Zuckerberg to Face Tough Questions on Cryptocurrency Plans

In written testimony Tuesday, the Facebook CEO apologized for the company’s transgressions and said he would wait for federal permission before moving forward. It’s unclear whether his promises will mollify lawmakers.

by Jim Saksa, CQ-Roll Call / October 23, 2019
Facebook CEO Mark Zuckerberg exits the Dirksen Senate Offices after meeting with Republican senators Sept. 19, 2019. Shutterstock/Aaron-Schwartz

(TNS)  — A conciliatory-sounding Mark Zuckerberg will face questions Wednesday about Facebook’s world-altering ambitions from congressional critics of both parties.

Democrats and Republicans are expected to interrogate the Facebook CEO over the plan to launch Libra, a cryptocurrency pegged to a basket of global currencies and managed by a consortium of multinational corporations, as well as the company’s role in the spread of political propaganda, alleged violations of housing legislation, dominance of online advertising, monetization of users’ data and censoring of right-wing media.

Zuckerberg is appearing before the House Financial Services Committee. Asked what he wants to hear him say, Ohio Republican Rep. Warren Davidson said, “ ‘I repent of my sins, and look forward to going forward and sinning no more.’ “

California Democrat Rep. Brad Sherman has said that Libra “may do more to endanger” the nation than 9/11.

In written testimony released Tuesday, Zuckerberg apologized for Facebook’s transgressions and said he would wait for federal permission before moving Libra forward. “Even though the Libra Association is independent and we don’t control it, I want to be clear: Facebook will not be part of launching the Libra payments system anywhere in the world until U.S. regulators approve.”

But it’s unclear whether such promises will mollify lawmakers, who have heard similar pledges from Facebook in the past without seeing a corresponding change in business conduct.

The proposed cryptocurrency would be overseen by the Libra Association, a collection of about 100 corporations and nonprofit organizations. Its value would be pegged to existing currencies. A Facebook subsidiary, Calibra, would run a digital wallet, or payments system, to let consumers and businesses make transactions in Libra.

Given Facebook’s global reach — an estimated 1.5 billion users daily — Libra’s announcement in June led to an immediate rebuke from elected officials, including President Donald Trump, House Financial Services Chairwoman Maxine Waters and Federal Reserve Chairman Jerome Powell, plus European central bankers and financial regulators.

Facebook and Libra’s other backers seem to have not anticipated the blowback against a proposal that, by its own marketing, would “Reinvent money. Transform the global economy. So people everywhere can live better lives.”

Zuckerberg attempted to dial back those transformative ambitions in his written testimony, saying Libra is”not an attempt to create a sovereign currency.”

“Monetary policy is the province of central banks, not Libra,” he wrote, arguing that Libra was “like existing online payment systems” rather than a currency.

But his testimony also warned lawmakers that America risks falling behind China on developing the new technology behind Libra.

“If America doesn’t lead on this, others will,” he writes. “Foreign companies or countries may act without the same regulatory oversight or commitment to transparency that we have.”

A letter from Senate Banking ranking member Sherrod Brown, D-Ohio, and Sen. Brian Schatz, D-Hawaii, to Mastercard, Visa and Stripe appeared to lead those companies to drop out of the group that would manage Libra. Paypal, eBay, Mercado Pago and Booking Holdings have also departed, leaving 21 of the original 28 members.

Facebook has recently put on a congressional charm offensive. Zuckerberg visited lawmakers privately in September, and again this week. The company has spent $12.3 million so far this year on lobbying, nearly matching the $12.8 million it spent in all of 2018.

Zuckerberg is likely to field questions in a range of areas where he’s faced a slew of criticism. At the top of the list is Facebook’s new policy on political advertising, which effectively allows candidates to lie in paid ads that the company says won’t be referred to third-party fact-checkers. For instance, the company is allowing Trump’s reelection campaign to run an ad that includes unproven allegations about former Vice President Joseph R. Biden Jr.’s relationship with Ukraine.

Zuckerberg has argued the public should have access to unfiltered political speech and that people “don’t want to live in a world where you can only post things that tech companies decide are 100% true.”

Democrats criticized Zuckerberg over the policy, with Sen. Elizabeth Warren of Massachusetts, who is running for the 2020 Democratic presidential nomination, accusing him of running a “disinformation-for-profit” campaign.

The Facebook policy seemed to be a response to Republican complaints that the company was censoring right-wing outlets for promoting untrue stories more than liberal publications. But the about-face on fact-checking may not appease the GOP.

“The real question is, when you start thinking about the aspiration to do Libra and Calibra, do you plan to filter people’s transactions in the same way that you’ve filtered content?” said Davidson, a member of the Congressional Blockchain Caucus.

Davidson told CQ Roll Call he was concerned how Facebook and Calibra would handle users’ privacy, and he said he was working on draft legislation that would grant individuals a property right in the data generated by their online activities. “It has to be your data,” he said. “So the bill we’re drafting is literally called ‘It’s your data,’ and we look forward to releasing that text soon.”

Zuckerberg may also be questioned about Facebook’s work to limit disinformation on its platforms by foreign hackers. Congress and intelligence agencies have concluded that the platform played a key role in Russian efforts to interfere in the 2016 election, and the company says it has worked hard to avoid a 2020 redux.

On Monday, the company said it had removed one Russian and three Iranian account networks and has continued to crack down on bots, or fake accounts, which the company has said are the largest purveyors of fake news on its platform.

Amid investigations by the House Judiciary Committee and a group of state attorneys general into whether Facebook has violated antitrust laws, members may ask Zuckerberg about plans to merge the company’s flagship platform with Instagram and Whatsapp. The proposal has rankled critics who believe doing so would give the company too much market power.

New York Attorney General Letitia James said Tuesday that 46 states and the District of Columbia are involved in her antitrust probe of Facebook. They are ”all concerned that Facebook may have put consumer data at risk, reduced the quality of consumers’ choices and increased the price of advertising,” she said.

Waters is circulating a draft bill that would block Libra by preventing large social media platforms such as Facebook from getting a bank license or partnering with financial firms and would prohibit them from operating a digital currency.

Treasury Secretary Steven Mnuchin was asked about his agency’s response to Libra at an unrelated hearing Tuesday. “I’ve met multiple times with representatives of Facebook,” Mnuchin said. “We told them we thought their launch was premature, that they had not addressed fundamental issues around money laundering, Bank Secrecy Act requirements and other (issues).”

Mnuchin added that he thought that U.S. regulators have enough authority to oversee Libra, “but if we need more tools, we will come back to Congress.”

Spokespeople for the Libra Association and Calibra declined to comment.

Congress is unlikely to pass legislation on Libra, or cryptocurrencies in general, soon. The potential applications of blockchain technologies in finance are still new, and legislators are still trying to discern hype from reality. At the same time, the Securities and Exchange Commission has steadily brought enforcement actions against cryptocurrency companies for failing to register the digital tokens as securities.

The rest of the nascent crypto industry has tried to differentiate itself from Libra.

“We want to make sure there isn’t some sort of legislative response that goes beyond the concerns of Facebook and impacts the broader industry in a negative way,” said Kristin Smith, the Blockchain Association’s director of external affairs.

Zuckerberg’s prepared testimony also dedicated two of its seven pages to discrimination and diversity. The Department of Housing and Urban Development slapped Facebook with a lawsuit in March alleging it violated housing law by allowing real estate companies to screen who sees their ads based on race, religion, familial status and disability. That lawsuit came just days after Facebook settled another with a collection of civil rights and fair housing groups wherein the social media giant pledged to overhaul its ad placements.

Diversity has also been an important issue for Chairwoman Waters, who created a Diversity and Inclusion Subcommittee on House Financial Services earlier this year.

©2019 CQ-Roll Call, Inc., All Rights Reserved. Distributed by Tribune Content Agency, LLC.

 

Platforms & Programs