Israel Moving Ahead With Law to Vet Foreign Investment

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FILE Photo: China's President Xi Jinping.
FILE Photo: China's President Xi Jinping.Credit: AFP

Against the background of the U.S.-China trade war and concerns about China’s industrial espionage, Israel is moving forward with plans to vet foreign investment for the first time.

Legislation that would set out the structure and terms for a government committee with the power to approve or order changes in deals involving foreign investors is being examined by National Security Council chief Meir Ben-Shabbat.

Sponsored by Zionist Union lawmaker Omer Bar-Lev, the bill is due to be deliberated in the Knesset Foreign Affairs and Defense Committee next week and then go to the ministerial legislative committee.

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“The proposal isn’t aimed just at restricting investments by Chinese bodies,” Bar-Lev said. “If a Russian company wants to buy a cybersecurity company of a major tech company like Check Software, it will need to be vetted. So will investments by front companies registered in Luxembourg, let alone a private company that may have Arab parties behind it.”

Prof. Avi Simhon, Prime Minister Benjamin Netanyahu’s economic adviser, told Knesset members last July that a plan to vet foreign investment was in the works and that matter was brought up in the security cabinet three weeks ago. Simhon has been working on the issue for two years.

But, as Bar-Lev’s statement indicated, the bill’s backers have proceeded cautiously on the matter for fear of causing friction with China. Chinese companies are building ports in Ashdod and Haifa, and the Tel Aviv Light Railway. They have also become increasing important investors in Israeli high-tech companies.

Netanyahu has been encouraging Chinese investment both to draw in more foreign investment and as a way of strengthening bilateral ties.

Chinese companies have been turned back multiple times in their quest to buy the Israeli insurance companies Phoenix and Clal, but that was the initiative of the capital markets regulators, who expressed concern over Chinese control of hundreds of billions of shekels in Israeli pension savings.

In the case of defense companies, the Defense Ministry’s International Defense Cooperation Directorate can withdraw the export licenses of companies sold to foreign buyers. In any case, companies selling to the Israel Defense Forces sign secrecy agreements.

Under the proposed legislation, foreign investments involving investing in, acquiring or merging with an Israeli company would be examined by a government committee.

The businesses needing to seek approval would be involved in critical technology, connected with national infrastructure projects or companies with access to significant data on Israeli citizens. The latter would include companies in telecommunications, financial services and defense.

The panel would have 30 days to examine a deal and an additional 15 days after that to publish its explanation for disallowing it. It could also give parties to a deal 60 days to amend it to meet the committee’s requirements for approval.

The panel will include the finance, defense, public security and justice ministers, or their representatives, as well as the head of Israel’s National Cyber Authority. The finance minister will chair it.

“The idea that the committee will be headed by the finance minister or his representative – and not a representative of the security establishment – is critical,” said Bar-Lev. “An important part of the proposal is preserving a balance between supervising the market and freedom to conduct business.”

If Israel goes ahead with the plan it will be joining a worldwide trend. In August U.S. President Donald Trump signed the Foreign Investment Risk Review Modernization Act of 2018, which broadens the powers of the Committee on Foreign Investment. In November European Union institutions agreed to terms of a planned mechanism to screen foreign direct investment within the bloc.

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