Can one regulatory change block a payment, delay an export, or complicate a funding round overnight? That is one of the most common questions Israeli founders, CFOs, and compliance leaders ask when they search for political and regulatory risk for Israeli companies. For businesses reading ERB’s Proximo news section, the short answer is yes: sanctions updates, export controls, AML expectations, anti-bribery enforcement, tax transparency rules, data-transfer restrictions, and foreign-investment screening can all affect growth, financing, and cross-border operations much faster than many management teams expect.

Political & Regulatory Risk at a Glance

What Are the First Political & Regulatory Signals Leadership Teams Should Watch?

Six interconnected areas mainly determine the major aspects to be observed, which are as follows: sanctions and hidden ownership, export restrictions on dual-use technologies, software and services, anti-money laundering and verification of beneficial ownership, anti-bribery risk in public sector sales or sales involving distributors, international tax transparency and data privacy, as well as investment screening. Nowadays these aspects influence the ways in which banks onboard their clients, how investors perform due diligence, how regulators provide scrutiny over cross-border activities and how fast companies access foreign markets to start their operations there.

Why Has Political & Regulatory Risk Become a Boardroom Issue?

Political and regulatory risk has become a significant business challenge rather than a purely legal concern. Effective compliance requires a risk-based approach that includes ongoing risk assessments, strong internal controls, regular testing and audits, and employee training. At the same time, export control requirements continue to evolve across multiple jurisdictions, while Israeli authorities regulate dual-use and defence-related items under local legislation. In practice, different regulatory frameworks may apply to the same product, customer, supplier, payment, or investor, making proactive compliance and continuous monitoring essential for companies operating internationally

Which Israeli Companies Face the Highest Regulatory Risk?

This issue is very important for startups that are acquiring capital from abroad, cyber companies, software companies, technical support companies, financial institutions and payment companies, suppliers of defence and dual-use goods, life-science companies that work with sensitive information and companies that are being prepared for acquisition by companies from the US or Europe. It is also very significant for companies that are using agents, distributors, cloud computing, technical support services or any cross-border forms of operation since such forms of operation increase chances that the company will be identified in terms of ownership structure, final destination of the goods, data location and the need for screening.

Where Does Political & Regulatory Risk Usually Appear First?

The issues typically arise at five key stages of the business process: onboarding, payments, shipping or licensing, data transfers, and fundraising or exit transactions. A company may face regulatory restrictions even when a customer, supplier, or business partner is not explicitly listed on a sanctions list, particularly if ownership or control structures create indirect compliance risks.

Similarly, transferring controlled technology or sensitive technical information across borders-or to foreign nationals in certain circumstances-may trigger export control requirements. In addition, cross-border investments and acquisitions can become subject to regulatory review, meaning that a transaction initially viewed as a standard commercial deal may later require additional compliance assessments or government approval.

5 Steps to Monitor Political & Regulatory Risk

Step 1: Screen Business Partners

Before entering any commercial relationship, verify the ownership structure, business activities, and geographic exposure of customers, suppliers, distributors, investors, and other partners. Regular due diligence helps identify potential compliance risks before they affect the business.

Step 2: Review Export and Technology Controls

Determine whether your products, software, technology, or technical services are subject to export control requirements. These obligations may apply even when no physical goods are shipped across borders.

Step 3: Strengthen Internal Compliance Procedures

Establish clear internal policies for compliance, employee training, recordkeeping, approvals, and periodic risk assessments. Well-documented procedures help reduce operational and regulatory exposure.

Step 4: Maintain Financial and Corporate Transparency

Keep corporate records, ownership information, financial documentation, and governance practices up to date. Transparent documentation supports smoother fundraising, banking relationships, and international transactions.

Step 5: Monitor Regulatory Changes Continuously

Political and regulatory requirements evolve frequently. Regularly reviewing legal developments and reassessing compliance risks enables companies to adapt quickly and avoid unexpected disruptions to international operations.

How Can Companies Build an Effective Political & Regulatory Risk Management Process?

In the monitoring process, there are a total of six phases. The first phase consists of mapping exposure. When mapping exposure, parameters such as country, type of consumer, types of investors, payment systems and the delivery method are used. The second phase involves classification of products and services based on dual-use, defense issues, encryption issues and issues related to sensitive data. The third phase involves checking both counterparties and ownership structure rather than only their names. The fourth phase involves noting the fact regarding end-use, approvals and escalation paths in relation to high-risk transactions. The fifth phase includes screening tax compliance, privacy measures and reporting requirements prior to entering new markets. Finally, the sixth phase includes governance and coordination of the finance, legal, sales and operations departments.

Key Takeaways

Israeli companies should not treat political and regulatory risk as a distant geopolitical issue. The operational test is simpler: do you know who you are dealing with, what rules apply to your product and data, and what documentation your bank, investor, buyer, or regulator will ask for next? Companies that answer those questions early are usually in a stronger position to protect growth, pass diligence, and keep cross-border expansion moving.

Frequently Asked Questions About Political & Regulatory Risk

What is political and regulatory risk in simple terms?

It is the risk that government action, sanctions, export rules, privacy requirements, tax, or enforcement changes may affect a company’s operations, contracts, payments, or overall business value.

Can we breach sanctions if a customer is not named on a sanctions list?

Yes. In some cases, sanctions restrictions may also apply to companies that are owned or controlled by sanctioned individuals or entities, even if the company’s name does not appear directly on a sanctions list.

Do software access or technical support ever count as exports?

Yes. Export control requirements may apply not only to physical products but also to software, technical data, digital services, technical assistance, and certain cross-border technology transfers.

Why are banks requesting more beneficial ownership information?

Financial institutions increasingly require accurate and up-to-date information about a company’s ownership and control structure as part of their compliance, due diligence, and risk management processes.

Should Israeli startups consider regulatory reviews before fundraising or an exit?

Yes. Certain cross-border investments, acquisitions, or strategic transactions may be subject to additional regulatory review depending on the industry, technology, ownership structure, and the jurisdictions involved.