Every ambitious international investment eventually confronts a wall of acronyms: CFIUS, ITAR, EAR, FIRRMA. These aren't bureaucratic obstacles—they're the manifestation of hard-won lessons about protecting national security while enabling beneficial commerce. Understanding them isn't just about compliance; it's about designing structures that work with the regulatory grain rather than against it.
The good news is that Israel occupies a unique position in the American regulatory framework. It's not classified as an adversary nation (unlike China or Russia), but neither is it an "excepted foreign state" (unlike the UK, Canada, or Australia). This middle ground creates both challenges and opportunities. Most Israeli investments clear regulatory review without difficulty, but the uncertainty of case-by-case review imposes transaction costs that accumulated over thousands of deals add up to real friction.
The Technology Alliance can address this systematically. By seeking enhanced regulatory treatment for bilateral investments and designing structures that minimize review requirements, the alliance can reduce friction while maintaining the security protections both nations require.
Two Nations, Many Frameworks
United States:
- CFIUS: Reviews foreign investments for national security implications
- ITAR: Controls defense articles and services
- EAR: Regulates dual-use items and technologies
- FIRRMA: Expanded CFIUS authorities for critical technology
- ECRA: Foundation for emerging technology controls
Israel:
- Defense Export Control: Ministry of Defense oversight of defense-related transfers
- Foreign Investment Review: National Security Council review for strategic sectors
- R&D Law: Restrictions on transferring government-funded technology abroad
- OCS Regulations: Conditions on Chief Scientist grant recipients
CFIUS: The Gatekeeper of Foreign Investment
The Committee on Foreign Investment in the United States has become one of the most consequential regulatory bodies in the global economy. Originally focused on preventing hostile foreign control of strategic assets, CFIUS now reviews even minority investments in companies touching critical technology, infrastructure, or personal data.
For Israeli investors, the CFIUS landscape is generally favorable but not frictionless. Israel isn't on the prohibited list like China, and transactions typically clear review. But the 2018 FIRRMA reforms created new mandatory declaration requirements for certain technology sectors—AI, semiconductors, quantum—that apply regardless of investor nationality. An Israeli VC investing in an American AI startup may face the same filing requirements as any other foreign investor.
"CFIUS isn't designed to stop investment—it's designed to ensure investment happens safely. The key is structuring deals so that safety is self-evident."
Former Treasury Department OfficialThe Path to "Excepted Foreign State" Status
The cleanest solution would be adding Israel to the list of "excepted foreign states" that receive streamlined CFIUS treatment. Currently, only the UK, Canada, and Australia enjoy this status—not coincidentally, the three nations closest to the U.S. in intelligence sharing and defense cooperation.
Israel's case for inclusion is strong. The depth of U.S.-Israel intelligence cooperation rivals or exceeds what exists with excepted states. Defense industrial integration is extensive. The bilateral security relationship has proven durable across decades and administrations.
Designing Around CFIUS Friction
Even without excepted state status, alliance investment structures can minimize CFIUS friction through thoughtful design:
U.S.-Domiciled Vehicles
Funds incorporated in Delaware with Israeli LPs face different review than direct Israeli investment. Structure matters.
Minority Positions
Non-controlling investments avoid many CFIUS triggers. LP stakes below 10% with limited governance rights often don't require review.
Pre-Negotiated Mitigation
Standing security agreements with CFIUS can create pre-cleared investment frameworks for defined technology areas.
Proxy Arrangements
U.S.-citizen oversight of sensitive operations through proxy boards satisfies security requirements while enabling investment.
Export Controls: The Technology Transfer Maze
Investment is only half the challenge. Technologies developed through bilateral cooperation may be subject to export controls that restrict how they can be shared, manufactured, and sold. Navigating these controls—particularly for dual-use technologies with both military and commercial applications—requires careful planning from the earliest stages of development.
ITAR: The Defense Article Standard
The International Traffic in Arms Regulations control defense articles, services, and technical data on the U.S. Munitions List. For bilateral defense technology development, ITAR creates the highest hurdles:
- License required for any transfer to non-U.S. persons—even verbal discussions
- Foreign person participation in development is restricted
- Manufacturing abroad generally prohibited without specific authorization
- "Deemed export" rules apply when foreign nationals access technical data in the U.S.
The good news: The U.S.-Israel Defense Trade Cooperation Treaty, ratified in 2009, creates an "Approved Community" framework for pre-cleared transfers. This existing mechanism could be expanded significantly under the alliance.
EAR: The Dual-Use Framework
Export Administration Regulations control dual-use items—technologies with both civilian and military applications. The EAR regime is generally more permissive than ITAR:
- License requirements depend on item classification and destination
- Many items eligible for license exceptions
- Israel is in Country Group B, receiving favorable treatment
- Strategic Trade Authorization available for many items
Most dual-use technology transfers to Israel proceed smoothly under EAR. The challenge is emerging technologies—AI, quantum, advanced semiconductors—where classification remains uncertain and new controls may emerge.
Israeli Export Controls
Israel maintains its own export control system, particularly for defense-related items. The Ministry of Defense controls:
- Defense articles and services
- Dual-use items with military applications
- Technology developed with government R&D support
Israel's R&D Law imposes additional restrictions: technology developed with Office of the Chief Scientist funding cannot be transferred abroad without approval—and may require royalty payments or grant buybacks.
The alliance should pursue a comprehensive Defense Trade Cooperation Enhancement that expands the existing DTCT framework. This could include expanded Approved Community for bilateral projects, expedited licensing for alliance-funded technologies, and joint classification review to prevent over-control of commercial technologies.
Intellectual Property: Who Owns What
Money flows in, technology emerges, and then comes the question that has killed more joint ventures than market conditions: who owns the intellectual property? For bilateral technology development, clear IP frameworks aren't just legal housekeeping—they're essential to attracting private capital and enabling commercialization.
The challenge is that government-funded research comes with strings attached. U.S. federal funding triggers Bayh-Dole Act provisions. Israeli funding triggers R&D Law requirements. Both governments typically retain license rights for government purposes. Layering bilateral cooperation on top of these existing frameworks requires careful design.
Field-of-Use IP Allocation
For bilateral technology development, we recommend a Field-of-Use Split as the default framework—different ownership and license rights depending on how technology is used:
- Defense Applications: Joint ownership with broad government license rights in both nations. Neither government should depend on the other for access to jointly developed defense capabilities.
- Commercial Applications: Creating party owns, with royalty obligations to funders based on contribution. This maximizes commercialization incentives while providing returns to government investors.
- Dual-Use: Joint ownership with pre-agreed commercialization pathway and revenue sharing. Complex but necessary for the most strategically important technologies.
- Export-Controlled: Ownership in country of origin with licensed access. Simplifies export control compliance while maintaining alliance benefits.
Background vs. Foreground IP
Clear documentation of pre-existing IP ("background") prevents disputes about what was created during collaboration ("foreground"). Every alliance project should begin with IP inventories from both parties—what each brings to the table and what rights they retain.
For foreground IP, the creating party typically owns unless work is so integrated that joint ownership is appropriate. The goal is clarity: every piece of intellectual property should have unambiguous ownership and documented license rights.
Governance: Building for the Long Term
Investment structures fail more often from governance defects than from bad investments. The alliance must build institutions that balance equal partnership, operational efficiency, security requirements, and accountability to both governments—and that can survive changes in administration, economic conditions, and geopolitical circumstances.
Three-Tier Structure
Effective bilateral governance separates strategic direction from operational execution, with clear escalation paths for disputes:
Strategic Level
Board of Governors (senior officials) sets direction. Joint Steering Committee (working level) coordinates policy and resolves disputes. Meets quarterly to semi-annually.
Operational Level
Executive Director manages day-to-day operations. Investment Committee (security-cleared professionals) makes investment decisions. Operates continuously with commercial velocity.
Advisory Level
Technology Advisory Council provides domain expertise. Security Advisory Board (former intelligence/defense officials) ensures security integration. Advises without deciding.
Core Governance Principles
- Equal Representation: All governing bodies have equal U.S. and Israeli representation, with rotating chairs.
- Professional Management: Investment decisions made by professionals with appropriate expertise and commercial incentives—not political appointees.
- Security Integration: Security review embedded at all levels, not a separate bureaucratic process that slows operations.
- Transparency: Regular reporting to both governments with appropriate classification handling.
- Dispute Resolution: Clear escalation path with binding arbitration for unresolved conflicts.
- Sunset & Renewal: Ten-year term with mandatory review at year seven and clear renewal or wind-down procedures.
Strategic Recommendations
Navigating the legal and regulatory landscape requires proactive strategy, not reactive compliance. The alliance should pursue several initiatives in parallel:
Work with Treasury to add Israel to the CFIUS "excepted foreign state" list. This would streamline investment review for most bilateral transactions while maintaining security protections for truly sensitive cases.
Priority: High. Timeline: 12-24 months of advocacy and negotiation.
Build on the existing Defense Trade Cooperation Treaty to create streamlined export control pathways. Expand the "Approved Community" for bilateral defense projects. Create expedited licensing for alliance-funded technologies.
Priority: High. Timeline: Concurrent with alliance establishment.
Develop template agreements for IP allocation that balance commercial incentives with government rights and national security requirements. Make Field-of-Use Split the default framework for alliance investments.
Priority: Medium. Timeline: Complete before first investments deploy.
Establish standing agreements with CFIUS and Israeli authorities for investment structures that have pre-approval for national security purposes. Reduce transaction-by-transaction review for routine bilateral investments.
Priority: Medium. Timeline: Years 1-2 of alliance operation.
Ensure alliance investment professionals have appropriate security clearances in both countries. This enables classified program investment and accelerates due diligence on defense-related opportunities.
Priority: High. Timeline: Begins during Phase 1 recruitment.
Work with tax authorities in both countries to ensure investment vehicles benefit from existing treaty protections and avoid double taxation. Structure fund entities for optimal tax efficiency.
Priority: Medium. Timeline: Concurrent with legal structure establishment.
"The legal framework isn't a constraint on the alliance—it's the foundation that makes everything else possible. Get the structure right, and execution follows."
International Investment Law ExpertBuilding for Durability
The ultimate measure of the legal framework isn't elegance—it's durability. Can these structures survive a change in administration? An economic downturn? A geopolitical crisis? The institutions that have lasted—BIRD for 45 years, BSF for 50—succeed because their governance, funding mechanisms, and legal foundations were designed for permanence.
The Technology Alliance must meet that standard. The investments it makes will mature over decades. The relationships it builds will span careers. The technologies it develops will shape the strategic balance for a generation. That requires a legal framework built not just for today's opportunities, but for challenges we can't yet imagine.