Crisis at Afrinic after R750 million bank account freeze — and how to fix it

The African Network Information Centre (Afrinic) is still locked out of its bank account due to its ongoing dispute with Cloud Innovation.

Unless something changes in the case in the next week or the organisation receives outside help, Afrinic will not make payroll or pay its bills.

Community efforts are underway to raise emergency funds for the organisation, and Afrinic has previously stated that it would try to apply for funds from the Joint Regional Internet Registry Stability Fund.

Researchers at the Internet Governance Project at the Georgia Institute of Technology’s School of Public Policy analysed the crisis at Afrinic. They likened it to “a fight over crumbs”.

They argued that the amount of downside risk Afrinic took on by threatening Cloud Innovation with revocation of their Internet address resources is not proportionate to the potential upside.

Afrinic confiscated over 6 million Internet Protocol addresses, worth an estimated R1.8 billion, from Cloud Innovation. Cloud Innovation is a network service provider that deals in Internet Protocol (IP) addresses.

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

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

Much of the Internet still relies on older IP version 4 (IPv4) addresses, which only provides around 3.7 billion addresses that may be used to route Internet traffic.

Until the newer IP version 6 standard is more widely adopted, the increasingly rare IPv4 addresses will also become increasingly valuable.

In response to Afrinic’s attempted seizure of its IP address allocations, Cloud Innovation sued for damages. It was granted a garnishee order against the organisation to the tune of $50 million (R750 million).

Since Afrinic does not have $50 million, Cloud Innovation effectively froze the organisation’s bank account in executing the garnishee order.

At the heart of the dispute is Afrinic’s demand that Cloud Innovation must account for how it is using its IP addresses.

Cloud Innovation’s substantial allocation of African Internet resources is controversial in the Afrinic community, as much of it appears to be used elsewhere in the world.

It should be noted that Afrinic itself, albeit under a different administration, allocated Cloud Innovation’s IP address space years ago.

Lu Heng, founder of Cloud Innovation and Larus Limited

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.

Afrinic disagreed with Heng’s interpretation of the rules governing African IP addresses and issued Cloud Innovation with a non-compliance notice to that effect.

Cloud Innovation approached the Supreme Court of Mauritius for an injunction to block Afrinic from terminating its membership and seizing its IP address allocation.

When the court set the application aside, Afrinic acted swiftly. Its board met immediately and voted to terminate Cloud Innovation’s membership.

Cloud Innovation contended that Afrinic jumped the gun by not allowing time for them to appeal.

Afrinic also failed to immediately comply with a subsequent court order to reinstate Cloud Innovation’s membership.

The company argued this caused substantial damage to its business, sued Afrinic for damages and obtained the garnishee order.

It should be noted that the court granted the attachment order with 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.

Afrinic has tried to get a variation on the order to pay its staff and bills.

Most recently, on 13 August, the court would not entertain Afrinic’s urgent application to change the order.

The court said Afrinic’s urgent application was procedurally incorrect and instructed the organisation to follow a different procedure. It is understood that the standard procedure for varying the order would take much longer.

As a result, Afrinic is discussing “business continuity options” with its members.

Eddy Kayihura, Afrinic CEO

Fighting over crumbs

Internet Governance Project researchers Milton Mueller, Vagisha Srivastava, and Brenden Kuerbis analysed the case and concluded that Afrinic picked an unnecessary fight.

They also characterised Cloud Innovation’s response as “legal terrorism”.

According to the researchers, the future of Africa’s internet development will not be greatly affected by reserving IPv4 addresses to regional use.

“The growth of Africa’s internet to its full potential — the continent’s population is the same as China’s, exceeds all of Europe, and is twice the size of North America’s — cannot be sustained by the remaining [IPv4] address resources of Afrinic.”

They argued that growth would only be possible if Afrinic imports large numbers of IPv4 addresses and/or relies more on IPv6 addresses.

“This is a fight over crumbs. The collateral damage from this fight is not proportionate to the value of the stakes.”

They concluded that Afrinic’s attack on Cloud Innovation was an overreaction to its past problems and was undertaken without appropriate risk management.

While Afrinic may have a case, the authors stated that the principle it is fighting for — that usage of the numbers it hands out must be confined to the African region — is based on false premises.

“Afrinic [IP addresses] are a drop in the bucket compared to what Africa will need to develop,” they said.

“Cloud Innovation, faced with an existential threat to its business, also over-reacted with what can only be called legal terrorism.”

According to the authors, Cloud Innovation’s lawyers’ moves were designed to destroy Afrinic rather than preserve its legitimate business interests in a contractual dispute.

The authors were also critical of the performance of the Mauritius Supreme Court, saying that it allowed crippling sanctions to be put in place before it heard any detailed evidence.

“It was right to order injunctions to maintain the status quo, but the bank account freeze is questionable,” they said.

“Neither pointing the finger at Afrinic and its past problems, nor decrying Lu Heng as a profiteer helps anything at this point,” the authors concluded.

They said the situation has got out of hand and offered the following suggestion to resolve it:

Firstly, before anything else, Cloud Innovation must back off of its excessive legal measures.

The authors noted that Cloud Innovation now has 11 pending cases against Afrinic, CEO Eddy Kayihura, and the board.

In one suit, Cloud Innovation accuses Kayihura of defamation for making a video describing the situation to Afrinic members.

In another suit, it tries to throw the Afrinic board in jail.

Cloud Innovation should withdraw all of these cases, the authors argue.

Instead, the company should return to its demand for a simple injunction against the reclamation of its address resources while the contractual dispute is being heard.

It may win the case and can continue operating in the interim.

“Cloud Innovation must also come to its senses and realize that its actions directly endangers the value of the very IP address blocks they are trying to protect, as there is already discussion in the ISP community of ceasing routing of the IP address blocks given their excessive methods.”

Secondly, once Cloud Innovation ends the legal arms race, Afrinic must back off from its excessive demands for reclaiming all of Cloud Innovation’s address resources and make its claim of a policy violation clear and its proposed remedies more proportionate.

Afrinic should also place clear constraints on its usage of resource review.

“Its claims that any change in utilisation requires a new needs assessment—and that it must review all the uses of customers as well as the uses of the contracting party—is overly burdensome and interferes with the ability of Internet service providers to respond to market conditions.”

Thirdly, whether Cloud Innovation violated the letter or spirit of the contracts, or whether Afrinic misread its own policies and acted in an excessive and discriminatory manner, is for the court to decide.

Finally, Afrinic needs to come to its senses and accept the global nature of the IP address space and the existence of a market for IP transfers numbers.

“Afrinic also needs to back off from the futile idea that its members cannot use the numbers it allocates outside its region, otherwise it will continue to nurture arbitrage efforts and the potential for corruption.”

The authors also stated that Afrinic needs to learn how to better manage legal risk.

If they are going to engage in or threaten revocation, they are going to be sued.

Afrinic needs to be prepared for that and be more cautious in their use of that remedy.

MyBroadband contacted Cloud Innovation founder Lu Heng for his comment on the resolution proposed by Mueller, Srivastava, and Kuerbis.

Heng said he disagrees with the argument that their actions endanger the value of IP addresses in the region.

He also doesn’t regard the discussion within the Afrinic community about “blackholing” traffic to Cloud Innovation’s network as a credible threat. Large network operators simply wouldn’t do it.

Heng said that Cloud Innovation can’t be expected to back down without a settlement offer from Afrinic and hope the organisation will reciprocate.

Only when the parties have reached a mutual settlement agreement will they be able to stand down at the same time.

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

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Crisis at Afrinic after R750 million bank account freeze — and how to fix it