Facebook is botching its dream of becoming a new powerhouse in finance, failing to win over lawmakers and regulators who say they are far from ready to allow the social media giant’s ambitious cryptocurrency plans to move forward.
With back-to-back Senate and House hearings set to kick off Tuesday morning, key lawmakers and aides from both parties said in interviews that they had not yet had the chance to meet with Facebook or had gotten incomplete, at times conflicting, information from briefings involving the company.
Story Continued Below
The rollout of the Libra project is the latest evidence that Facebook is still struggling to wield influence in both Washington and in the European Union after being dogged by controversies about its data privacy practices and role in facilitating election interference.
The backlash from Congress — fueled in part by Facebook’s weak lobbying push — will likely feed efforts by regulators in the U.S. and EU to crack down on Libra, raising questions about whether its 2020 launch will proceed as planned.
“We just need more information,” said Rep. Stephen Lynch (D-Mass.), who said on Thursday he had not met with Facebook on Libra even though he chairs a new financial technology task force in the House. “We’re caught off guard.”
The void has been filled with calls by House Financial Services Chairwoman Maxine Waters (D-Calif.) for Facebook to delay its plans, a surprise Twitter attack by President Donald Trump, who said the currency will have “little standing or dependability,” and warnings by Federal Reserve Chairman Jerome Powell that Libra may pose serious risks to the financial system.
Powell told lawmakers last week that despite the public benefits promised by Facebook, including wider access to financial services, Libra posed “many serious concerns” related to privacy, money laundering, consumer protection and financial stability. On Monday, Treasury Secretary Steven Mnuchin said he too had “serious concerns” that Libra could be misused by money launderers and terrorist financiers.
In testimony prepared for Tuesday’s Senate hearing, David Marcus, the Facebook executive leading the company’s Libra-focused financial services subsidiary, said he agreed with Powell’s recent comments that the process for reviewing the digital currency needed to be patient and thorough. Powell said last week that the idea Libra would be implemented within 12 months “is not going to be proven right.”
“The time between now and launch is designed to be an open process and subject to regulatory oversight and review,” Marcus said. “In fact, I expect that this will be the broadest, most extensive, and most careful pre-launch oversight by regulators and central banks in FinTech’s history.”
Even lawmakers and aides who spoke with representatives of Facebook in briefings during the last few weeks walked away feeling like they didn’t have the full story. Part of the confusion has arisen from the fact that, even though Facebook is spearheading Libra and will operate a digital “wallet” dubbed Calibra based on the coin, the currency is set to be managed by a Switzerland-based non-profit called the Libra Association that will include companies in addition to Facebook.
Rep. Bill Foster (D-Ill.), who chairs a new artificial intelligence task force at the Financial Services Committee, said Facebook and the Libra Association gave him different answers regarding the degree of anonymity for users of Libra. That’s a major concern for lawmakers and regulators looking to combat money laundering and other illicit activities.
“One of my intentions is to sort out the conditions under which it might or might not remain truly an anonymous device,” Foster said.
Rep. Patrick McHenry the top Republican on the Financial Services Committee, said Thursday he had not yet met with Facebook but expected a “courtesy call” with Marcus this week. Like other lawmakers and aides, McHenry said he had also not heard from Facebook’s partners who will help establish the currency as part of the Libra Association.
“Perhaps it’s great and perhaps it’s awful,” said McHenry, one of the Hill’s most outspoken voices on the regulation of emerging financial technology.
Senior committee Democrats who said late last week that they hadn’t yet met with Facebook representatives included Reps. Gregory Meeks (D-N.Y.), who leads the consumer protection subcommittee, and Rep. Lacy Clay (D-Mo.), who leads the housing and insurance subcommittee. Clay said there were worries about security, privacy and the potential for “havoc” in the financial system. “We better tread lightly,” he added.
“I’m concerned about creating another parallel system that doesn’t have accountability,” said Rep. Chuy García (D-Ill.), a Financial Services Committee member who sponsored a Capitol Hill briefing Monday on the potential dangers of Libra.
Established advocates for Bitcoin and other decentralized cryptocurrencies have tried to get ahead of the coming backlash by telling Congress in recent weeks that Libra, which will be backed by various financial instruments, is a different animal and should be treated as such.
“We’ve seen a little bit of confusion around how Libra relates to cryptocurrencies like Bitcoin,” said Jerry Brito, executive director of the nonprofit Coin Center based in Washington. “We just want to make sure that folks don’t conflate the two. They’re actually very, very different.”
Facebook previously encountered complaints from lawmakers that it was slow to respond to questions and concerns about Russia’s use of social media to interfere in the 2016 presidential campaign. Shortly after Trump’s victory, CEO Mark Zuckerberg flippantly dismissed the idea that misinformation on social media could have had an impact on the election’s outcome.
But as the extent of the meddling became known, Facebook was forced to apologize, repeatedly, for not doing more to secure its sprawling social network. Russian trolls used the platform to purchase ads, spread memes and organize events that exploited racial, religious and social divides, largely in an effort to benefit Trump. In March 2018, the New York Times revealed that Cambridge Analytica, a political consulting firm with ties to Trump’s campaign, improperly obtained the personal information of tens of millions of Facebook users.
The backlash against Facebook was swift. Zuckerberg was hauled up to Capitol Hill to testify solo at a series of tense hearings.
Chief Operating Officer Sheryl Sandberg, the company’s usual Washington envoy, has since met privately with lawmakers in an effort to rehabilitate Facebook’s image. And the biggest blow from Washington is still to come: the Federal Trade Commission has voted to impose a record $5 billion fine on the company for data privacy violations, though the full terms of the punishment are not yet public.
In the meantime, Facebook’s Washington operation has grown rapidly in recent years. The company shelled out $12.6 million to lobby the federal government last year and retains registered lobbyists from more than a dozen firms in town.
Joel Kaplan, a White House official during the George W. Bush administration, serves at the helm of Facebook’s global public policy group. Last year, the company promoted Kevin Martin, a former Republican chairman of the Federal Communications Commission, to oversee U.S. public policy.
The public policy shop reports to Nick Clegg, a former U.K. deputy prime minister who Facebook hired last year to head up global affairs and communication, and then to Sandberg.
Facebook, according to a spokesperson, has met with staffs of the chairs and ranking members of the Senate Banking and Financial Services Committees. Senate Banking Chairman Mike Crapo (R-Idaho) and ranking member Sherrod Brown (D-Ohio) met with Marcus in May.
Last week, Crapo said Facebook answered his questions but said “there needs to be more.” Brown said Facebook’s responses “failed to provide answers about Libra.”
Central banks and regulators across Europe have also raised doubts over how the proposed digital currency would work with the global financial industry and its tough regulation.
Mark Carney, the head of the Bank of England, said last week that the currency must not have any teething issues before it launches next year, while François Villeroy, his French counterpart, said that the more regulators reviewed the Libra proposals, the more questions they had for Facebook and its partners.
In the U.S. in recent months, the company said it has met with the White House National Economic Council, Treasury Department and Federal Reserve, among other agencies. But it took longer to get to Congress, where leaks from private Hill briefings would be inevitable.
The fallout may force Libra’s 2020 rollout to be delayed.
“We know we need to take the time to get this right,” Marcus said. “And I want to be clear: Facebook will not offer the Libra digital currency until we have fully addressed regulatory concerns and received appropriate approvals.”
Steven Overly in Washington and Mark Scott in London contributed to this report.