Israeli justice reforms spark tech investor flight fears

Barak Eilam, a former Israeli intelligence officer who now heads cloud-based software provider NICE (NICE.TA), says he has never had problems selling Israel as an investment destination.

But on a call last week, Eilam sensed this may be changing when major investors he had partnered with for years began asking pointed questions about a radical judicial overhaul.

“For now, they re not pulling out any investment but they are kind of watching it carefully,” the 47-year-old said.

The proposals by the new right wing government of Prime Minister Benjamin Netanyahu to strengthen political control over judicial appointments while weakening the Israeli Supreme Court s ability to overturn legislation or rule against government action have brought tens of thousands onto the streets of Tel Aviv and other cities over fears they will politicize the judiciary and compromise its independence.

Yoav Tzruya, general partner at venture capital fund JVP, said investors were mainly worried about stability, corruption and a reliable judicial system.

“I think there will be some investors that, given concerns about stability about corruption or whatever might put more hurdles in front of especially a new fund manager,” he said.

Earlier this week, an open letter from a group of more than 270 business and economy experts, including former central bank officials and Netanyahu advisers, said the judicial reforms represented “a danger to Israel s economy”.

Netanyahu s office did not immediately comment when approached by Reuters on Friday, but during a meeting with dozens of senior businessmen, he said the judicial reforms would boost growth while the legal system would remain independent.

“Not only will the reform not harm the economy, it will jumpstart it,” he said in a statement.

For Israel s tech companies, an independent legal system is crucial to protecting their main asset, intellectual property (IP), with some executives saying they may consider domiciling abroad as a result of the Netanyahu government s plans.

On Thursday, a day after Netanyahu and Finance Minister Bezalel Smotrich dismissed concerns that the proposals would harm the economy, Anat Guez CEO of Papaya Global announced she was taking her payroll systems group s money out of Israel.

“Everybody knows Israel is never on safe ground because of the complicated diplomatic issues,” Guez told Reuters. “But now we re adding this reform which is ultimately emerging as harming democracy, that s a fatal blow.”

Netanyahu s administration says the overhaul is needed to rein in activist judges who it says have encroached into political decision making.

“Nobody will harm intellectual property rights and the honoring of agreements, values which are sacred to us and which are the critical test,” Netanyahu said on Wednesday.

Hillel Fuld, a start-up marketing adviser, also dismissed the outcry as “unnecessary hysteria”.

“We are still building the best tech in the world. Israeli tech isn t going anywhere. If people pull money then it s their loss, not ours”, he said.