Many business owners are unaware that conducting a commercial lottery, which is often an excellent tool to increase revenues, attract new customers and encourage sales, when done without obtaining prior permission, close legal guidance and compliance with the requirements of the law, constitutes a criminal offense, the maximum penalty for which can reach up to three years in prison, alongside exposure to heavy civil lawsuits.
As a general rule, Israeli law determines that gambling, lotteries, and prohibited games are a criminal offense. The Israeli Penal Law prohibits holding an activity in which money or a benefit can be won, when the winning depends more on luck than on the participant's ability. However, the legislator left a loophole for businesses: The Law allows the holding of commercial lotteries provided they are granted a permit. By virtue of this provision, the Ministry of Finance published a general permit that allows businesses to hold lotteries, provided their purpose is to promote the business's sales or services, and it renews the permit periodically.
In order to conduct a commercial lottery that will be legal under the permit, it is very important to be accompanied by an experienced law firm, which will ensure compliance with all the requirements of the law, prepare the lottery regulations, carry out the procedure for obtaining the license with the Ministry of Finance, supervise the lottery and ensure compliance with all the rules of the law, including:
- Frequency of lotteries: A business may hold up to two commercial lotteries per calendar year, and an interval of at least 120 days must be maintained between one lottery and the next.
- Time limit: The lottery is limited in time and cannot last for more than 120 consecutive days.
- Detailed regulations: Transparent regulations must be drafted and published, including the terms of participation, details of the prizes, who is allowed to participate in the lottery (for example, a prohibition on the participation of minors in certain cases and compliance with the provisions of consumer protection laws, non-compliance with which may lead to the imposition of financial sanctions by the Commissioner for Financial Sanctions at the Consumer Protection Authority), the date of the lottery, and the details of the supervisor. It is very important that the regulations be written by a law firm with experience in drafting commercial regulations in order to prevent subsequent legal proceedings regarding the interpretation of the regulations, including class actions dealing with consumer protection issues.
- Appointment of a supervisor: It is mandatory to appoint a supervisor, who must be a lawyer or an accountant. The supervisor is required to report their appointment to the Ministry of Finance at least 14 days before the start of the promotion and they are in charge of the proper management of the lottery throughout.
- Prohibition of collecting payments: Customers cannot be charged a fee, whether in cash or cash equivalent, solely for the right to participate in the lottery.
- Prohibition of raising prices: If participation is conditional upon the purchase of a product or service, it is strictly forbidden to raise its price close to the start of the promotion.
- Prevention of conflict of interest: The conductor of the lottery, the supervisor, their employees, and other entities are precluded from participating in the lottery.
- Distribution of prizes and prohibition of deception: It must be ensured that at least 80% of the promised prizes are actually distributed.
- Duty to inform in publication: It must be clearly stated at the time of publishing the promotion that it is conducted in accordance with the provisions of the general permit of the Ministry of Finance.
Although a commercial lottery constitutes an excellent marketing tool, it requires proper legal planning and preparation. Since every lottery must pass the approval of the Ministry of Finance, and because the regulations may in the future constitute a source of legal disputes, accompaniment by a lawyer with expertise in the field is essential. A lawyer with experience in the field will not only be able to serve as a supervisor of the lottery, but will also ensure that the promotion is conducted properly and meets the full requirements of the law. Furthermore, professional accompaniment will ensure the writing of detailed and clear regulations, which will not only prevent mishaps, but will ultimately protect the conductor of the lottery from lawsuits by participants and unnecessary legal and criminal risks.