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Take action to save .org and prosecute those who sold out the internet (drewdevault.com)
212 points by zdw 6 days ago | hide | past | web | favorite | 27 comments

While I don't agree with the sale of the .org to a for-profit entity, I believe the premise of this objection is not tenable. From what I can glean, while PIR is a non-profit, it was not a non-stock company (non-profits are often, but not always non-stock companies, meaning they have no shareholders). Were it a non-stock company, it would be impossible for it to be acquired for any material compensation, because there are no shareholders from whom to buy the company. In this case, however, it appears that PIR was a wholly-owned subsidiary of ISOC (ie. a stock corporation with a single shareholder). As such, it is an asset of ISOC and can be sold by ISOC legally. A non-profit is allowed to sell its assets, so long as it does so at fair market value, and the value received remains on the balance sheet of the non-profit (i.e. proceeds cannot be distributed to any kind of shareholders). As long as ISOC retains the $1B it received and continues to use it to further the mission that it was given non-profit status to pursue, such a transaction is perfectly legal.

(I'm not a lawyer but have been involved in the creation and certification of multiple non-profits, including in Va. where PIR was formed, and have been party to asset sales from non-profits.)

(I also work in the nonprofit space)

In this case, ISOC should almost certainly lose their 501(c)3 status, as the transaction is unrelated business income, and may or may not have been sold at fair market value (I don’t believe it was). In either of these cases, the penalty is at minimum the removal of their 501(c)3 status.

I believe they may be preempting this by converting themselves to a “B Corp.”

The case of ICANN is more interesting. I believe they knew what was going on here, and facilitated this transaction to their former CEO. In this case, the IRS has good reason to revoke ICANN’s 501(c)3 status, as this transaction was self-dealing.

Unrelated business income does not cause a loss of 501(c)3 status, it's just that the unrelated income is not tax exempt (i.e. the org which otherwise does not pay taxes on income has to pay income tax on the unrelated income).

Also, if I understood correctly, it is PIR that is considering becoming a B Corp, which they can do since they cannot remain a 501(c)3 now that they are owned by a for-profit entity.

Last, it would be very difficult to prove this wasn't a fair market value transaction. There was an investment banker involved (Goldman), so I assume they shopped to a number of different parties, in which case it's hard to argue that the price paid (assuming it was one of the highest bids) is not the FMV.

As I said in my original comment, I don't like the transaction, so don't take this as a defense of the appropriateness of selling it to a for-profit. But I think it is difficult to challenge on the basis that the transaction itself was illegal.

Excessive unrelated business income causes a loss of public charity status due to failing the public support test. In this case it’s moot because ISOC is giving up on their status regardless. I was wrong saying 501(c)3 status is lost- instead, the organization becomes a private foundation with accompanying restrictions and regulations (e.g. disbursement requirements).

In the case of ICANN, I can see the IRS dropping 501(c)3 status. While the final purchase price of the .org asset may or may not have been at fair market value (as you note, having GS involved gives credibility), it’s undeniable that ICANN made it possible by lifting price hikes. I don’t see how it isn’t self-dealing, unless ICANN truly had absolutely no idea their former CEO was going to acquire .org. I think it’s more likely that they were convinced to lift the price hikes by their former CEO.

you raise an interesting point that caused me to look deeper into the 990s filed by ISOC and PIR. So, I share this in case you are curious (or getting sucked down this rathole like I am:)).

In 2017, ISOC created the Internet Society Foundation (like PIR a wholly owned subsidiary of Internet Society). PIR was a cash machine, generating ~$75M in cash, which they recorded as having been paid out in grants. ISOC split that so that ~30M showed up as revenue on Internet Society's 990, and $43M showed up on the newly created Internet Society Foundation's 990 as revenue. This may have been to avoid ISOC failing a public support test? (I'm operating at the limits of my understanding at this point and haven't taken the time to dig into this question). I am going to speculate that the proceeds from the sale of PIR will also go into the Foundation.

Interestingly, the ISOC 990 does not show their ownership in PIR as a material asset on the balance sheet. One would think that a wholly owned sub that has $90M+ in revenue and throws off $75M in cash would be treated as an asset of value? It's possible there is something about non-profit accounting that makes this okay under GAAP - not something I know much about, but it caught my eye.

I don't know how to evaluate the self-dealing question - I have dealt with some of the other issues here (eg disposition of non-profit assets, unrelated income, etc) as a non-profit founder, board member, or treasurer, but I have never wrestled with a self-dealing issue (thankfully!), so I don't know what the courts would look for there.

Edit: source here is 2017 990s for Internet Society, Internet Society Foundation, and Public Interest Registry, pulled down from Guidestar. 2017 is the most recent year available for all three.

Since you seem like an expert, can you comment on the self-dealing aspect of this?

And as you likely know, there is a 200% penalty for self-dealing.

If you extract a billion dollars from a non-profit for self-dealing purposes, you owe the IRS $2 billion.

Seems like the most likely route to success would be for a few big internet companies to set up a .org nonprofit and treat it as the authority, ignoring icann. Fork the tld, in other words.

This is essentially impossible though.

It sounds good but I don't see most ISPs caring.

The ISPs don't have to. You only need the major OS and maybe browser vendors.

Major OSes just use the ISP DNS server - changing that would break a lot of stuff.

For example in countries with limited internet, you need to connect to the ISPs servers (redirect from http sites) to purchase data allowances.

> The level of corruption on display by the three organizations involved in this scam: ICANN (Internet Corporation for Assigned Names and Numbers), ISOC (The Internet Society), and PIR (Public Interest Registry), is astounding and very illegal.

If these organizations are so corrupt, then them selling .org simply demonstrates that they're too corrupt to manage it. We can't simply reverse this, you're just handing it back to the entity that sold it.

So... what do we replace them with? Because I'm pretty sure you'll get a new organization made up of people who will be as fallible and prone to corruption as any of these organizations and Ethos are.

Great point. If you click through to savedotorg.org they say this:

> We cannot afford to put them into the hands of a private equity firm that has not earned the trust of the NGO community.

The private equity firm hasn't earned the trust of the NGO community and the current caretakers have lost the trust of the NGO community. So what now?

So why not let them sell it and then found .ngo (or something like that).

To me the fundamental problem is that someone has to own the tld itself.

a non-profit consortium consisting of .org stakeholders could be a start

Cooperative ownership.

> So... what do we replace them with?

Don't replace the organizations - just prosecute their corrupt members. That will keep in line their replacements.

Is there anything meaningful that non-US based people can do? Who is ICANN accountable to internationally?

I read this, and it doesn’t seem they are accountable to anyone? But I am probably wrong. Enlighten me. https://www.icann.org/stewardship-accountability

> Funny how this all happened right when the American public would be distracted

The vast majority of the American public wouldn't care about this no matter when it happened.

It was a mistake to have GLTDs other than the two-letter country codes. That would have ensured that the DNS namespace was partitioned in a way that mapped directly to legal jurisdictions.

As it is now, we have the proliferation of GTLDs that with an extremely ambiguous mapping to legal jurisdictions.

Agreed. Still, for large, international companies and institutions I doubt the `.int` TLD would have caught on.

.int is for international treaty organisations. It is highly restricted, it is not available to companies.

Can FAANGish companies setup an alternative root for .org? We would all prefer a technical solution, but we don't have one today.

No. For example, I have a .org email domain. In order to make this work, everybody involved, that is dns, email hoster and various dbs, ssl certs infra, browsers and email apps, they all need to properly resolve my .org domain. It's unrealistic to expect all these parties to suddenly respect the new dns resolver.

Looks like Russian-style "privatization" has finally come to America!

It's the opposite. Iirc, icann was a semi gov entity and everybody complained that the internet is effectively controlled by the US gov via ICANN. So the gov decided to yield and give ICANN freedom. Sure enough, icann was quickly captured by pirates.

I was referring to the original sellout of USSR institutions during the '90s: as the world pushed the Soviets to renounce public ownership, they sold off massive assets at fire-sale prices to well-connected profiteers.

Here, .org had certain restrictions that made its governance somewhat "public". Those restrictions were removed and the asset was hurriedly sold, at a debatable price, to well-connected profiteers. Looks very similar to me.

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