Facebook to pay record $5 billion penalty over privacy breaches

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Jim Castel via CNN

The Federal Trade Commission announced a $5 billion settlement with Facebook on Wednesday, resolving a sweeping investigation by regulators into how the company lost control over massive troves of personal data and mishandled its communications with users. It is the largest fine in FTC history — and yet still only about a month’s worth of revenue for Facebook.

The deal comes amid growing calls in Washington for greater transparency and accountability for technology companies, whose power over social movements as well as personal information has increasingly come to be seen as dangerous by politicians, users, and even one of Facebook’s co-founders.

Facebook agreed to the deal following years of damaging admissions about the company’s privacy practices, such as the inadvertent exposure of up to 87 million users’ information to the political analysis firm Cambridge Analytica.

The settlement resolves a formal complaint by the FTC alleging that Facebook “used deceptive disclosures and settings” that eroded user privacy, violating a prior agreement Facebook signed with the commission in 2012. Facebook also broke the law, the FTC alleged, by misusing phone numbers obtained for account security purposes to also target advertisements to its users. And the company allegedly deceived “tens of millions of users” by implying that a facial recognition feature on the service had not been enabled by default, when in fact it had.

“The magnitude of the $5 billion penalty and sweeping conduct relief are unprecedented in the history of the FTC,” said Chairman Joseph Simons in a statement. “The relief is designed not only to punish future violations but, more importantly, to change Facebook’s entire privacy culture to decrease the likelihood of continued violations.”

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FTC proponents have also said the agency needs more resources to better serve as an effective regulator. In 2018, the FTC reported a total budget of roughly $350 million — about two percent of Facebook’s reported revenue in the first quarter of 2019.

Separately, the FTC said Tuesday it had brought complaints against — and reached settlements with — Cambridge Analytica, its former CEO Alexander Nix, and app developer Aleksandr Kogan for their alleged roles in misusing Facebook user data. The settlements will limit the ability of Nix and Kogan to “conduct any business in the future,” the FTC said.

The FTC announcements this week may add pressure on Congress to give the agency more power or to develop a national privacy law, some analysts said.

“There’s a need and a demand for legislation irrespective of this [Facebook] settlement,” said Hal Singer, an economist at George Washington University’s Institute of Public Policy.

Such a bill could have far-reaching effects, potentially touching every corner of the economy as technology increasingly finds its way into new areas. But progress on the legislation has been slow, and many policy experts privately say they increasingly doubt a bill can be passed this year.

Facebook faced sharp questioning from Congress last week as a key panel on the House Judiciary Committee continued a “top-to-bottom” antitrust review of the tech industry. Lawmakers on other committees scrutinized Facebook’s plans to launch a digital currency, Libra, with many arguing Facebook must reform itself before trying to disrupt the global financial system.

Even some of Facebook’s earliest investors have questioned the platform’s effects on society as it has become a vital communications tool for billions of people. Facebook co-founder Chris Hughes this year publicly repudiated the product he helped build, writing a New York Times op-ed arguing that his co-founder, CEO Mark Zuckerberg, has built a monopoly business that stifles competition, and urging regulators to break up the company.

The “techlash,” as some observers have come to call it, is a remarkable break from recent history — particularly for many Democrats who otherwise share close ties culturally and financially with Silicon Valley. For the tech industry, it represents a dramatic shift in attitudes about its role in civil society.

“These questions of trust and privacy are not limited to Google and Facebook,” said Todd McKinnon, CEO of the cloud services company Okta. “If you’re a laundromat and you have a mobile app that gets your customers in there, you’re a tech company — so the techlash is going to affect your laundromat. It sounds funny, but it’s true.”

Meanwhile on the campaign trail, presidential candidates such as Sens. Elizabeth Warren (D-Mass.) and Bernie Sanders (I-Vt.) have criticized tech giants for being overly powerful and part of a larger wave of corporate concentration that must be beaten back. In March, Warren unveiled a campaign proposal that would all but dismantle giants such as Amazon, Facebook and Google. Sen. Amy Klobuchar, another 2020 Democratic contender, has said the tech industry has contributed to a “major monopoly problem” in the United States.

Facebook has claimed that a breakup would make it harder, not easier, to address problems such as disinformation and hate speech, and that over-regulation risks giving foreign tech companies an edge.

Republicans such as Sen. Marsha Blackburn (R-Tenn.) have also called for greater limits on tech companies. In a recent speech before the U.S. Chamber of Commerce, Blackburn said it is too early to consider breaking up large tech platforms, but that companies such as Facebook have shown they can no longer regulate themselves.

Wednesday’s settlement, however, isn’t likely to deter states that are taking their own close look at Silicon Valley.

Multiple state attorneys general have suggested they could pile on with their own investigations or lawsuits against the tech industry. In December, Karl Racine, attorney general for the District of Columbia, became the first when his office sued Facebook over the Cambridge Analytica debacle.

And the FTC itself could open additional investigations, said Harold Feld, a senior vice president at the consumer group Public Knowledge. A recently established task force charged with reviewing past tech mergers could, for example, seek to determine whether Facebook’s acquisition of WhatsApp or Instagram proved harmful to competition.

“It’s very clear that the settlement is not the end of the game,” said Feld.