced the binary options blight, its spin-offs and related scams, Campbell replied, “If Israel does not crack down, there will be more victims around the world, and the FBI will have to help them more.”
Asked if he could think of an example where a country that was afflicted by organized crime and corruption had managed to reverse course, Campbell cited Brazil’s Petrobas case, a massive corruption scandal involving Brazilian politicians and the country’s national oil company, Petrobras.
“The Petrobas scandal involved a huge amount of corruption that destroyed Brazil’s economy. It impacted people and in 2014 Brazil passed a Clean Companies Act. Now you see prosecutors going after corrupt individuals. It’s not perfect, not an overnight fix, but it has to be a national effort.”
Campbell said that with the right laws, good leadership, the support of citizens and support of individuals at the higher levels of government, a country can reverse the course of crime and corruption.
“It takes a national collective will. Israel is capable of it.”
Campbell said he would also like to see Israel’s law-enforcement authorities help recover the funds stolen from binary options victims.
“It’s sad, these are people like you and me, individuals who lived their lives the right way. They were trying to increase their assets and were victimized by bad actors. Israeli authorities need to take that into account and help people recoup their life savings.”
The Knesset law banning binary options — which was passed in October after 19 months of Times of Israel reporting on a decade-old scam in which thousands of Israelis defrauded billions from victims worldwide — came into effect this weekend. To date, however, not a single binary options operative has ever been convicted in Israel.
Even in cases where companies were documented to have pushed victims to take their lives, Israeli authorities have to date failed to act. Furthermore, the law banning binary options was constricted, amid pressure from the industry itself, and in its final form no longer explicitly outlaws related scams.
Campbell currently works for Navigant Consulting, helping law firms to trace funds in international money-laundering cases and helping financial institutions comply with anti-money laundering and know-your-customer laws and regulations.