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ICANN Clarifying Questions - Question 50 Focus (Part 3 of 3)

John Matson

If the timeline for turn-around of clarifying questions (CQs) remains two-weeks, the long pole in your CQ tent is likely to be revising your Q50 letter of credit or escrow agreement to meet the ICANN requirements. Based upon ICANN comments, it appears that many applicants are having trouble meeting the specific letter of credit (LOC) or escrow agreement language. To remedy this ICANN should consider publishing what it considers acceptable language for an LOC or escrow agreement.

This would clarify what appears to be conflicting guidance that ICANN presented in the Guidebook and Supplemental Notes for Question 50. The Guidebook states that unconditional release of funds is required. However, in the Supplemental Notes for Q50 under paragraph 1.6, ICANN provided recommended wording for the beneficiary statement including: "in the event of a failure of a critical registry function as described in the foregoing sections of the Applicant Guidebook".

We've seen clarifying questions during the pilot where applicants who used the exact wording recommended by ICANN in the Supplemental Notes were provided a Q50 clarifying question stating that their COI instrument did not meet the "unconditionally entitled to a release of funds" requirement.

We assume that all of the applicants have submitted their applications with the intent of trying to meet ICANN's detailed Applicant Guidebook requirements. ICANN published Continuing Operations Instrument guidance that was specific.

The value of the COI is half the battle for the question 50 three points. Getting the LOC or escrow agreement correct is the other half.

Also read:
ICANN Clarifying Questions - How Are They Structured? (Part 1 of 3)
ICANN Clarifying Questions - How to Respond (Part 2 of 3)

ICANN, please consider publishing example acceptable LOC/escrow language so that applicants can confidently work with their banks or financial partners to meet the question 50 exacting language for scoring 3 pts. This would reduce the volume of unnecessary clarifying questions for 47, 48 and 49 during the heavy workload of initial evaluation.

By John Matson, Co-Founder and COO of Architelos. Mr. Matson has advised Fortune 500 companies on cost structures, margin enhancement and implementation of new growth-oriented business models. He has performed several projects for ICANN, including advising on the new gTLD program and benchmarking previous gTLD launches. Architelos provides Top-Level Domain (TLD) application guidance and front-office services for clients in the DNS and IP industry. Mr. Matson can be reached directly at jmatson@architelos.com.

Related topics: ICANN, Top-Level Domains

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Zodiac is part of the pilot test James Seng  –  Nov 14, 2012 7:19 PM PDT

Zodiac is part of the pilot test and we got the clarification for Q50

"Your application includes an executed LOC issued by UBS AG for USD XXX,000.  The LOC contains a condition requiring ICANN to state the following in order to release these funds: “the applicant has failed to fulfill their contractual obligations”.

Please provide a revised executed LOC that provides “ICANN or its designee unconditional entitlement to a release of funds”

We spoke to our bank and we got back the following response:

a) Please also be advised that the text of the issued SBLC was approved by our Legal department before we commit issuance, we have in fact bring out this point to Legal to see if we can add " ICANN or its designee unconditional entitlement to a release of funds”." However, the answer is "No" as the UBS SBLC can not be Transferable for Anti-Money Laundering purpose and we have confirmed with you this point before we issued the SBLCs (please refer to the attached email for your reference).  As such, we believe that we may not be able to make the amendment to ICANN requirements.

b) WRT unconditional release of fund, after discussed this issue with Credit Department, they are not supportive in making the following amendments in the guarantee text. This is because client (You) becomes liable to pay ICANN unconditionally as long as ICANN (beneficiary) request for payments. This will put You at risk and ICANN will be able to claim on the client regardless of whether You had completed their contractual obligations. This might lead to unnecessary disputes and reputational risk for the Bank. They also advised that guarantees should not be used as a mode of payment mechanism. 

We also have a third problem, which in that LOC we gave is irrevocable. Thus ICANN must release the original LOC before we can issue a new one (or we will have even more fund that needs to be tied up for new LOC to be issued);

We can make amendments to the existing LOC but as you point out, ICANN must make it clear what languages it needs to see in the LOC before it considered it been acceptable.

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