US embassy cable - 04TELAVIV1381

C O N F I D E N T I A L SECTION 01 OF 02 TEL AVIV 001381 
 
SIPDIS 
 
DHS FOR INTERNATIONAL AFFAIRS DIRECTORATE 
 
E.O. 12958: DECL: 03/04/2014 
TAGS: ETRD, PTER, IS, ECONOMY AND FINANCE, U.S.-ISRAEL RELATIONS, LABOR AND COMMERCE 
SUBJECT: ISRAELI VENTURE CAPITALISTS REQUEST CLARITY ON 
SALE OF ISRAELI SOFTWARE TO USG SECURITY AGENCIES 
 
Classified By: Ambassador Daniel C. Kurtzer for Reasons 1.4 (b,d) 
 
1.  (C) Summary.  Senior Israeli venture capitalists outlined 
to the Ambassador March 3 difficulties Israeli firms are 
having selling software relating to homeland security and 
counterterrorism to certain USG entities.  According to Chemi 
Peres, chairman of one of Israel's largest VC firms, Pitango 
Investments, and Moshe Mor, general partner in the U.S. firm 
Greylock, the sale of such software to USG agencies is being 
blocked as a result of counterintelligence and 
counterterrorism concerns.  The Ambassador noted that the 
purchase of software by U.S. security agencies is a very 
sensitive issue involving legitimate national security 
concerns.  In order to facilitate useful dialogue, he said 
the Israeli Government, not private firms would need to 
decide if it wanted to raise this issue.  He stressed that 
any progress on the issue would take time and would have to 
enable U.S. firms to sell to the GOI as well.  End summary. 
 
2.  (C) Mor began the meeting by noting that his firm, 
founded in 1965 with private investors and a number of U.S. 
universities, had begun investing in Israeli high tech 
companies two years ago.  A number of these firms produced 
software with direct application in the field of homeland 
security.  Although the firms' products were a perfect fit 
for USG agencies engaged in the fight against terror, Mor 
said, the firms had run into two sets of security concerns 
that were hindering sales.  The first issue, foreign 
ownership, was an "old" problem with well-established and 
clear remedies.  The more difficult issue, according to Mor, 
was USG aversion to purchasing software developed outside the 
U.S. for sensitive applications.  Mor claimed that USG 
agencies do not wish to discuss their objections to the 
purchase of "offshore" software in an open, transparent 
manner, and that there are no established remedies for the 
Israeli companies to address USG concerns. Mor claimed that 
Israeli companies are subject to greater scrutiny by USG 
agencies than firms from other countries. 
 
3.  (C) Mor presented four examples.  He said that one USG 
security agency had informed an Israeli firm that "its 
counterintelligence team would not allow 'doing business with 
an Israeli company.'"  A second firm, Checkpoint Software, 
had spent USD 500,000 trying to address concerns about its 
Israeli-developed code, and had only partial success in 
overcoming USG objections.  Another company that had 
developed smart alerts software (which looks at a complex 
series of data, collates it, and issues alerts if certain 
pre-set criteria have been met) suddenly found its commercial 
discussions with the USG cut off for no reason.  Lastly, the 
FBI had signed a $700 million annual contract with an Israeli 
firm, Clear Forest, to supply text analytics software.  Mor 
noted that, one year into deployment of the software in 
question, the FBI decided not to renew the contract, "citing 
(informally) a veto by its counterintelligence team." 
 
4.  (C) Mor noted that the established method of certifying 
software for sensitive uses, clearance through the National 
Information Assurance Partnership (NIAP), is expensive and 
burdensome, particularly for many Israeli high-tech firms, 
which tend to be small.  Summing up, Mor asked the Ambassador 
for help in establishing a dialogue with USG agencies in 
order to identify the issues of concern to them and to search 
for a way to resolve those concerns. 
 
5.  (C) The Ambassador noted that U.S. concerns over the 
purchase of "offshore" software by USG national security 
entities reflect the highly sensitive nature of such 
purchases.  He stressed this sensitivity is based on 
experience and that it is legitimate.  He asked whether U.S. 
software firms can sell intelligence-related software to the 
Israel security and intelligence agencies.  The Ambassador 
said he doubted such sales were possible.  He also stressed 
that, as far as he knew, USG concerns about software 
developed outside the U.S. apply to all countries and not to 
Israel in particular.  If this was not the case, the Israelis 
needed to demonstrate this clearly. 
 
6.  (C)  The Ambassador noted that Israel had successfully 
addressed related concerns in the area of defense 
procurement, but that the process had taken a number of 
years.  He imagined that software procurement would be even 
more time consuming.  As a first step, he said the GOI would 
need to decide whether it wanted to raise this issue and then 
to identify a point of contact to discuss it.  Once this step 
was taken, the appropriate authorities could begin to 
introduce this issue into the on-going bilateral discussions 
on related issues.  In this regard, he noted that the 
Commerce Department Undersecretary for Industry and Security, 
Kenneth Juster, was currently in country discussing dual use 
issues with GOI bodies.  Other opportunities for such 
discussions would present themselves.  (Note: Minister of 
Industry and Trade Olmert raised with U/S Juster a related 
issue -- the failure of the Israeli high-tech firm Checkpoint 
Software to gain approval for its proposed purchase of a U.S. 
firm because of security-related issues (see septel).) 
 
7.  (C) The Ambassador stressed, however, that any agreement 
reached would have to work in two directions.  He reminded 
Peres and Mor of the difficulties U.S. firms are having with 
the GOI's procurement system, as outlined in remarks by the 
Ambassador at the Israel-US Chamber of Commerce meeting on 
February 10, 2004.  These difficulties were exacerbating a 
significant U.S. trade deficit with Israel.  If Israel wanted 
USG entities to purchase Israeli goods for sensitive uses, 
then the USG would demand the opportunity for U.S. firms to 
compete for similar GOI contracts on the basis of a level 
playing field. 
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KURTZER