Herzog Partner Liran Barak, head of our Gaming Regulation practice, recently published an overview of Israel’s gaming and gambling regime in Beaumont Capital Markets’ authoritative International Gaming Laws and Regulations Review, 2024/5. Read below for important guidelines to anyone in the industry looking to act in Israel.

 

Introduction

Israel’s approach towards gambling activity has always been, and remains to this day, a highly conservative one. This approach is rooted in a confluence of religious and socialist values, characterized by stringent regulations which form a ban on both land-based and online gambling services in the country.

The blanket ban over gambling services as set by the primary legislation governing gambling in Israel, the Israeli Penal Law 5737-1977 (“the Penal Law“), has three exceptions:

1. Mifal Hapayis (the National Lottery) – which since its establishment in 1951, offers a variety of scratch cards, a weekly subscription-based lottery, and other types of lotteries and raffles. The operations of Mifal Hapayis are subject to the supervision and regulation of the Israeli Ministry of Finance.
2. The Israel Sports Betting Board (“ISBB“) – which since its establishment in 1967 under the Law for the Regularisation of Sports Betting 5727-1967, has the exclusive right to organize and regulate sports betting activity in Israel.
3. A very limited exemption provided for gambling activities which are purely social in nature.

 

Against this backdrop, Israel, a nation synonymous with innovation and entrepreneurial spirit (often hailed as the “startup nation“), presents a fascinating paradox within the global online gambling industry. Despite having one of the most restrictive B2C markets for domestic online gamblers, Israel has become a hidden powerhouse behind the scenes. This tech-savvy nation boasts a thriving ecosystem of online gambling companies, ranging from software development giants to prominent operators. One would be hard-pressed to find an online gambling operator without an operation based in Israel, or a link to the country’s gaming industry. While Israelis themselves may have limited online gambling options at home, their expertise and ingenuity are fueling the operations of countless international gambling platforms.

 

Regulatory framework for Gambling in Israel

Israel’s Penal Law imposes broad prohibitions related to gambling activities, criminalizing both the organization of most gambling activities as well as the participation in specific forms of gambling. Despite changes in technology and society, as well as several proposals for a partial relaxation of the restrictions relating to certain gambling activities (like professional poker), the legislation has remained largely unchanged in recent years.

Under the Penal Law, there is a complete ban on all gambling activities, with the three exceptions listed above – the activities of Mifal Hapayis (the National Lottery), the ISBB (which regulates sports betting) and activities which are purely social by nature.

The relevant legal definitions, as well as prohibitions relating to gambling activities in Israel, are contained in chapter twelve of the Penal Law, titled ‘Prohibited Games, Lotteries and Betting’. The chapter sets out a prohibition on the organization of “lotteries, betting and prohibited games” (Section 225), and a prohibition on “participating in prohibited games” (Section 226).

The relevant definitions in chapter twelve are as follows:

• “Lottery” – any arrangement under which it is possible – by drawing lots or by some other means – to win money, valuable consideration or a benefit, the outcome depending more on chance than on understanding or ability;
• “Betting” – any arrangement under which it is possible to win money, valuable consideration or a benefit, the outcome depending on a guess, including lotteries connected to the outcome of games and sporting competitions;
• “Prohibited game” – a game at which a person may win money, valuable consideration or a benefit according to the outcome of a game, that outcome depending more on chance than on understanding or ability; and
• “Place of prohibited games” – premises on which prohibited games are regularly conducted, whether open to the public or open only to certain persons, whether or not they are also occupied for some other purpose.

 

The Penal law therefore outlines three separate gambling categories. However, due to the broad nature of these categories, together they effectively capture most, if not all, types of gambling activities. Notably, the definitions overlap, potentially resulting in certain gambling forms falling under multiple classifications.

 

The Israeli Penal Law prescribes the following penalties for unlawful gambling:

• Organizers and facilitators of illegal games, lotteries, or betting operations face a maximum penalty of three years in prison or a fine of up to ILS 452,000;
• Participants in prohibited gambling activities can be sentenced to up to one year in prison or fined up to ILS 29,200;
• Providing, selling, or distributing lottery or betting tickets to minors is punishable by up to six months’ imprisonment.

 

Israeli Courts’ Role in Regulating Gambling

Israeli courts have significantly influenced the regulation of gambling. Most notably, they have interpreted the Penal Law to include online gambling, despite the lack of a specific reference to online activities in the Penal Law, given that it predates the internet. Other governmental bodies had issued opinions supporting this interpretation, amongst them the Ministry of Justice, the Israel Police, the State comptroller, and others. Additionally, the Bank of Israel prohibits financial institutions from processing transactions related to gambling activities. The State Comptroller has urged authorities to limit internet gambling, and the Israel Police have taken enforcement actions (including website blocking) against online gambling operations, particularly against those operators with connections to Israel.

Recognizing the heightened risks to the social interest associated with online gambling, the Israeli Supreme Court has called for more stringent enforcement measures and harsher punishments for those involved in illegal online gambling activities, compared to those dealing in land-based gambling.[1]

Israeli courts have applied and developed the predominance test to determine whether a game is “based on chance more than understanding or ability”, as the Penal Law sets out. The test assesses whether chance or skill is the predominant element influencing the outcome of the game. In a 2011 ruling, the District Court of Tel Aviv addressed the legality of activities combining skill and chance, with the court determining that the “social interest and utility” of the underlying game should also be considered in reaching a conclusion under the predominance test.[2] In an additional ruling in a 2017 criminal case, the Tel Aviv Magistrate’s Court further developed the predominance test, by ruling that the assessment of the determining factor influencing the result should be based on an amateur player participating in a single round of the activity.[3] While not setting a binding legal precedent, this ruling exemplifies the restrictive stance of Israeli courts towards gambling activities.

 

The Social Exception

Section 230 of the Penal Law provides a narrow exception to the general prohibition on gambling. This exception applies to a prohibited game, lottery, or betting activity that meets all the following conditions:

1. It is intended for “a particular circle of persons”;
2. It “may not exceed the scope of amusement or entertainment”; and
3. It is not conducted in “a place of prohibited games or a place for the conduct of lotteries or betting”.

Israeli courts have emphasized that this exception must be narrowly interpreted. Special emphasis is placed on the first requirement under Section 230, which limits the game’s targeted audience to a specific circle of persons, especially in the context of online gambling.[4]

Unlike many other jurisdictions, Israeli law does not require the payment of consideration for an activity to be deemed a prohibited game. Consequently, even a social game that doesn’t require payment for participation, can be considered a “prohibited game” if those playing would stand a chance to gain something of value. As the prohibition set out in the Penal Law extends to any game of chance where the player may obtain a benefit, the prohibition may apply mutatis mutandis to games where the player stands to win virtual tokens without monetary value, but may provide credit for extended gameplay, or participation in other games. The legal assessment might differ where the social game does not offer any benefits holding real world value, including the waving of payment for participation in games or extending gameplay. There are conflicting court rulings on this issue, and each case would have to be individually assessed.

 

Enforcement

When it comes to illegal online gambling activity, enforcement action in Israel has traditionally focused on operators of online gambling websites that target and service customers in Israel, or operations associated with Israeli criminal organizations. Operators who carry out their operation outside of Israel, without local presence or specific targeting of Israeli consumers, have not been the target of enforcement action.

Cases of enforcement action by Israel Police taken against illegal online gambling operations included ISP blocking orders, raids on venues used in the course of operating the illegal offering, and confiscation of associated equipment.

 

Trends and Developments

There have been limited developments relating to regulation of land-based gambling activities in Israel in recent years. The developments that did occur, illustrate the ongoing trend of increasing restrictions on gambling activities in Israel, reflecting the country’s stringent regulatory stance.

In 2017, the permit allowing the National Lottery to operate a limited number of physical video lottery terminals (VLTs) at various locations was revoked by the Ministry of Finance. Soon thereafter, in 2018, the Ministry of Finance disallowed the Israel Sports Betting Board (ISBB) from offering wagers on foreign horse racing events.

Also in 2018, Israel had successfully implemented ISP blocking of gambling websites operating from outside the country. Under the Powers to Prevent the Commission of Offences by Means of an Internet Website Act, 5767–2017, district court judges were allowed to issue warrants to ISPs to block access to illegal gambling websites upon request by the Israel Police or the State Attorney’s office.

In 2021, the Bank of Israel introduced stringent measures to prevent financial transactions related to unlicensed gambling through Conduct of Banking Business Procedure No. 411. This procedure imposes severe restrictions on Israeli financial and credit institutions concerning transactions linked to online gambling.

While Israel’s gambling laws remain restrictive, there have been some recent positive developments relating to gambling activity regarding poker, however narrow in scope.

Poker, which is not defined by Israeli legislation, has been repeatedly ruled by Israeli courts as constituting a prohibited game as defined in the Penal Law. In 2018, a Supreme Court case offered a glimmer of hope regarding the legal classification of the game. In its ruling, the majority opinion suggested that poker, particularly in the context of poker tournaments, might be considered a game of skill, potentially exempting it from gambling restrictions.[5] The court also challenged the approach taken by lower courts in previous rulings, whereby they had ruled that the predominance test was to be applied to the game of poker in relation to an amateur player’s experience whilst playing a single hand. However, it’s important to note that this view was made in a non-legally binding obiter dictum, and therefore doesn’t constitute legal precedent binding on lower courts.

In 2022, a private member’s bill was introduced in the Israeli Parliament (the “Knesset”), aimed at regulating real-money poker tournaments. The bill proposed that certain types of games, under specific circumstances and with a permit issued by the Minister of Finance, would be excluded from the definition of a “prohibited game.” The private member’s bill is still awaiting the Parliament’s decision, to either have it removed from the agenda altogether, or forward it to the appropriate committee for preparation before its first reading. It should be noted that the bill was introduced several times over the last few legislative sessions in Israel, without success.

 

Outlook

Due to Israel’s highly conservative approach to gambling reforms, Israeli Parliament (Knesset) members rarely propose changes to the existing gambling industry framework. This conservative outlook has led to a cautious legislative environment, where the focus remains on enforcing and potentially expanding restrictions rather than considering liberalization or reform measures. As a result, any significant changes to the gambling laws are expected to further limit rather than expand gambling activities within the country.

Increased enforcement actions by the police and the Attorney General’s office, possibly involving ISP blocking orders, are likely to be expected.

Additionally, the Ministry of Finance might become more involved in imposing further restrictions on the offerings by the National Lottery and the ISBB, or even place restrictions on commercial sweepstakes and promotional prize draws.

 

For the original online publication >> click here

 

[1] See Administrative Appeal (Supreme Court) 3782/12 The Commander of the Tel Aviv-Jaffa District Israel Police Israel v The Israel Internet Association; Special Criminal Appeal (Supreme Court) 7064/12 Or Pando v The State of Israel; Criminal Appeal (Supreme Court) 6889/11 The State of Israel v Eliran Oved.

[2] Class Action (Tel Aviv) 30284-01-10 Simon Davush v Connective Group Ltd.

[3] See Criminal Case [Tel Aviv] 34939-07-15 The State of Israel v Nir Lashowitz et al.

[4] See Criminal Appeal (Supreme Court) 9140/99 Amos Romano v The State of Israel.

[5] See Civil Appeal [Supreme Court] 476/17 Amit Amishvili Rafi v Assessing Officer Tel Aviv 4.