Wednesday's decision by the US Commerce Department to blacklist Israeli spyware developers NSO Group and Candiru was nothing short of "dropping an atomic bomb" and the local offensive cyber industry, as one insider said.
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The decision to include the two firms in the US Entity List over "activities contrary to the national security or foreign policy interests of the United States" came as a complete shock to Israel, with the Foreign and Defense ministry learning of it mere hours before it became public.
This is troubling not only because Israel's greatest friend omitted to update it ahead of making such a major move, but also because of the potential ramifications for the two companies, the offensive cyber industry as a whole, and the state interests it serves.
Ostensibly, the damage shouldn't inflict this much damage. Had the US Defense Department made a similar move rather than the Commerce Department, the two would have found themselves facing an absolute boycott, to the point of having assets in the US frozen. Still, this has dealt an unprecedented blow to the industry's image and that cannot be taken lightly.
NSO Group and Candiru will undoubtedly bear the brunt of the impact as being blacklisted makes them a pariah. Not only are American companies now barred from doing business with them, clients outside the US may decide to follow suit and cancel contracts, placing the two's very future on the line.
From a broader perspective, this decision clouds the Israel offensive cyber industry as a whole. The latter's share of Israeli defense exports may not be high, but it is a growth catalyst in terms of expertise and innovations.
This is why more than a few entities – from hostile countries, through human rights organizations to commercial rival – have been working in a variety of ways to undermine this industry, as it would also deal a strategic blow to Israel's state-level capabilities.
In recent years, the offensive cyber industry has served as the proverbial "foot in the door" vis-à-vis many countries with which Israel does not have official relations. Foreign media reports have speculated about Israeli sales of such cyber technology to the UAE, Saudi Arabia, Morocco and other countries, and it's safe to say that this was also a convenient basis for fostering such ties. Harming these companies or disrupting their ability to act may have a direct impact on interests impacting Israel's national security.
The importance of this issue is likely to see senior officials involved in the efforts to resolve this predicament, just as was when NSO's Pegasus spyware was allegedly used by various governments to monitor journalists, lawyers and opposition activists in various countries.
The Pegasus scandal prompted the Defense Ministry to summon the heads of offensive cyber companies and inform them that the classification of the countries to which they could sell their software has been revised to include three groups, each with its own set of restrictions.
The move aims to provide the Defense Ministry with better oversight of such sales and the use various clients make of such technology.
Still, it is doubtful that the damage caused by Wednesday's announcement could be easily repaired. The designation has made NSO – and with it the Israeli offensive cyber industry – synonymous with human rights infringements.
It doesn't matter that for the most part, the fact that such software is used to fight crime and thwart terrorist attacks. The fact that some countries abused them has cast doubt over the operations of the industry as a whole.
The damage this has inflicted on the industry's image is massive and it could have a financial, diplomatic and, potentially, security impact.
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