April 25, 2019
In its first quarter earnings report yesterday, Facebook revealed that it is putting aside $3 billion (about 6 percent of its cash and marketable securities) in anticipation of an upcoming fine from the Federal Trade Commission regarding privacy violations. The penalty, which could become the highest of its kind against a tech company by U.S. regulators and the biggest privacy-related fine in the FTC’s history, is expected to run from $3 billion to $5 billion. The social media giant posted more than $15 billion in revenue, a 26 percent increase over the year-earlier period.
“We estimate that the range of loss in this matter is $3 billion to $5 billion,” Facebook writes in its earnings report. “The matter remains unresolved, and there can be no assurance as to the timing or the terms of any final outcome.”
Ashkan Soltani, former chief technologist at the FTC, “suggested that Facebook might have taken the unusual step of pre-announcing a fine as a negotiating tactic — anchoring the price at a level that the company finds acceptable, while discouraging regulators from asking for any more,” notes The Verge.
“Facebook agreed in 2012 not to collect personal data and share it without user consent, as part of a settlement with the FTC,” reports The Wall Street Journal. “The agency began probing last year whether Facebook had violated the terms of that earlier settlement when data of tens of millions of its users were transferred to Cambridge Analytica, a data firm that did work for the 2016 campaign of President Trump.”
The FTC’s investigation has been active longer than a year — reportedly frustrating lawmakers — and news of a possible fine comes as the debate on Capitol Hill intensifies over how to address ongoing abuses of Silicon Valley companies growing in power.
According to WSJ, the largest privacy settlement ever reached by the FTC was $100 million. “The pressure is on the FTC to show that they can take serious action when warranted,” said Jessica Rich, a former head of the agency’s consumer protection bureau. The Verge indicates that the largest fine issued by the FTC was $22.5 million against Google seven years ago.
Meanwhile, the European Union has taken a stronger approach against U.S. tech companies, including a $15.3 billion tax evasion fine against Apple in 2016, and a $5 billion antitrust fine against Google in 2018.
In response to shifting industry trends, public outcry and increased scrutiny, tech companies are reevaluating their policies and business models. Apple CEO Tim Cook has welcomed increased regulation in the tech sector and Facebook chief Mark Zuckerberg has “planned to start shifting people toward private conversations and away from public broadcasting on social media, which is likely to help the company manage issues of toxic content and misinformation,” explains The New York Times.
Zuckerberg has also recently welcomed more regulation. “I think it’s necessary,” he said. “Getting these issues right is more important than our interests. And I believe that regulation will help establish trust when people know that the right systems of governance and accountability are in place.”