FTC's $5 Billion Fine Alone Won't Get Facebook Out of Crosshairs

By Ryan Tracy in Washington and Jeff Horwitz in San Francisco 

Facebook Inc. is moving closer to settling a privacy probe by its main U.S. regulator, but the massive fine it has prepared to pay is unlikely to get the social-media giant out of the political hot seat in Washington.

The Federal Trade Commission has voted to fine the company roughly $5 billion for violations of its previous promises to protect users' privacy, The Wall Street Journal reported Friday, citing people familiar with the matter. The FTC vote on the deal was split 3-2 along party lines at the Republican-controlled agency, the people said, a signal that Democratic commissioners didn't feel the settlement was sufficiently tough.

Facebook's other political and regulatory issues are in earlier stages. Next week, the social-media giant is sending executives to two Capitol Hill oversight hearings: one examining whether action is needed to rein in the market power of big tech companies, and another focused on Libra, the cryptocurrency Facebook is planning to launch with other corporate partners.

Last week, President Trump criticized social-media companies at a White House event and suggested regulatory proposals may be coming. Abroad, Ireland's privacy regulator alone is pursuing 10 investigations related to Facebook's gathering and processing of personal data.

U.S. lawmakers of both parties have already signaled they would view a $5 billion payment sent to the U.S. Treasury as too weak, and early reaction to the FTC deal suggests it won't stem momentum behind policies aimed at Facebook and other large tech firms.

"I don't want to pooh-pooh a $5 billion settlement, but this is a company that generates multiples of that per quarter," said Sen. Mark Warner (D., Va.) in an interview, referring to Facebook's revenue, which was $15.08 billion in the first quarter of the year.

Mr. Warner said structural changes are needed to improve how Facebook and other large tech companies operate with respect to personal data, the spread of misinformation and other issues.

"FTC fines may or may not change behavior, and they sure as heck don't change incentives."

Republicans such as Sens. Josh Hawley (R., Mo.) and Marsha Blackburn (R., Tenn.), have in recent weeks raised a concern about Facebook's privacy practices and urged the FTC to take action to protects users' data. Lawmakers have also called on Congress to consider new privacy limits as well, though no legislative proposals appear likely to pass soon.

The settlement is expected to impose other requirements on Facebook but the details of those terms aren't yet known. The agreement hasn't been formally announced and may not be for weeks.

Both Facebook and the FTC declined to comment.

Maureen Ohlhausen, a former FTC commissioner who was its acting head until April of last year, said criticism of the deal reflected more political battle lines around Facebook than any facts of the case.

Democrats who voted against the settlement "get to shake the spear and say they'd be even tougher without having to deal with there's not certainty the FTC would win in litigation," she said.

Facebook sought to move beyond the scrutiny with a series of announcements earlier this year. Chief Executive Mark Zuckerberg said Facebook would focus on providing tools for private communication and support privacy legislation world-wide along the lines of Europe's general data-protection regulations.

Privately, senior Facebook employees have argued that the allegations that sparked the FTC probe have left Facebook unfairly holding the bag for tech industrywide concerns about privacy, misinformation and behavioral advertising.

In conversations with both employees and outsiders, Facebook executives have blamed media coverage of a scandal arising from data harvested by a personality prediction app -- fueled by fear of foreign election interference -- for obscuring the company's broader efforts to safeguard user data.

The FTC probe began after disclosures last year that the owner of a quiz app scraped personal data on tens of millions of Facebook users and their friends, and shared it with political consulting firm Cambridge Analytica. The app had violated Facebook's policies, but the event highlighted lax controls over Facebook apps.

Cambridge Analytica used personal data to help political campaigns influence voters. It worked for several Republican campaigns in 2016, including President Trump's. It has since shut down amid questions about its tactics and handling of data -- and about whether its services were effective.

After the Cambridge Analytica fiasco, Facebook also disclosed other missteps, including a hack last year that exposed millions of accounts.

The company already has a privacy team that is supposed to vet all significant new products before their public rollout, and under a 2011 FTC consent decree it agreed to ongoing privacy audits by PricewaterhouseCoopers LLP.

Those audits found no sign of trouble at Facebook -- and PwC's 2017 conclusion that Facebook's internal privacy controls were operating with sufficient effectiveness was widely dismissed by the company's critics. The roughly $5 billion FTC fine is expected to cite violations of the earlier 2011 agreement.

"Five billion is literally the cost of doing business," said Marc Rotenberg, head of the Electronic Privacy Information Center, which has long pushed for greater regulatory scrutiny of Facebook's privacy practices.

"If they get some serious new privacy obligations, that would be interesting. If they got governance reform, that would be interesting. What would not be interesting is additional third-party reporting, because that was already established in the 2011 consent decree."

Ms. Ohlhausen, the former FTC commissioner, didn't discount the possible significance of tightening the specifics of the 2011 deal. Now a lawyer for Baker Botts, which represents Facebook in intellectual-property litigation, she said the FTC has been demanding stricter oversight terms for consent decrees in recent years.

Concluding the FTC investigation won't end ongoing scrutiny of Facebook's past privacy missteps in both the U.S. and European Union. But it prevents the awkward prospect of Mr. Zuckerberg calling for greater global oversight of privacy while simultaneously fighting the primary American privacy regulator.

Write to Ryan Tracy at [e-mail]

(END) Dow Jones Newswires

July 13, 2019 14:51 ET (18:51 GMT)

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