Congress Grills Facebook's Zuckerberg on Cryptocurrency PlansFacebook CEO Faces Questions on Privacy, Use of Libra Currency for Crimes
A U.S. Congressional committee on Wednesday peppered Facebook CEO Mark Zuckerberg with tough questions about the company’s plans for a cryptocurrency called Libra, raising concerns about privacy issues as well as potential use of the currency for money laundering or to finance deals for illegal drugs and weapons.
The Switzerland-based Libra Association, an independent, not-for-profit body that will oversee the cryptocurrency, expects to launch Libra in 2020 (see: Libra Association Launched Amidst Defections, Congressional Scrutiny).
"But 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," Zuckerberg said during his opening remarks.
Appearing before the House Committee on Financial Services for over six hours on Wednesday, Zuckerberg tried to portray the Libra cryptocurrency, and Facebook’s new Calibra subsidiary, which will create a digital wallet for the virtual currency and allow the company to collect a fee from transactions, as a way to bring banking services to more than 1 billion people around the world who have limited access to banks.
Facebook's Track Record
Committee Chairwoman Maxine Waters, D-Calif., noted in her opening remarks that Facebook's past privacy controversies did not instill trust in the company's cryptocurrency plans (see: Feds, Tech Giants Meet to Coordinate 2020 Election Security).
In July, the U.S. Justice Department and the Federal Trade Commission announced a privacy settlement with Facebook that included a record-setting $5 billion fine. The company also promised to build new safeguards into its platforms.
Waters repeated her earlier declaration that Facebook should stop all development of Libra until Congress has conducted more oversight.
No one is above the law including Mark Zuckerberg. Facebook has allowed election interference, released private data, violated civil rights laws, among other offenses & now they’re trying to launch a #BigTechTakover by creating this mysterious #ZuckBuck? Not on my watch! @FSCDems— Maxine Waters (@RepMaxineWaters) October 23, 2019
"Facebook’s plans to create a digital currency, Libra, and a digital wallet, Calibra, raise many concerns relating to privacy, trading risks, discrimination, opportunities for diverse-owned financial firms, national security, monetary policy and the stability of the global financial system," Waters said.
Zuckerberg received a warmer reception from some of the Republicans on the committee, who praised the Facebook CEO for attempting innovation in the payments industry. Rep. Patrick McHenry, R-N.C., the ranking Republican on the committee, used his opening statement to make the case for more of these types of experiments.
"American innovation is on trial today in this hearing," McHenry said.
Later in the hearing, Republican Roger Williams of Texas said: "I do admire people in our capitalist system here that are disruptors … that [they] find the weakness and try to exploit it with a new product that's better for consumers."
But committee members from both parties raised questions about why the Libra Association, which would oversee the virtual currency, is located in Switzerland when it plans to comply with U.S. financial regulations.
"Switzerland has certainly been forward-leaning on wanting to work through systems like this, but one of the things I want to be clear on is that the Libra Association is independent and we do not control it," Zuckerberg said.
Zuckerberg told the committee that he expects the Libra Association and Facebook's Calibra subsidiary to follow all U.S. financial rules, including regulations from agencies such as the Federal Deposit Insurance Corporation and the U.S. Federal Reserve, and laws such as Anti-Money Laundering rules and the Bank Secrecy Act.
Zuckerberg said that the Calibra digital wallet would have strong protections to prevent money laundering and other illegal activity, but he acknowledged that other companies might also create digital wallets to store Libra.
Money Laundering Concerns
The notion that Libra would be used to launder money or to finance deals for illegal drugs and weapons was a significant concern for many committee members.
Rep. Brad Sherman, D-Calif., told Zuckerberg that he was hiding behind an optimistic story of trying to help the world's poor, when profits were the real motivation for Libra.
Sherman said it was ironic "for the richest man in the world to come here and hide behind the poorest people in the world, and say that’s who you’re really trying to help. You're trying to help those for whom the dollar is not a good currency - drug dealers and tax evaders."
Preparing for Launch
The nonprofit Libra Assocation met for the first time earlier this month after several prominent early supporters, including Visa, MasterCard, PayPal and EBay, dropped out.
In previous testimony before a U.S. Senate committee, Facebook executive David Marcus said that Libra will not function as a "stablecoin" - a digital currency that's designed to minimize volatility by being "pegged" to a single asset. Instead, Libra will not have a fixed value in any single, real-world currency. It will be backed on a one-to-one basis through the Libra Reserve, which will hold "a basket" of currencies in safe assets, such as cash bank deposits and highly liquid, short-term government securities.
In his testimony Wednesday, Zuckerberg noted that one of the currencies in that basket would be the U.S. dollar. But he left open the possibility that other currencies could be used.
"Libra is going to be backed mostly by dollars, and I believe that it will extend America’s financial leadership around the world, as well as our democratic values," Zuckerberg said.
Before announcing Libra, Facebook released a whitepaper that included some technical details about the cryptocurrency, including its use of blockchain - the digital ledger that supports other types of cryptocurrency - to protect transactions and user data. Zuckerberg said that the company would update that whitepaper as the project develops.
Despite the six hours of testimony, however, McHenry ended the hearing by noting that there are still more questions about Libra that need to be answered.
Other Issues Raised
While the hearing was billed as examination of Facebook's plans for cryptocurrency and new payment methods, committee members strayed into a variety of other topics.
Zuckerberg was asked if the Facebook platform was used to discriminate against minorities when it comes to housing; if the company was doing more to diversify its executive ranks; if the company learned lessons from the 2016 election; whether the social media platform was being used for sex trafficking and the sharing of "deepfake" videos; whether Zuckerberg was concerned about the 2020 census; and what the firm was doing to patrol hate speech.
Earlier this week, Facebook announced it removed four networks from its platforms that had ties to Iran and Russian and were attempting to disseminate misinformation in advance of the upcoming U.S. presidential election (see: Facebook Shuts Misleading Accounts Ahead of 2020 Election).