Afrinic bank accounts frozen after R740 million damages claim

The African Network Information Centre (Afrinic) has had its bank accounts frozen after Cloud Innovation obtained a garnishee order against the Internet registry in the Supreme Court of Mauritius.

This comes after Afrinic confiscated over 6 million Internet Protocol addresses, worth an estimated R1.8 billion, from the network service provider.

A block of IP addresses may be thought of as raw, undeveloped Internet land.

For anyone to connect to the Internet, or for any server to host content online, they need an IP address.

IP addresses are an essential Internet resource and, until the newer IP version 6 standard is more widely adopted, increasingly rare.

Afrinic allocated Cloud Innovation’s IP address space years ago in several tranches.

Even then the allocation raised eyebrows and resulted in heated exchanges on Afrinic’s mailing lists due to its size.

Cloud Innovation’s substantial allocation of African Internet real estate has remained controversial, as much of it appears to be used in China, not Africa.

Although registered in the Seychelles, Cloud Innovation works hand in glove with a Hong Kong company called Larus Limited.

An analysis from Internet investigator Ron Guilmette in 2020 showed that around a sixth of Cloud Innovation’s IP address space was routed in Africa.

However, Cloud Innovation founder Lu Heng has maintained that there was nothing untoward about the award of their IP address blocks.

Heng also said there was nothing in Afrinic’s policies at the time of the award that restricted where and how they were allowed to use the IP addresses.

While newer policies did introduce controls, he said these do not apply retroactively.

Lu Heng, founder of Cloud Innovation and Larus Limited

Based on documents released by Cloud Innovation, Afrinic contended that the company was in breach of their Registration Service Agreement for the following reasons:

  1. The records Cloud Innovation provided for its IP address blocks in the Afrinic Whois database are inconsistent with its use, based on data from the global Internet routing system. If IP addresses are Internet real estate, then Afrinic’s Whois database is like the deeds office for all of Africa and the Indian Ocean region.
  2. Cloud Innovation is no longer using its IP address blocks for the purposes it stipulated when it applied for them.
  3. Most of Cloud Innovation’s IP address space was used outside the Afrinic service region.

Afrinic gave Cloud Innovation from 23 June 2020 to 14 July 2020 to comply with their Registration Service Agreement.

Cloud Innovation responded to Afrinic on 13 July 2020 in a letter signed by its legal and compliance officer, Victor Chan.

“We find your lack of understanding on the basics of global routing alarming and humbly suggest for Afrinic to equip its internal staff members with better knowledge on the basic functions of the internet,” Chan said in the letter.

Chan said they take great pains to ensure the registration information in the Afrinic Whois database is accurate.

In a subsequent document, Cloud Innovation stated that it did find a handful of errors in its Whois registration data and promptly corrected it.

On the point that Cloud Innovation is no longer using the IP addresses for the purposes it originally applied for, the company said that there is no formal mechanism in place to allow it to provide Afrinic with updates.

“We humbly wish to point out that it is impractical to obtain the written approval of Afrinic for every time updates through the Whois database are conducted,” Chan stated.

Cloud Innovation also stated that it believed it has continued to use its IP addresses in line with the original purpose it requested them for.

Regarding Afrinic’s final point that Cloud Innovation was using most of its IP address space outside of Africa, Chan reiterated Heng’s arguments that there is no Afrinic policy prohibiting the use of Internet resources outside the region.

In addition to the letter it sent on 13 July 2020, Cloud Innovation also applied for an injunction in the Supreme Court of Mauritius, where Afrinic is headquartered.

The application was set aside on 7 July 2021, and Afrinic moved immediately to terminate Cloud Innovation’s membership and seize its IP resources.

In a note to the Afrinic community mailing list, Afrinic CEO Eddy Kayihura said that the board found that Cloud Innovation failed to honour its obligations under its Registration Service Agreement.

“The resources previously allocated to Cloud Innovation Ltd will be ‘frozen’ on the Afrinic Whois database,” Kayihura explained.

“In order not to disrupt Internet connectivity of the relevant users especially in the current context of the Covid–19 pandemic, all affected users will exceptionally be granted a grace period of 90 days to consider other available options in their best interests,” he said.

“Consequently, the actual reclamation of the relevant number resources will occur following the expiry of the grace period.”

Eddy Kayihura, Afrinic CEO

Cloud Innovation applied for an urgent injunction against Afrinic to block the Internet registry from confiscating its IP addresses, which was granted on 13 July 2021.

Based on documents provided by Cloud Innovation, Afrinic failed to comply with the injunction until a judge warned the registry’s legal team that the court would hold it in contempt.

Afrinic reinstated Cloud Innovation’s membership and restored its IP address blocks on 15 July.

Cloud Innovation lodged a claim for damages against Afrinic and, on 23 July, received a garnishee order that allowed it to attach up to $50 million (R740 million) from the registry’s bank accounts.

According to the company, its damages claim was for “unlawful termination and illegal acts and doings against Cloud Innovation”.

In enforcing the garnishee order, Cloud Innovation effectively froze Afrinic’s accounts.

The court granted the attachment order in favour of Cloud Innovation using the wording at its own risks and perils.

This phrase means the court granted the order based on the information provided, and if Cloud Innovation enforces the order, it does so at its own risk.

If Afrinic chooses to counter-sue for damages because of the garnishee order, it would therefore be at Cloud Innovation’s risk.

Over this past weekend, Afrinic chair Subramanian Moonesamy sent a message to Afrinic members stating that the organisation had not yet seen Cloud Innovation’s allegations before being informed their bank had frozen their accounts.

“Afrinic has not yet received the relevant information on this matter showing the basis of Cloud Innovation Ltd’s claims, and Afrinic has not yet been given the opportunity to respond to this action,” Moonesamy stated.

“It will, at the first opportunity, exercise all legal rights available to it before the Court.”

Moonesamy said that the Afrinic board of directors held an urgent meeting and identified alternate means of funding.

Cloud Innovation said in a press release that it never intended to take any action against Afrinic.

“But we are also obligated to take the appropriate measures to protect ourselves, the hundreds of our customers, and hundreds of millions of end-users,” the company stated.

“Up to this day, we still welcome the chance of Afrinic coming to an understanding of its own fault and taking the relevant culpability and responsibility that would remedy the situation.”

Cloud Innovation said that it would be open “to any reasonable resolution proposed by Afrinic.”

Following the news that Afrinic’s accounts had been frozen, the member of the board who was recently elected to represent the Southern African region, Mark Elkins, announced that he had resigned with immediate effect.

“I’m still under NDA so can’t say much. I do disagree with what is happening and feel that I have been grossly mislead. The current situation has been brewing for months — long before I joined,” stated Elkins.

On Tuesday, Afrinic published a video to its YouTube channel in which CEO Eddy Kayihura provided assurances that the registry is continuing to operate at full capacity.

“I would like to emphasise that the procedure [Cloud Innovation] used is normal,” Kayihura said.

He said that such garnishee orders are accepted in multiple jurisdictions to protect creditors by ensuring that the debtor does not evade payment once they hear about the claim against them.

Kayihura stated that Afrinic had still not seen the court papers for the damages claim that Cloud Innovation filed and that they only expected it “in the coming days”.

In the meantime, Afrinic already applied for a variation on the original freezing order.

Should the court not approve their variation request, Kayihura said that they have several contingency plans.

One is to use the joint Regional Internet Registry (RIR) fund that was established in 2015.

“This fund enables other RIRs to intervene to ensure the stability of the global Internet,” said Kayihura.

“We would only trigger this option if our variation request is not successful.”

Kayihura said that they have an assurance of strong support from their sister RIRs around the world.

Now read: R1.3-billion worth of IP addresses stolen in brazen heist

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Afrinic bank accounts frozen after R740 million damages claim