Israel: Regulating Cyber Export – Security vs. Economy

Last Updated: 21 April 2017
Article by Tsippy Bengi

The Israeli cyber industry is one of the main markets of the hi-tech industry, with an increasing market share of Israel's security export. Joined with the fact that this is a strategic growth tool for the State of Israel, "cyber products might contain technologies and abilities that, in the wrong hands, could severely threaten Israeli security and political interests".

In light of the need to balance between security interest on one hand and financial interests on the other, in recent months the national cyber headquarters and DSER published a revision draft for the regulation order on security export in the cyber field, whereby the purpose of this revision was to add and emphasize sections included in the Wassenaar agreement, regulating "weaknesses" and regulating advanced forensic abilities.

It is still early to tell how the revision to the order will impact the Israeli cyber industry in practice, however executive factors in the industry have raised significant reservations to the process.


The Israeli cyber industry makes billions of shekels a year and with years, constitutes an increasing share of Israeli export in general and in the security export in particular.

For obvious reasons, Israel's security export is regulated (similar to any other modern country): both the classic security industry and the cyber industry (currently in a minor scope). Regulation is done by granting licenses by the Division of Security Export Regulation (DSER) to corporations or various bodies that deal with the security sale and export abroad.

The State of Israel is one of several states that have signed the Wassenaar Agreement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies.

In recent months, the national cyber headquarters and DSER published a revision draft for the regulation order on Security Export in the cyber field, whereby the purpose of this revision was to add and emphasize sections included in the Wassenaar agreement, regulating "weaknesses" (code or protocol imperfections, which can be exploited in order to attack a system or software) and regulating advanced forensic abilities.

Purpose of the order's revision

The Wassenaar Agreement includes a long list of products that are included under export regulations, mostly of the traditional security industry. So far, the Israeli cyber industry (as in the whole world) enjoyed relative freedom from regulation. It seems that the current situation is about to change. DSER and the national cyber headquarters in the Prime Minister's office have reached the conclusion that regulation on security export must be increased in the cyber field, primarily for those dealing with the assaultive and intelligence gathering field.

In the explanation document attached to the order revision draft published by the national cyber headquarters and DSER, it stated:

"The cyber industry constitutes one of the most dynamic and high-potential sectors in the Israeli market. This progress bears multiple opportunities, but also challenges. On one hand, this is a strategic growth tool for the State of Israel. On the other, cyber products might contain technologies and abilities that, in the wrong hands, could severely threaten Israeli security and political interests."

In so, the revision draft to the regulation order on security export in the cyber field emphasizes sections included in the Wassenaar Agreement, regulating "weaknesses" and adding regulation on advanced forensic abilities.

The meaning of the revision to the regulation order is the inclusion of additional cyber products under the regulation order, and also imposing restrictions on the export abroad of products that are included under the new order.

DSER claims the revision to the order will bring a state of certainty, in contrast with the current opacity on cyber, which according to DSER will benefit the industry, both companies and investors. Cyber industrialists on their part argue that the order revision will bring about the opposite results as will be specified below.

Position of cyber industrialists on the order revision

In light of the revision to the order, fierce objection has surfaced on part of cyber industrialists, claiming that the new regulation order will cause cyber investors to escape, and the industry's collapse.

The security interests of the State of Israel are clear, but the financial interests of the cyber industry must be accounted for. The sales of Israeli companies in cyber to countries abroad amount to billions of shekels annually and the fear is that the restrictions imposed under the revised order might cause a dramatic decline in such sales.

The inclusion of new products under the regulation order might create limits and impediments for companies practicing the field, and by doing so make them less attractive to potential investors and even make it difficult for them to cooperate with international companies working in the field.

In contrast with  traditional security industries, in the Cyber industry there are quite a few small companies (start-ups) with no resources to face the new regulation, and they might find themselves out of the field.

Many international companies with R&D center situated in Israel, which are also included under the regulation order, will rather transfer their R&D centers to other locals in the world that do not have the restrictions imposed by the State of Israel.


The set of considerations facing decision-makers is not a simple one. Deciding between security interests and financial interests is a problematic decision, requiring a great deal of thought into formulating the order and the required regulation tools that will still preserve the security interests of the State of Israel and also preserve the cyber industry, which without a doubt represents one of the most obvious achievements of the Israeli hi-tech sector, and with it the benefit it generates to the Israeli market.

It seems that the reservations raised by executives in the cyber field did not fall on deaf ears. Recent publications show that DSER is considering the arguments raised by industrialists and has even published that it intends to form a special committee to examine their concerns, and might even change the text of the order revision to reduce the new restrictions as much as possible on one hand, and preserve security interests on the other.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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