Malaysia will immediately deport any Israeli national found on its territory, Prime Minister Anwar Ibrahim announced on Wednesday, as federal authorities investigate allegations that Israelis using second passports participated in a technology-focused residential community in Johor. The statement triggered an immediate response from Balaji Srinivasan, founder of the Network School in Forest City, who said he was suspending all new investments—more than US$500 million in potential commitments—until his community receives guarantees it will not be treated as illegal immigrants. Srinivasan has also requested a meeting with Anwar to negotiate a memorandum of understanding with the government.

The controversy began when an anonymous social media account accused the co-living campus of harbouring illegal immigrants, prompting Johor’s chief minister to call for a federal probe. Immigration officers inspected 266 foreign nationals from 40 countries on 14 July and confirmed all held valid travel documents; 256 were on social visit passes and 10 held digital nomad passes under the DE Rantau programme. No evidence of Israeli citizens has yet been found, but investigations continue. Malaysia has no diplomatic relations with Israel and bars Israeli passport holders from entry, a policy rooted in decades of pro-Palestinian solidarity that Anwar has reinforced since the Gaza conflict escalated. A constitutional law expert at the International Islamic University Malaysia warned that the security dimension must not be taken lightly, citing the 2018 assassination of a Palestinian academic in Kuala Lumpur, widely attributed to foreign intelligence operatives.

Srinivasan, a former Coinbase chief technology officer, said his venture had already invested over RM100 million in Malaysia, creating jobs for locals and supporting the revival of Forest City, a China-backed development. He described the investigation as a form of “swatting” where the process itself becomes punishment, even though the allegations were unsubstantiated. Business groups in Kuala Lumpur offered a more measured view: the president of the Small and Medium Enterprises Association of Malaysia said he felt sympathy for the founder but urged him to use the episode as a catalyst, noting that the government’s commitment to tech hubs like the KL20 vision and the Johor-Singapore Special Economic Zone remains “rock-solid”. Meanwhile, a Malaysian digital nomad told the South China Morning Post that such news cycles are unlikely to deter global remote workers, who prioritise visa clarity, cost of living and internet reliability over isolated controversies.

Anwar has instructed authorities to examine the project’s business licences, accommodation arrangements and land use, and to take firm action on any violations. The next milestone will be whether the requested meeting between Srinivasan and the prime minister takes place, and what form of assurance—if any—the government offers to restore confidence among the tech investors who had begun to view Malaysia as a base for building a Silicon Valley alternative in Southeast Asia.