BY TENGKU NOOR SHAMSIAH TENGKU ABDULLAH
KUALA LUMPUR, July 23 – The order for Network School to cease operating in Forest City is about more than a business licence. It tests Malaysia’s ability to welcome international technology investment while protecting its laws, sovereignty and national interests.
Malaysia is entitled to insist that every investor complies with its regulations. Global connections, technological ambitions and promises of substantial investment cannot place any company above the law.
At the same time, enforcement must be transparent, proportionate and based on verified facts. Malaysia’s credibility as an investment destination depends not only on enforcing its laws, but also on explaining clearly and consistently how those laws have been applied.
That is the central lesson from the Network School controversy.
What is Network School?
Network School was founded by American technology entrepreneur and investor Balaji Srinivasan, a former chief technology officer of cryptocurrency platform Coinbase and the author of The Network State.
Its operation in Forest City began in September 2024 as an international residential and entrepreneurial community. It brought together technology founders, investors, programmers and other digital professionals for educational, networking and start-up-related activities.
The venture was associated with Srinivasan’s broader “network state” concept, under which online communities may develop institutions and eventually establish a physical presence.
Supporters may regard this as an experiment in entrepreneurship and digital community-building. For a host government, however, such an unconventional arrangement inevitably raises regulatory questions.
Is it a school, residential community, accommodation provider, business incubator or a combination of these activities? What licences and approvals does it require? Does the actual use of its premises correspond with what the local authority approved?
These are legitimate regulatory questions. Asking them does not make Malaysia hostile to technology or foreign investment.
Why Forest City mattered
Network School’s choice of location is an important part of the story.
Forest City was launched in 2016 as an ambitious development on reclaimed islands near Singapore, with plans to accommodate a far larger population than it ultimately attracted during its early years.
The federal and Johor governments have since introduced measures intended to reposition Forest City as a centre for financial services, investment and other economic activities.
Forest City was designated a Special Financial Zone on 25 August 2023. A package of incentives for the zone was subsequently announced in September 2024 to attract financial services, fintech and other high-value activities.
Its strategic location near Singapore and its need for sustainable commercial activity meant that an international technology community could potentially contribute to the area’s renewal.
However, the potential economic value of a project does not remove the operator’s responsibility to secure the necessary licences and comply with the approved use of its premises.
How the controversy began
Network School came under public scrutiny after allegations circulated on social media that Israeli nationals might have been among its participants and could have entered Malaysia using passports issued by other countries.
The allegations were significant because Malaysia does not maintain diplomatic relations with Israel and imposes restrictions on the entry of Israeli passport holders.
These were allegations, not established findings.
The Immigration Department subsequently inspected 266 foreign nationals from 40 countries associated with Network School’s activities. Immigration director-general Datuk Zakaria Shaaban said 256 held Social Visit Passes, while 10 held Professional Visit Passes under the nomad category.
According to Zakaria, all 266 possessed valid travel documents based on the department’s records at the time of the inspection. He also said the department had found no evidence at that stage establishing the presence of Israeli nationals, although further checks were continuing.
That official finding must remain part of any fair account of the controversy.
As its review widened, the Immigration Department identified 430 individuals in its records as having links to Network School. Zakaria said 210 remained in Malaysia and 201 had been confirmed as having left the country.
The department said it had not been able to trace the movements of the remaining 19 and was investigating whether they were still in Malaysia or had left the country.
The position of those 19 individuals remained unresolved at the time of the department’s statement. Their untraced movements do not, by themselves, establish their nationality, immigration status or involvement in any wrongdoing.
It is therefore important to distinguish between allegations that prompted an investigation and violations that have been formally established.
Srinivasan subsequently requested a meeting with Prime Minister Anwar Ibrahim and sought greater regulatory certainty for the project.
In a public statement on 16 July, issued before MBIP’s final decision, Srinivasan said Network School respected Malaysia’s sovereignty, would abide by its laws and was seeking a formal understanding with the government to restore investor confidence.
He also announced that a proposed expansion—which he valued at more than RM500 million—would be placed on hold. Srinivasan said Network School had already invested more than RM100 million in Forest City without government funding.
Those investment amounts are Srinivasan’s own stated figures and have not been independently confirmed by the Malaysian authorities.
Why the authorities ordered operations to cease
On 21 July 2026, Johor Menteri Besar Onn Hafiz Ghazi announced that the state government fully supported the decision of a special full meeting of the Iskandar Puteri City Council, or MBIP, involving NSO Malaysia Sdn Bhd, the operator of Network School.
The company was ordered to cease all Network School activities in Forest City from 22 July 2026.
According to the Menteri Besar’s official statement, the decision followed inspections, enforcement findings and consideration of representations submitted by the company.
Onn Hafiz said enforcement could be taken only after complaints and information had been verified, inspections conducted, non-compliance identified and the relevant legal process completed.
He also stated that “no investor, company or organisation can be placed above the sovereignty of the country’s laws”.
That principle is sound. Malaysia cannot create one legal standard for domestic businesses and another for prominent international investors.
The basis of MBIP’s enforcement action must nevertheless be understood accurately.
According to MBIP’s official account, inspections and monitoring were conducted on 12, 14, 19 and 20 July 2026. The council’s findings concerned two premises at Teluk Bintang, Jalan Forest City 5.
MBIP said one unit was found operating without a business licence. It consequently issued a notice requiring business operations at that unit to stop under the Iskandar Puteri City Council Trade, Business and Industrial Licensing By-Laws 2018.
For another unit, MBIP said the activities conducted at the premises differed from its approved use as a business office. The council revoked the relevant business-premises and advertising licences. It also said the signboard displayed at the premises did not correspond with the approved advertising application.
These were the licensing, premises-use and advertising-compliance grounds identified by MBIP.
They do not, by themselves, prove the separate allegations concerning the nationality of Network School participants. The immigration investigation and MBIP’s licensing action must not be presented as if they reached the same finding.
MDEC’s response
On 21 July 2026, the Malaysia Digital Economy Corporation announced that it was taking immediate steps to revoke the Malaysia Digital status granted to NSO Malaysia.
MDEC said companies holding Malaysia Digital status are required to obtain the relevant permits and licences for their approved activities and comply with all applicable regulations and licensing conditions.
Its statement said:
“The revocation of NSO’s business licence constitutes an infringement of these conditions. Hence, MDEC is taking immediate steps to revoke the MD status of NSO.”
The regulatory sequence should be described carefully.
MBIP took action against the company’s business operations and licences. MDEC then treated the business-licence cancellation as a compliance issue under the conditions attached to Malaysia Digital status and began steps to revoke that status.
As of MDEC’s statement on 21 July, the agency was taking steps towards revocation. It did not state that the process had already been completed.
MBIP’s licensing decision and MDEC’s action concerning Malaysia Digital status were therefore separate regulatory processes, although the first triggered the second.
No investment can override the law
Johor is right to insist that investment cannot be placed above Malaysian law.
Malaysia needs foreign capital, global entrepreneurs and advanced technological expertise. Johor’s proximity to Singapore gives it considerable potential as a regional centre for technology and investment.
Forest City, in particular, needs credible and sustainable commercial activity.
None of this, however, can override licensing, planning, immigration or premises-use requirements.
Malaysia Digital status is an official recognition, not an exemption from other laws. Federal recognition does not replace approval from the relevant local authority. Similarly, a local business licence does not remove the obligation to comply with immigration and security requirements.
A credible investment destination is not one that gives influential investors special treatment. It is one that provides clear rules and applies them consistently.
Transparency will strengthen Malaysia’s position
The official statements have provided important details about the inspections, affected premises and licensing issues identified by MBIP.
Further clarity would nevertheless strengthen the government’s position.
The authorities could explain when the discrepancies first arose, whether the activities at the premises changed after the original approvals were obtained and what opportunities were provided for the company to rectify the identified non-compliance.
Sensitive security information need not be released. Nor should authorities disclose anything that could compromise continuing investigations.
However, sufficient information should be available to demonstrate that enforcement resulted from an orderly regulatory process based on identified breaches.
This is especially important because the licensing action followed a highly charged public controversy involving Israel and Malaysia’s longstanding support for Palestine.
Without a clear explanation, some observers may incorrectly conclude that the company was ordered to stop operating solely because of the original allegations.
That would overlook the Immigration Department’s statement that the 266 people initially inspected possessed valid documents at that point, as well as MBIP’s separate account of the licensing and premises-use violations.
Malaysia’s case is strongest when it demonstrates that its decisions are based on documented facts, applicable laws and due process—not public pressure or unverified claims circulated online.
Questions for the approval system
The controversy also raises legitimate questions about Malaysia’s investment-screening and approval processes.
If Network School’s actual activities were inconsistent with the conditions attached to its licences, when did that inconsistency begin? What information was considered before NSO Malaysia received Malaysia Digital status? Did the federal agency and local authority share the same understanding of the company’s intended operations?
MDEC was justified in initiating its review once the cancellation of the business licence triggered a compliance issue under the conditions attached to Malaysia Digital status.
Nevertheless, an effective regulatory system should identify a significant mismatch between approved and actual activities before it develops into a national controversy.
Projects combining accommodation, education, international participation, entrepreneurship and technology investment may not fit neatly within a single regulatory category.
Malaysia therefore needs stronger coordination among investment agencies, local councils, immigration authorities and security bodies when evaluating unconventional international ventures.
The Johor government has called for tighter due diligence covering an organisation’s background, ownership, financing and operating model. That recommendation deserves consideration at the national level.
Due diligence must, however, remain objective and connected to identifiable legal, financial or security risks. It should not become an imprecise mechanism for rejecting an investment merely because its concept is unfamiliar or unconventional.
Innovation and sovereignty can coexist
The Network School controversy should not become an argument that Malaysia must choose between innovation and sovereignty. It needs both.
Malaysia should welcome international founders who build businesses, transfer knowledge, support local start-ups and create quality employment.
Those investors, in turn, must accept that operating in Malaysia means complying with Malaysian law and recognising the authority of Malaysian institutions.
The government must provide a regulatory environment that is clear, coordinated and predictable. Investors should know from the beginning which approvals they require, what activities are permitted and which agencies exercise authority over their operations.
Johor was entitled to act on the regulatory findings presented by MBIP. MDEC was also justified in initiating its review once the cancellation of the business licence triggered a compliance issue under the conditions attached to Malaysia Digital status.
The next step is to ensure that the grounds for those actions remain clearly explained and to examine how the project progressed through different layers of approval before enforcement became necessary.
Malaysia will not strengthen its reputation by overlooking its laws to retain an investor. Nor will it strengthen that reputation by allowing uncertainty to persist over why a prominent international venture was ordered to stop operating.
It will do so by demonstrating that its laws are clear, its institutions are coordinated and its decisions are based on evidence.
That is how a sovereign country remains open to innovation without surrendering control over what happens within its borders.
Editorial note: This opinion draws principally on official statements issued by the Johor Menteri Besar, MBIP and MDEC, together with public statements by Immigration director-general Datuk Zakaria Shaaban and Network School founder Balaji Srinivasan. Allegations are identified as such and should not be interpreted as findings of wrongdoing. The views expressed are the writer’s own.
- TNS NEWS