Barclays Bank is a .brand pioneer, having recently announced plans to migrate its primary online presence to two new gTLDs it will operate on its own behalf. But Barclays Bank has also just plead guilty to a major financial services felony and been fined $2.4 billion for that criminal activity.

While the new gTLD Registry Agreement is clear that a registry operator must remove any officer or director convicted of a felony, it is ambiguous in regard to whether the Agreement can be terminated when the operator itself has been found to have operated a criminal enterprise. This article discusses that ambiguity and several considerations that ICANN may weigh in considering how to interpret and enforce the Agreement in such situations.

This article also describes how a .brand applicant must weigh the marketing and security benefits of that option against the risks entailed into entering into a long-term contractual agreement with ICANN—an organization whose governance, stakeholder composition, and policy views may change substantially in coming years. A registry operator is a perpetual renter and a registry agreement may be terminated by ICANN for reasons other than criminal activities. Notwithstanding Specification 13, which is applicable to all .brand gTLDs, ICANN retains broad discretion to transfer operational control of a .brand registry to an unrelated entity, and this could result in a brand owner losing managerial authority over its main online presence.

.Brand applicants should weigh these risks and rewards carefully prior to entering into a contractual relationship with ICANN and transitioning their online operations to a .brand gTLD.

Note: The author is indebted to Mr. George Kirikos, whose own article first raised this subject and spurred this further inquiry.

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Can a criminal enterprise continue to operate a gTLD—and specifically its own .brand gTLD? That question has been raised by the recent admission of Barclays Bank to a major felony.

An investigation of that thorny question provides no clear answer. It also reveals that the registry operator of a .brand gTLD is a renter, not an owner—and that the interests of its brand and of its landlord, ICANN, may diverge substantially over time, with ICANN always holding decisive leverage over its online brand presence.

Barclays Bank is a pioneer in the world of new gTLD “dot brands”, announcing on May 11th its plans to migrate its online presence away from its longstanding .com and .co.uk domains to its new .barclays and .barclaycard gTLDs.

In the announcement, its Chief Information Security Officer stated:

The launch of the .barclays and .barclaycard domain names creates a simplified online user experience, making it crystal clear to our customers that they are engaging with a genuine Barclays site.

This clarity, along with the advantages of controlling our own online environment, enables us to provide an even more secure service, which we know is of utmost importance to our customers, and ultimately serves to increase trust and confidence in Barclays’ online entities.

One can readily understand why Barclays would want to bolster “trust and confidence” in its brand. Less than two weeks after issuing its .brand launch announcement, Barclays admitted to being a major felon, pleading guilty to illegally manipulating foreign exchange (FOREX) rates for illicit profit and agreeing to have a $2.4 billion fine levied by U.S. and UK authorities.

According to Reuters, the fine will be split as follows:

The bank will pay $710 million to the U.S. Department of Justice, $485 million to the NYDFS [New York Department of Financial Services], $400 million to the Commodities Futures Trading Commission and $342 to the U.S. Federal Reserve. It was also fined a record 284 million pounds, or $441 million, by Britain’s Financial Conduct Authority.

Barclays was not alone in admitting to related criminal banking activities. On May 20th Citigroup, JPMorgan Chase, and Royal Bank of Scotland also entered guilty pleas in the FOREX prosecution, although their fines were not quite as hefty as Barclays’. In a related matter, UBS plead guilty to illegal manipulation of LIBOR rates used to set the interest rate on loans.

The New York Times story on the guilty pleas included this information of substantial relevance to our inquiry:

“If you aint cheating, you aint trying,” one trader at Barclays wrote in an online chat room where prosecutors say the price-fixing scheme was hatched.

In announcing the cases, the Justice Department emphasized that the banks’ parent companies entered the guilty pleas rather than a subsidiary, representing a new frontier in efforts to punish Wall Street misdeeds. At a news conference, Loretta E. Lynch showed that she had taken on the mantle as top Wall Street cop, less than a month after she was confirmed to replace Eric H. Holder Jr. as attorney general.

“Today’s historic resolutions are the latest in our ongoing efforts to investigate and prosecute financial crimes,” Ms. Lynch said on Wednesday.

... And at least for now, the Justice Department did not indict any employees whose errant instant messages underpin the cases against the banks. The banks long ago dismissed most of the employees suspected of wrongdoing, though New York State’s financial regulator, Benjamin M. Lawsky, forced Barclays to dismiss eight additional employees. (Emphasis added)

The FOREX plea is hardly the only problem that Barclays has with law enforcement and financial regulators. In a separate action on May 20th, it was fined $115 million by the Commodity Futures Trading Commission (CFTC) for attempting to manipulate the U.S. dollar iteration of ISDAfix, or the International Swaps and Derivatives Association Fix, between 2007 and 2012. The ISDAfix benchmark is widely used in setting payout rates on pension funds and determining the cost of real-estate loans.

And on May 27th the Wall Street Journal reported that the liquidators of a pair of failed Cayman Islands-based hedge funds were suing Barclays to claw back some $80 million they say was illegally funneled to the bank to cover margin calls. They allege that:

Barclays knowingly participated in ICP Asset Management’s and Priore’s fraudulent purposes. Barclays knew that during the first half of 2008, ICP Asset Management and Priore caused other investment vehicles they managed to make over $40 million in fraudulent transfers to Barclays to cover Triaxx Funding’s margin obligations.

This sordid tale and the twisted trail of Barclays’ criminal and civil misconduct raise this question: What happens to a .Brand gTLD when the company that is both the brand owner and the registry operator admits to or is convicted of criminal conduct?

That’s a very different situation from Barclays’ current Internet presence at .com and .co.uk, where it can keep those domains in perpetuity so long as it pays its registration fees and keeps renewing the domains every decade (and a non-dictionary brand name at the second level should never be subject to the risk of a UDRP, URS, or trademark litigation). It also differs from Barclays or any other financial institution electing to secure a second level domain at the new .bank gTLD. True, those are also leases, but not ones subject to termination at ICANN’s discretion, because they do not involve direct contractual privity with ICANN.

That brings another consideration to the fore. Registry agreements last a decade, but the ICANN one enters a contract with today may be a very different entity in ten years. It will likely remain headquartered in the U.S., but that is not assured. It almost surely will have terminated its direct relationship with the U.S. government and have some form of accountability exercised by its community. That community will quite likely have a far larger proportion of participants from the developing world and consequently a lower proportion from North America, Europe and Australia. While the current IANA transition is being designed to bar direct government control of the root zone, ICANN may well be subject to substantially more government influence (especially as many of its new “private sector” participants will be from nations where the lines between government and industry are less distinct). We are not judging these likely trend lines, merely observing that in a decade ICANN will likely be a contractual partner of considerably different character than it is today.

In any event, that the permanent rental status of a RO is made very clear in Section 7.12 of the standard new gTLD Registry agreement (RA), which states:

Ownership Rights. Nothing contained in this Agreement shall be construed as (a) establishing or granting to Registry Operator any property ownership rights or interests of Registry Operator in the TLD or the letters, words, symbols or other characters making up the TLD string, or (b) affecting any existing intellectual property or ownership rights of Registry Operator. (Emphasis added)

To gauge an answer to our question we have reviewed the .barclays Registry Agreement.

We found this:

4.3 Termination by ICANN.

(f) ICANN may, upon notice to Registry Operator, terminate this Agreement if (i) Registry Operator knowingly employs any officer who is convicted of a misdemeanor related to financial activities or of any felony, or is judged by a court of competent jurisdiction to have committed fraud or breach of fiduciary duty, or is the subject of a judicial determination that ICANN reasonably deems as the substantive equivalent of any of the foregoing and such officer is not terminated within thirty (30) calendar days of Registry Operator’s knowledge of the foregoing, or (ii) any member of Registry Operator’s board of directors or similar governing body is convicted of a misdemeanor related to financial activities or of any felony, or is judged by a court of competent jurisdiction to have committed fraud or breach of fiduciary duty, or is the subject of a judicial determination that ICANN reasonably deems as the substantive equivalent of any of the foregoing and such member is not removed from Registry Operator’s board of directors or similar governing body within thirty (30) calendar days of Registry Operator’s knowledge of the foregoing. (Emphasis added)

Note that this section does not require the criminal conviction to occur in a nation with which a multinational corporation has significant ties, or which has an independent judiciary free of political control. So a registry operator (RO) could find itself in a situation where its CEO and/or Chairman have been found guilty in absentia on flimsy charges in a nation with a politicized judiciary where it has minimal presence, yet ICANN would still have the power to require their immediate removal as the price for continuing the RA.

Parsing this clause further we find what appears at first glance to be a very significant loophole that benefits organizations found guilty of felonies. The RO can clearly be terminated and lose its .brand gTLD if it has any officer or board member convicted of a misdemeanor related to financial activities, or any felony, or who is found guilty of fraud or breach of fiduciary duty, if such officer or board member is not removed within thirty days after the RO gains knowledge of such facts.

But there seems to be no clearly equivalent right to terminate the RO if it is determined to be the criminal—and of course it cannot fire itself.

So yes, you can apply for and operate .mafia—as long as you (legally, without bloodshed, please) “remove” any officer or director connected with the RO who is convicted of a crime.

But that interpretation is open to reexamination. If the phrase “subject of a judicial determination that ICANN reasonably deems as the substantive equivalent of any of the foregoing” is read as relating to “any officer” or “any member of Registry Operator’s board of directors”, then ICANN has no contractual authority to terminate Barclays as RO.

But is that phrase is read as “if (i) Registry Operator…is the subject of a judicial determination that ICANN reasonably deems as the substantive equivalent of any of the foregoing” then ICANN does have grounds to terminate Barclays’ operation of its .brand gTLDs—because “the foregoing” references criminal acts.

Another consideration is that ICANN retains the power to single out Barclays or any other .brand RO for disparate treatment. Section 3.2 of the standard RA states:

Equitable Treatment. ICANN shall not apply standards, policies, procedures or practices arbitrarily, unjustifiably, or inequitably and shall not single out Registry Operator for disparate treatment unless justified by substantial and reasonable cause. (Emphasis added)

That means that even if ICANN adopts a general policy of allowing .brand ROs to retain control of their gTLDs notwithstanding a criminal conviction, it retains the right to single out any RO for disparate treatment whenever it decides the situation justifies it.

And assertions of illegal conduct, much less a criminal conviction, are hardly the only events that can result in a substantial alteration of a RA, although the resulting implications can be much more significant for a .brand gTLD RO than for an ordinary RO. Section 2.2 of the standard RA requires the gTLD to comply with all Consensus and Temporary Policies developed in accordance with ICANN Bylaws; adoption of such policies, while infrequent, often involves fundamental matters.

And Section 4.2 allows ICANN no discretion and flatly prohibits renewal of the RA if the RO has received notice from ICANN of “a fundamental and material breach of Registry Operator’s covenants… or breach of its payment obligations” that is left uncured, provided that ICANN’s assertion is agreed with by an arbitrator or court. Section 4.2 also contains a “three strikes and out” provision that bars RA renewal if the RO is found to be in fundamental and material breach, or arear in payments, three times during the RA’s term regardless of whether the breaches are subsequently cured.

Finally, unlike a standard commercial contract in which any post-signing amendments must be mutually agreed to, Section 7.6 of the RA allows ICANN’s Board to unilaterally impose a Special Amendment on a RA provided that specified procedures are followed.

Taken collectively, the risks of losing an RA or having it materially altered by ICANN are significant enough that they should arguably be disclosed in the securities disclosures of public companies electing to operate a .brand registry.

So which is it, ICANN? Does Barclays get to keep operating the .barclays and .barclaycard gTLDs because it was the bank itself rather than its officers or board members admitting to a felony? Does it get off the hook for sweeping financial manipulations carried out with the active participation of senior officers, and at least misfeasance and willful ignorance on the part of its board, and from which it profited in the billions of dollars even after deducting its hefty criminal fine?

This is a much clearer situation than that of the .Sucks registry, where you inquired to U.S. and Canadian regulators whether the RO was doing anything illegal in its registry’s pricing practices. With Barclays the question has been answered, as Barclays has admitted in both the U.S. and UK that it committed a major felony in its primary business activity.

The next question is what would happen to the two gTLDs operated by Barclays or any other .brand RA if ICANN decided it did have grounds to terminate the registry agreements (aside from Barclays’ likely disagreement with such a reading of the RA, and its election of pursuing Dispute Resolution under Article 5 of the RA)? In the case of Barclays the two new gTLDs have yet to commence operations, so their opening might just be halted; a different result could occur for a .brand already in operation for some time.

Section 4.5 of the standard RA states:

After consultation with Registry Operator, ICANN shall determine whether or not to transition operation of the TLD to a successor registry operator in its sole discretion and in conformance with the Registry Transition Process; provided, however, that (i) ICANN will take into consideration any intellectual property rights of Registry Operator (as communicated to ICANN by Registry Operator) in determining whether to transition operation of the TLD to a successor registry operator and (ii) if Registry Operator demonstrates to ICANN’s reasonable satisfaction that (A) all domain name registrations in the TLD are registered to, and maintained by, Registry Operator or its Affiliates for their exclusive use, (B) Registry Operator does not sell, distribute or transfer control or use of any registrations in the TLD to any third party that is not an Affiliate of Registry Operator, and (C) transitioning operation of the TLD is not necessary to protect the public interest, then ICANN may not transition operation of the TLD to a successor registry operator upon the expiration or termination of this Agreement without the consent of Registry Operator (which shall not be unreasonably withheld, conditioned or delayed). For the avoidance of doubt, the foregoing sentence shall not prohibit ICANN from delegating the TLD pursuant to a future application process for the delegation of top-level domains, subject to any processes and objection procedures instituted by ICANN in connection with such application process intended to protect the rights of third parties. (Emphasis added)

The highlighted portion indicates that ICANN could not order the transition of a “closed registration” .brand gTLD like .barclays absent the consent of the RO—although the language immediately following erodes that protection and indicates that such consent could not be unreasonably refused, and that the gTLD could also be delegated to another entity in a future round of gTLD applications. (The highlighted restrictions on ICANN, flimsy as they are, would be lost completely if Barclays decided to allow any unaffiliated third parties, such as its customers, to use or register .barclays or .barclaycard domains. No similar considerations restrict facilitation of customer use at its current .com or .co.uk websites.)

But that’s not the end of the inquiry.

Wrapping up our review, we turn to the multiple separate Specifications that are appended to each RA. We note in passing that Section 2 of Specification 11, the Public Interest Commitments (PIC) for .Barclays, reads:

“Intentionally omitted. Registry Operator has not included commitments, statements of intent or business plans provided for in its application to ICANN for the TLD.”

So Barclays has provided no Public Interest Commitments. Perhaps it may wish to prospectively adopt a PIC in which it commits not to use its gTLDs in furtherance of any criminal enterprises or civil frauds?

One other separate Specification is very relevant to the two Barclays’ gTLDs. That is Specification 13, which provides all qualified .Brand gTLDs with certain modifications to the New gTLD Registry Agreement if they have met the following requirements:

• The TLD string is identical to the textual elements protectable under applicable law, of a registered trademark valid under applicable law;
• Only Registry Operator, its Affiliates or Trademark Licensees are registrants of domain names in the TLD and control the DNS records associated with domain names at any level in the TLD;
• The TLD is not a Generic String TLD (as defined in Specification 11); and
• Registry Operator has provided ICANN with an accurate and complete copy of such trademark registration.

Barclays applied for Specification 13 coverage of .barclays and .barclaycard on October 21, 2014. No comments were filed and ICANN granted the coverage on November 20, 2014.

The terms of the .barclays Specification 13 somewhat alter the standard new gTLD RA provisions regarding registry termination, including a substitute version of the Section 4.5 that was discussed above regarding “Transition of Registry upon Termination of Agreement”.

Its relevant parts read as follows:

(a) Upon… any termination of the Agreement pursuant to Section 4.3… Registry Operator will provide ICANN or any successor registry operator that may be designated by ICANN for the TLD in accordance with this Section 4.5 with all data… regarding operations of the registry for the TLD necessary to maintain operations and registry functions that may be reasonably requested by ICANN or such successor registry operator. After consultation with Registry Operator, ICANN shall determine whether or not to transition operation of the TLD to a successor registry operator in its sole discretion and in conformance with the Registry Transition Process; provided, however, that, subject to the terms of this Section 4.5, if the TLD is qualified as a .Brand TLD by ICANN in accordance with Specification 13 on the date that the Agreement expires or terminates (the “Expiration Date”), ICANN may not delegate the TLD to a successor registry operator for a period of two years following the Expiration Date without Registry Operator’s consent (which shall not be unreasonably withheld, conditioned or delayed), unless ICANN reasonably determines that transitioning operation of the TLD is necessary to protect the public interest.

(b) If ICANN determines, in its reasonable discretion, that transitioning operation of the TLD is necessary to protect the public interest, then ICANN will provide Registry Operator with written notice and a reasonably detailed explanation for its public interest determination. If, within 30 calendar days of receipt of such notice, Registry Operator initiates the dispute resolution proceedings as set forth in Article 5 of the Agreement disputing ICANN’s determination, ICANN will not transition operation of the TLD to a successor registry operator during the pendency of such proceedings… If, upon conclusion of the arbitration proceeding, ICANN’s determination is not fully overturned by the arbitrator, ICANN may delegate and transition the operation of the TLD to a successor registry operator on or following the date the arbitrator released his or her findings. If, upon conclusion of the arbitration proceeding, ICANN’s determination is fully overturned by the arbitrator, then ICANN may not delegate or transition the operation of the TLD based on ICANN’s determination that the such (sic) delegation and transition is necessary to protect the public interest.

(c) For the avoidance of doubt, an Emergency Operator will not be considered a successor registry operator for purposes of this Section 4.5. In addition, this Section 4.5 shall not prohibit ICANN from accepting applications for or delegating the TLD pursuant to a future application process for the delegation of top?level domains, subject to any processes and objection procedures instituted by ICANN in connection with such application process intended to protect the rights of third parties...In addition, ICANN or its designee shall retain and may enforce its rights under the Continued Operations Instrument for the maintenance and operation of the TLD, regardless of the reason for termination or expiration of the Agreement. (Emphasis added)

Summing up all that legalese, under Specification 13, if ICANN decides to terminate a .brand RO for a breach of Section 4.3 or any other section of the RA, it has sole discretion to determine if the public interest requires its continued operation and, if it does so, to facilitate its transition to a successor RO. The fact that the gTLD is a .brand will not bar such a transition if ICANN determines that continued operation is necessary to protect the public interest. And if the gTLD is terminated it can be applied for in the future by other parties, subject to applicable rights protection processes and procedures. So any perception that Specification 13 protects a .brand operator from having control of its registry transferred to another entity is clearly incorrect.

But of course ICANN has not yet determined that Barclays’ corporate admission of criminal misconduct is grounds for termination under Section 4.3. And it admittedly has an argument that only criminal conduct of officers and directors is covered, not that of the bank itself.

If that is ICANN’s view—and the best available evidence of such a view would be allowing Barclays to open and operate the two .brand gTLDs in the wake of its criminal admission—then the question arises of whether this is a loophole that needs to be plugged. The ICANN community will likely soon be engaged in a review of the new gTLD program and a discussion of whether elements should be changed for any subsequent rounds, and this issue could certainly be addressed in the course of that discussion, which will likely be concluded after U.S. stewardship of the IANA functions terminates and the broad ICANN community is granted far more sweeping accountability powers. And any decision to make organizational criminality clear grounds for RO termination could be applied not just to new .brand gTLDs prospectively but to first round applicants retroactively.

This question of the effect of a RA’s criminal conduct will likely arise again, especially in the financial services field. But many other corporations outside of financial services have and will be the targets of criminal investigation, and some .brand operators will doubtless be convicted in future prosecutions. Both GM and Takata, for example, may face criminal prosecution for automobile defects that led to deaths and injury. No large brand can ever be assured it won’t face criminal prosecution for something, somewhere.

The Justice Department, which has already reaped almost $37 billion from the largest U.S. banks in settlements of claims related to shoddy mortgage backed securities, is reportedly working with state attorneys general to seek settlements from an additional group of U.S. and European banks. It’s not yet clear whether those cases involve allegations of civil or criminal violations. In a time when populism is on the rise globally on both the left and the right, many feel that even the criminal cases have not gone far enough.

As one recent analysis stated:

Yet even as penalty after penalty is paid by big banks in various cases, it seems as though the same cast of corporate characters keeps reappearing. It makes you wonder whether the global banks are acting like teenagers who find it easier to beg forgiveness than actually change their behavior.

The guilty pleas are noticeably tougher than the enforcement actions of just a few years ago, when virtually every case involving violations in the financial sector resulted in only a deferred or nonprosecution agreement…

The Justice Department made good on its threat to hold companies that are repeat offenders accountable in an effort to ratchet up the pressure to cooperate… The Justice Department has also been demanding that companies identify the employees who perpetrated the misconduct as part of its cooperation. Still, it is unclear whether the government will actually prosecute those it views as the bad actors…

Even the act of pleading guilty to a felony does not hold the same shame it once did in corporate America. At one time, the accepted wisdom was that a bank could not survive a criminal conviction because of the threat to its ability to do business… One reason that a criminal conviction is no longer viewed as a potential corporate death sentence is that the government has actively sought to make sure a guilty plea does not hamstrung a bank’s operations too much…

Banks appear willing to plead guilty as long as the collateral costs are not too heavy. Thus, the potency of a criminal conviction as a deterrent seems to have been dissipated, perhaps to the point that it is just another business expense. In a sense, they have become pleas without the baggage that comes with acknowledging guilt when all that is involved is the payment of fines, something that can be done as well in a civil proceeding.

If that analysis is correct, then an additional argument can be made that ICANN should make clear that criminal conduct by a corporation can result in the termination or transition of its .brand gTLD—for its deterrent effect. In this age of the Internet, the loss of control of one’s online presence, especially a .brand gTLD, could be a more powerful deterrent than any financial penalty levied by government.

In regard to the guilty FOREX manipulators, the New York Times editorialized:

Besides the criminal label, however, nothing much has changed for the banks. And that means nothing much has changed for the public. There is no meaningful accountability in the plea deals and, by extension, no meaningful deterrence from future wrongdoing. In a memo to employees this week, the chief executive of Citi, Michael Corbat, called the criminal behavior “an embarrassment”—not the word most people would use to describe a felony but an apt one in light of the fact that the plea deals are essentially a spanking, nothing more…

Nor has there been any explanation of how such lengthy and lucrative criminal conduct could have gone unsuspected and undetected by supervisors, managers and executives. The plea deals leave open the possibility of further investigation, but the prosecutors’ light touch with the banks makes it doubtful they will follow through…

The plea deals mimic previous civil settlements. In all, the banks will pay fines totaling about $9 billion, assessed by the Justice Department as well as state, federal and foreign regulators. That seems like a sweet deal for a scam that lasted for at least five years, from the end of 2007 to the beginning of 2013, during which the banks’ revenue from foreign exchange was some $85 billion.

Wrapping up, some who read this article will no doubt argue that gTLD termination as a means of deterring criminal behavior, and of protecting the public interest, have no place in ICANN contract.

But potential termination for criminal conduct associated with a RO is already present as a policy in Section 4.3 of the RA. And consideration of the public interest is already present as a policy is Specification 13—and throughout ICANN’s Bylaws. So these considerations are already addressed in the new gTLD program, with the only issue being how they apply to a .brand operated by an entity found to have committed criminal acts.

So we end this article with a slightly modified form of the question posed earlier:

What should happen to a .Brand gTLD when the company that owns the brand and is the registry operator admits to or is convicted of criminal conduct?

Does ICANN have an answer? Let’s wait and see it acts in regard to Barclays, because inaction itself will be an answer.

Meanwhile, entities that have applied for or are considering a future application for a .brand gTLD may wish to consider how much control of their online brand they wish to contract away to ICANN. Placing a brand name to the right of the dot may confer some online marketplace power, but it is also accompanied by considerable contractual, political, and organizational risk that is not present at the second level of the DNS.