Israel Securities Authority fines binary options firm — but why is it located in Scotland?
Scottish and Israeli lawmakers call for crackdown on tax havens that allow binary options firms to launder money
Simona Weinglass is an investigative reporter at The Times of Israel.
On November 15, the Israel Securities Authority fined an Israeli binary options company, DGI-Media, as well as its owner Gabriel Gabi Lavie, a total of NIS 500,000 ($129,000), for operating without a license.
The Israel Securities Authority hailed the administrative enforcement action as the first of its kind — meaning the first against an online trading company operating from Israel. But why is the company’s website, DGIMarkets.com, still operating? And why does its web site list a Scottish address?
Until May 26, 2015, online trading companies in Israel were unregulated, but starting last year, those companies targeting Israeli citizens were required to apply for a license from the ISA, which DGI-Media failed to do before the deadline. As part of the ISA’s punishment for operating without a license, the company’s owner and CEO is prohibited from holding a senior position in a regulated company for the next two years.
Netanya-based DGI-Media advertised frequently for both Hebrew-speaking and foreign-language speaking sales representatives to target customers in both Israel and abroad. In a press release, the ISA described the company as having a turnover of $2.5 million per month.
The Israel Securities Authority in April 2016 banned all binary options companies from targeting customers in Israel, however these companies are still free to solicit customers abroad. ISA Chairman Shmuel Hauser has expressed disgust at the activities of Israel’s binary options industry, calling them, quoting the Book of Isaiah, “the destroyers and they that made you waste who shall go forth of you.” He is currently seeking new legislation that will expand his powers to crack down on fraudulent companies that target customers anywhere in the world, not just in Israel.
DGI-Media was not accused of fraud. The Times of Israel asked the Israel Securities Authority if the company was still operating from Israel and whether it had shut down its offices, but the ISA had not replied as of this writing. The company itself was fined NIS 200,000 while Gabriel Lavie was personally fined NIS 300,000.
In July of this year, the British Columbia Securities Authority issued a warning against DGI Market, saying that “we recently became aware of DGI Market and that a British Columbia (BC) resident was able to open a trading account with DGI Market… We urge BC residents to exercise caution when dealing with firms that are not registered to trade or advise in BC.”
The Scottish connection
In July, the company’s website said it was located in Bulgaria. Today, however, the address on the web site had shifted to Scotland.
“D.G.I. Market is a trading name for T.S.I.E. LP, whose registered office is at Unit 500, 17 Union Street, Dundee, DD1 4BG, Scotland, UK,” reads the web site.
David Leask, chief reporter of Scotland’s The Herald, has written a companion piece to this article explaining why many Israeli binary options companies use SLPs, or Scottish Limited Partnerships, a corporate structure whose “owners can remain secret, file no accounts and pay no tax, just as long as, at least on paper, they do no business in the United Kingdom, the union of England, Scotland, Wales and Northern Ireland.” The UK has a similar corporate structure that is favored by over 100 Israeli binary options firms.
Many binary options companies do in fact do business in the UK, but the British government is either unaware of or unconcerned by this fact. At least 30 SLPs provide fronts for binary options websites, Leask reports in The Herald.
SLPs allow “high-risk” and fraudulent Internet purveyors to more easily process credit card payments. When an unregulated, unlicensed Israeli firm has a Scottish shell company that it claims sells electronic equipment, the transaction is much more likely to be approved by Visa and Mastercard. All of this happens algorithmically, with no humans involved. At the human level, punters are more likely to “trust” a company with a Scottish address than one in, say, the British Virgin Islands.
In addition, merchants outside of Europe pay higher transaction fees to process major credit cards. Having a company anywhere in the EU lowers these costs. Reuters recently published an article about a British town whose unemployed residents made money acting as nominee directors for dodgy offshore companies. One man looked himself up one day to learn the company he represented specialized in hardcore porn.
Late last week Scottish National Party MP Roger Mullin called for the UK to ban binary options altogether, as countries like Belgium have done.
“The UK government should follow the lead of other countries and ban binary option operations,” he said in a quote provided to The Times of Israel.
“Masquerading as investment opportunities, binary options are unregulated, unethical ‘gambling’ on financial markets, but where the investor-punters are systematically stripped of all of their funds.”
“That some are now using SLPs to give a smokescreen of legitimacy while hiding the identity of the crooks running such operations, is doubly concerning.”
Mullin said he would contact a minister in the UK government on Monday calling for urgent action.
“Moves are already afoot to address the issue of SLPs, with recent Ministerial responses to my amendments in parliament suggesting we are close to get some UK government action at last. I will be ensuring Ministers are fully aware of these binary option scams which serve to emphasise the need for urgent action.”
Meanwhile Israeli MK Ksenia Svetlova (Zionist Union) called for legislation that would require company formation agents to report their activity.
“Tax havens and the dodgy businesses being incorporated around the world, and now in Scotland as well, must make us all lose sleep, especially when there is money coming from Israel involved,” she said in a statement to The Times of Israel and The Herald.
“Vast sums of money are changing hands, crossing continents clandestinely, and this is because government authorities are not doing enough to expose this activity. It’s clear that the purpose of transferring the money is dubious, otherwise there would be no need for tax havens.”
“This is why I plan to propose a law requiring every lawyer or accountant who offers company formation services to report it — as is customary in some other countries. This is in the interests of all people globally, just as it should be in Israel’s interest.”
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The Times of Israel has been exposing Israel’s fraudulent binary options industry in a series of articles since March, beginning with an article entitled “The Wolves of Tel Aviv,” and has estimated that the industry here numbers over 100 companies, most of which are fraudulent and employ a variety of ruses to steal their clients’ money. These firms lure their victims into making what they are duped into believing will be profitable short-term investments, but in the overwhelming majority of cases the clients wind up losing all or almost all of their money. Thousands of Israelis work in the field, which is estimated to have fleeced billions of dollars from victims all over the world in the past decade.
The Prime Minister’s Office last month condemned the industry’s “unscrupulous practices” and called for it to be outlawed worldwide.
Three weeks ago, ISA chairman Shmuel Hauser told The Times of Israel that consultations had begun on the framing of legislation to bar all Israel-based binary options operations from targeting anybody, anywhere. (Israeli firms are already banned from targeting Israelis.) The consultations have extended to Attorney General Avichai Mandelblit and to the government, he said.
