Malaysia says it wants founders, investors, digital talent and high-value technology companies. It has spent years building programmes around that ambition, including a national goal of becoming one of the world’s top 20 startup ecosystems by 2030.
Then Network School came to Forest City and brought precisely that sort of community with it.
The controversy erupted in July 2026 after allegations circulated that Israeli nationals had participated in Network School programmes using passports issued by other countries. Given Malaysia’s position on Israel and its immigration laws, those claims obviously warranted investigation.
But an allegation is not a finding.
Immigration officers initially inspected 266 foreign nationals from 40 countries and found that all possessed valid immigration documents. Further investigations eventually identified 430 foreigners associated with Network School. Of these, 210 remained in Malaysia and 201 had departed, while the movements of 19 could not immediately be verified. Crucially, the Immigration Department said it had found no evidence of passport or identity-document misuse among those it had inspected.
That makes what happened next particularly important.
Network School was not ultimately shut down because the authorities established some secret Israeli infiltration operation. It was closed because of business licensing and premises-use violations.
Inspections found that the company operated from two premises. One had a valid licence for an administrative office but was being used for activities outside that approved category, including classes. Another was operating without the required local business licence. There were also issues involving advertising and signboards.
These are regulatory breaches. They should not simply be ignored. But neither are they the sort of violations that inevitably require destroying the entire operation.
Require Network School to obtain the correct licence. Order it to regularise the use of its premises. Fine the operator. Remove non-compliant signage. Give it a strict deadline. Inspect it again. If it refuses to comply, then escalate enforcement.
That is what regulation is supposed to do: bring an operation into compliance.
Instead, the Iskandar Puteri City Council revoked the business licence and ordered Network School to cease all operations from 22 July. Its premises were sealed, signs disappeared and members began packing their luggage and leaving Forest City.
The severity of that response looks even stranger considering Network School had been operating in Johor since 2024 with the state government’s knowledge. Just before the shutdown, Digital Minister Gobind Singh Deo said checks within his ministry’s jurisdiction found its applications to be in order, while immigration checks had similarly found the relevant applications complied with required procedures.
Nor was Network School an illicit university hiding behind a misleading name. The Higher Education Ministry established that it was not a registered private higher education institution and described it instead as a private residential community and co-working space for technology entrepreneurs, investors and startup practitioners.
And that is precisely why Malaysia should have thought much harder before killing it.
Forest City has spent years trying to escape its reputation for empty apartments, quiet streets and unrealised ambition. Network School was filling some of that space with actual people: entrepreneurs, developers, investors and remote workers who lived there, worked there and spent money there.
Local businesses felt the effect. One nearby food operator reported that Network School members had increased her business by an estimated 10 to 20 per cent over several months. After the closure, a Forest City resident unaffiliated with the organisation described its arrival as having brought new life and greater vibrancy to the development.
Then there is the investment.
Network School said it had already invested more than RM100 million in Malaysia and had plans for a further RM500 million expansion. Those figures originate from the company and should therefore be treated as its claims rather than audited government figures. Nevertheless, the proposed RM500 million investment was placed on hold as the controversy unfolded.
Malaysia did not merely lose a few occupants from Forest City.
It potentially lost the next stage of an international technology community that was already here.
The contrast became almost embarrassing when, immediately after the Malaysian operation was halted, Network School announced an agreement to establish a campus in Kazakhstan. The planned collaboration includes artificial intelligence programmes, startup support, research, international events and efforts to attract engineers, entrepreneurs, researchers and investors.
Another country saw an opportunity. Malaysia saw a licensing problem.
The standard defence is that no investor is above the law. Correct. Nobody is arguing otherwise. Foreign investors should obey exactly the same laws as everyone else.
But “no one is above the law” does not answer the question of proportionality.
A government can enforce the law without choosing the regulatory equivalent of the death penalty every time a business gets something wrong. Good administration distinguishes between violations that must be stopped completely and violations that can be corrected.
This matters because Malaysia is simultaneously telling the world that it wants to become a major startup destination. Its own national policies emphasise attracting founders, capital and technology while improving the regulatory response to innovation. The stated ambition is to place Malaysia among the world’s top 20 startup ecosystems by 2030.
Those ambitions require more than conferences, incentives and glossy slogans. They require regulatory judgement.
Network School should have complied fully with Malaysian licensing requirements. Where it failed, enforcement was justified.
But Malaysia could have fined it, corrected it and kept it here. Instead, the government chose the most destructive remedy available and transformed an administrative compliance problem into a warning about regulatory risk.
Forest City finally had an international technology community bringing people and economic activity into a development that desperately needs both.
Malaysia could have regulated it.
Instead, it chose to kill it.