September 22, 2007

Have ICANN's directors placed their personal assets on the IRS chopping block?

At the August 14 meeting of ICANN's board ICANN's board agreed to cover the expenses of the soon-to-be former Chairman of the Board to attend the IGF meeting in Rio de Janeiro.

That former Chairman will have no legal relationship to ICANN; neither a director nor an officer nor an employee.  Yet ICANN's voted to give this former chairman the power "to speak on behalf of ICANN".  Absent a legally cognizable relationship this power is a non sequitur, an oxymoron.

And it could prove to be an expensive oxymoron for those directors who voted for it.

I note, in passing, that according to the minutes the vote of the board was unanimous, 12:0, and that the person who is soon to be that former Chairman was in attendance.  Thus it appears that he did not excuse himself from this self-interested vote and did, in fact, vote to grant himself this benefit to be paid after his term expires.

Now why could this be an expensive oxymoron?

The United States tax code has provisions that are called "intermediate sanctions".  These are draconian sanctions that are intended to strongly discourage Federal tax exempt corporations, such as ICANN, and their boards from granting excessive benefits to closely related parties, such as directors and executive officers.

A non-profit corporation such as ICANN has no business giving excessive benefits - ICANN is intended to benefit the community of internet users not to send former directors on junkets to Rio.

And the law says that the payment by tax exempt corporation such as ICANN of an excess benefit to a closely related party is frequently unlawful.  And is there any doubt that a person who held the chairmanship of ICANN for the last six years is a very closely related party?

And what is this expense account to a former director, a person legally detached from the corporate body of ICANN, but an excess benefit?

Under the intermediate sanctions law, the gift may have to be disgorged and heavy "excise tax" could land on the directors who voted for this

And because it is a tax ICANN's insurance coverage may not apply to cover the tax that may land on the pocketbooks of ICANN's directors who voted for this boondoggle.

I've warned ICANN several times since 1999 about the risks of disregarding this law.  To my way of thinking the only way that ICANN's directors and officers, and particularly their legal advisors, could claim that they did not know about this risk would be for them to admit that they have chosen not to know - a kind of self-inflicted naivety - about the legal context in which ICANN operates.

The board minutes suggest that ICANN's vaunted legal team didn't even mention the risk.  But given my previous experiences with that team, I am hardly surprised.  It's kinda ironic that at this same meeting ICANN voted a payment of $300,000 for 3 months legal fees to that team.

It is disappointing how frequently ICANN behaves in ways that make Enron look good.

Posted by karl at September 22, 2007 2:56 AM