Israel, where the black market is approximately 25% of GDP and binary options brings in at least $5 billion in revenues per year

We show opinion and research that shows why Israel’s gigantic binary options and online gaming fraud is too large and what the economic effect would be if it went West

Why Israel's FX and binary industry is completely different

A small nation, just under 70 years old, with a population of just 8 million, Israel punches above its weight economically, and is a strident force on the world stage, with its revered start-up scene being a beacon of entrepreneurial light that the entire world looks toward for inspiration.

This would be all very well if it was not for the study of figures by OECD economists, which depict a very different structure that leads to the conclusion that the entire economy is so dependent on binary options scams and fraudulent online gaming entities that it is not able to survive without them, hence the government is very unlikely to ever put a stop to it, leaving other nations, which will gradually close the door on any business relationships with Israeli entities on the grounds of the risk of being cheated, to pass laws to extinguish these back-street businesses by proxy.

Indeed, the binary options business is ultimately doomed, its perpetrators taking their last gasp as global authorities close in on their appalling schemes which have relieved unsuspecting members of the public of millions via  weighted platforms that have absolutely no connection to a live market, on false pretenses, often pretending to be based in bona fide jurisdictions, with no recourse due to the layered structure of the companies involved which have shell company under shell company under shell company, thus cannot be held accountable as they are almost impossible to trace via litigation channels.

The alarming matter is that for the State of Israel, where the vast majority of binary options platform providers / market makers and the brands that they provide their ‘services’ to originate, the entire structure of this fraudulent business is so gigantic in proportion to the rest of the economy of the country that it is having some remarkable effects on the domestic market.

  1. Government capitulation

One of the most grave and worrying aspects of the binary options business is that its enormity has created a giant income for the State of Israel’s domestic market, due to almost all of the brands (even though they are based in Cyprus or other regions) being of Israeli origin with service centers and owners based in Israel.

In addition, the vast majority of the binary options platform and market makers are in Israel, therefore the entire revenue generated per year, according to our research, is between $5 billion and $8 billion. Add this to unregulated FX entities that do not have a prime brokerage relationship and also live from the losses of their clients, and the figure is nearer to $10 billion per year.

That is a lot of money for a small country.

Whilst Israel Securities Authority (ISA) Chairman Professor Shmuel Hauser has definitely got the right idea and the interests of his nation and the world’s consumers at heart, he is very unlikely to be able to sway a government that cannot afford to put a lid on something that generates quite that much revenue.

Professor Hauser told the Knesset committee recently that he sees it as his personal responsibility to finish off the binary industry completely, labeling it “filth” and considering that it is doing tremendous damage to the reputation of the country. Requesting powers from the Attorney General Amichai Mandelblit, Professor Hauser is now in the process of invoking laws that are intended to quash the entire binary options sector globally.

The difficulty is that there is likely to be government apathy because Israel is not the same country that it was 20 years ago.

In the 1990s, the spirit of foundation was still alive, and the grandchildren of the founding pioneers who came in 1948 from Eastern Europe and built the country were still living in Israel en masse, studying science and technology at top level universities before moving on to become very decent and upstanding members of society.

Twenty years on, over 1 million of those good people – that is one eighth of the entire country (a fifth of its internal Jewish population) have left for America, Britain and, of all places, Germany.

Intelligent, hard working and admirable people with professional careers, a bastion of commercial enterprise’s establishment and exactly the type of people that upheld tiny Israel’s reputation for top quality business ethic, technological prowess and thought leadership.

With them went their contribution to the domestic economy, and their long term potential to build top quality business on home territory, however to those balancing the books, this is not relevant as they have been replaced by a totally different demographic, whose origins are not of any pioneering nature, in fact quite the opposite.

No university education or blue chip internships on the binary scene, and certainly no proud heritage of founding the great state. Instead, a criminal and fraudulent cartel of aggressive con artists whose background lies in gambling, affiliate marketing, lead buying and stealing from each other and the public.

For the government to crack down on this would mean no replacement for the $5 to $8 billion in revenues that this generates, and no return of the 1 million brilliant minds that now live overseas and will likely never contribute to Israeli economics ever again.

The result would be a potential collapse of the entire country’s economy and with the reputation in tatters and the massive flight abroad by those who could re-establish good quality business, nothing to come in and resolve such a glut.

Thus, it is very unlikely that the central government, which is concerned with ensuring that the books balance on a national scale, will rock a boat that large, and expose the country to an irreplaceable vast amount of capital.

2: Vast unofficial economy causing difficulties for those who toe the line

The Organisation for Economic Co-operation and Development (OECD) publishes statistics on national economies, and indeed, as one may expect, Israel fares very well because it is generating high revenues and yet stringent monetary policy has successfully curtailed national debt.

During the years of the global financial crisis, Israel did not suffer at all, because the Governor of the Bank of Israel at the time, Professor Stanley Fischer, is not only one of the world’s greatest economists but had the interests of the public in mind, rather than of the central bank.

Professor Fischer made it impossible for citizens to live above their means. Mortgages were, and still are, only attainable with a 45% downpayment. Car finance is non existent, credit cards do not exist – instead they are 30 day debit cards, and it is against the law to have a negative balance in the bank.

Excellent indeed, however this was a double-edged sword because it meant that the honest and decent population who work and live via official and normal channels are completely priced out of absolutely everything, whilst the unofficial shadow economy grows.

FinanceFeeds has conducted research via economists that concurs that these days, Israel’s unofficial (black market) economy accounts for between 20% and 23% of the country’s entire GDP.

This is why it is entirely possible to see brand new apartment towers which sell out within minutes for several million dollars per apartment, brand new Cadillacs and Lexus everywhere, full restaurants and recreational facilities on a round-the-clock basis and what appears to be a highly enviable standard of living, yet the official average salary is just $1,200 per month.

A trip to any new, expensive development in any suburb of metropolitan Tel Aviv is enough to see the nouveau riche and somewhat lacking in formal education or decorum, living in abject luxury, yet the banks and authorities have no record of them.

Meanwhile, Mr. Average struggles as the prices of everything rocket, and the cash economy of those dealing in lottery scams, binary options and online gambling becomes king.

3: Overseas capital and undisclosed operational accounts

The OECD quantifies 10 countries in the European Union as being high risk in terms of black market economies and money laundering risk.

This is a massive concern for OECD, as it quantifies the level of undeclared work in the context of EU integration.

According to the OECD, the informal economy, the fight against corruption and the effectiveness of tax collection are critical issues for many of the 10 countries (Cyprus, the Czech Republic,
Estonia, Hungary, Latvia, Lithuania, Malta, Poland, the Slovak Republic, and Slovenia) joining the EU in 2004.

These are all countries favored by Israeli binary options brand owners, many of which have bank accounts in those regions – especially Cyprus, Malta, Latvia and Estonia – where very few questions are asked and cash can be withdrawn on a quick flight to each nation and spent in Israel without it having to go through an Israeli bank, which would immediately alert the authorities and trigger an audit.

These are also some of the most corrupt nations in the European Union.

To the Israeli system, these people, or their entities, even though operating for the large part within Israel, do not exist, yet their owners and associated service providers, mostly Israeli, are able to buy very expensive real estate and luxury products, usually in cash.

Average Joe earning $1200 per month via an honest living? Apartments cost $1.5 million minimum and mortgages are hard to come by? Good luck.

By contrast, a fraudster with an online binary options business can turn up with a suitcase full of cash and complete any transaction immediately.

End result: Expensive real estate, no debts, and a cash economy where expensive homes and products have a massive and very easy market. Downside: Unpleasant neighbors in what should be upscale neighborhoods.

This will still not concern the government unduly, however, as they will view it as a balance sheet, and the balance sheet looks good.

The OECD notes that the Israeli banking sector is concentrated and inefficient. It encourages Israel to follow through on plans to allow the entry of new competitors in retail banking, in particular by non-banking credit entities, with appropriate consumer protection and financial risk regulation.

For those with accounts in Latvia or Estonia, however, this is not of any consequence.

In an economy with significant informal employment, several mechanisms operate to result in low actual tax and social security receipts coexisting with high scheduled tax rates. Evasion of social security contributions (and any corresponding income tax) among individuals in paid (wage and salary) employment, through non-declaration of work and under-declaration of earnings.

3: Lead stealing and recycling for cash

FinanceFeeds understands that one of the supporting businesses that surrounds binary options is the selling and recycling of leads.

We recently approached entities that do this and are hawking their services aggressively on the internet, using false names.

It is our understanding that most of the lead selling firms which sell leads to binary brokers are ex employees of binary brands.

We believe that they are all connected and that it is a band of former binary options salespeople who have stolen leads and are now offering them on the open market. “Ping Me For Leads” stated the front page slogan on the messenger used by one particular entity. Hmm, how inviting. I might just do that….

Our conversation began with one particular sales person stating “Let me explain how we qualify leads. We have a call center in house, where we qualify leads, and for each lead you get fully verified details, (no wrong numbers, duplicates etc.), they will be all in a position to invest, they expect to get a call and to be made an offer to trade from your sales team, and all leads are qualified in an individual campaign for each client and are branded (we introduce your brand, promotions etc.)”

(Editor’s note. I had to straighten the English out here. Normally, the addition of the abbreviation sic. would be enough, but to comprehend what was an incoherent written sales pitch, I needed to adjust the English significantly. John Smith, my foot.)

The salesman was then asked by FinanceFeeds how the leads are acquired. “We get them from our funnels – financially related seminars, webinars, e-books etc”. I would love to know what the “etc” is. Sounds fascinating. Perhaps it is an acronym for ‘entirely, totally corrupt’.

When asked how lead sales people safeguard the leads that they are selling to ensure that they are not stolen, the salesperson backtracked, admitting “We target all of the regions that are popular, however these leads are not fresh and this is the main issue.”

We asked if they had been used by other binary options brands, to which the answer was “Yes exactly.” It is well known that many of these leads are stolen from former employers, and then sold on. The deals are often done either by brands offering up-front cash for the leads, or as a non-disclosed part of a new employment deal for a sales person.

This cash goes straight into the unofficial economy and is never recorded. Many of those operating binary brands have had many close shaves with the law. Shai Ben Asulin, for example, owner of Anyoption, was one of several censured by the SEC in America for his part in a $33 million Microcap fraud, yet he is revered as a successful businessman on home territory.

We enquired how much a lead would cost and were offered was 22 euros per lead, and were asked how many we would like to start with.

The company maintained that “Every lead that you receive will speak to our call operators, who will introduce your brand, promotions, offer etc (more etc, interesting) and we will explain the next step which is a sales call from your sales team. Only if they agree this is counted as a lead and we set up a time-slot for the phone call.”

This practice has become so widespread that the platform providers are aware of it. One particular executive within a platform firm once explained that automation is perhaps a means of removing the high pressure sales from the binary options business, a question that FinanceFeeds posed to CySec Chairman Demetra Kalogerou in the summer of this year, her having concurred with this line of thinking.

How much is a stolen database really worth? That is the question.

4: Marginalization of legitimate companies and inability to gain overseas business

Got an Israeli passport, or an Israeli business and want to expand services legitimately, through the correct channels to other regions? If so, good luck opening a bank account with a Tier 1 bank.

Banks are always lecturing their commercial clients about abiding by the rules and how they must ensure transparency, yet research recently by FinanceFeeds has clearly shown that many mainstream banks that are in regions populous with companies either providing services to the FX industry or FX brokerages themselves are anything but transparent.

HSBC and Barclays, both ironically two of the world’s largest FX interbank dealers, will run for the hills if any mention of the Israeli FX industry is mentioned when applying for a bank account. Handelsbanken, which is Swedish but has many operations in Britain and only works with businesses on a referral basis, will work with FX firms or businesses providing services to the FX industry in certain jurisdictions, but as soon as any mention of Israel comes up, they decline service, stating that the nation is on the company’s high risk list.

Cleaning this up and closing the online fraud would be a measure which would be welcomed worldwide, and within the general population in legitimate employment in Israel, however, the potential economic catastrophe that would likely ensue would be as welcome as… well…. as a call from a binary options salesman who insists his name is John.



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