Lawmakers see cryptocurrency as global threat
In hearing, Facebook’s past cited as reason to distrust it
Lawmakers said in a House hearing Wednesday that Facebook’s plan to enter the world of cryptocurrency and global finance could threaten sovereign currencies or even destabilize governments.
A day after a similarly critical Senate hearing, it was the House Financial Services Committee’s turn. David Marcus, a Facebook executive, faced more than four hours of questions about Facebook’s plans for a cryptocurrency called Libra. As was the case Tuesday, Marcus was dogged by his company’s controversial reputation, as well as skepticism of the legal uses of cryptocurrencies.
“This is the biggest thing this committee will deal with this decade,” said Rep. Brad Sherman, D-Calif. “This is a godsend to drug dealers and tax evaders.”
When Facebook announced Libra in June, it said it wanted to create a new global financial system. The initiative, if successful, could put digital wallets in the hands of the more than 2 billion people who use Messenger and WhatsApp, the messaging platforms owned by Facebook.
The antagonism toward Facebook’s Libra effort is part of a broader escalation of criticism of tech giants in Washington. Even before Facebook announced its intentions to move into the financial system, the company had battled concerns that it had grown too powerful.
“I think before you move on to Libra, you ought to clean up the messes of the past,” Rep. Madeleine Dean, D-Pa., said at the hearing.
Rep. Carolyn Maloney, D-N.Y., asked that Facebook commit to starting with a pilot project with no more than a million users, overseen by the Federal Reserve.
As he did at Tuesday’s hearing by the Senate Banking, Housing and Urban Affairs Committee, Marcus, the executive overseeing Calibra, the Facebook subsidiary working on the project, repeatedly took pains to assure lawmakers that Facebook would not debut the currency project until it had received all the necessary approvals from regulators and secured safeguards to protect the privacy of users’ data.
He said Facebook will not control Libra because Facebook will be only one of about 100 companies and nonprofits in an association that will manage the currency.
While the Senate hearing about Libra focused on the widespread mistrust of Facebook, House committee members showed more interest in the many practical hurdles that are likely to confront the company if it wants to release Libra next year, as it has said it wants to do.
“Facebook’s plans raise serious privacy, trading and monetary policy concerns,” said Rep. Maxine Waters, D-Calif., chairman of the committee. The system will “yield immense economic power that could destabilize government.”
Waters said she was working on new legislation that would make it illegal for big tech companies to get involved in the financial industry, which could stop Libra in its tracks.
Marcus struck a conciliatory tone for a second day and said Facebook was listening to its critics.
“I believe we are owning these mistakes and working to remedy them,” he said.
Republicans on the committee were more eager to talk about the benefits that might come from Libra, but they also expressed their concern about Facebook’s plan.
“Quite frankly, I don’t care for Facebook,” said Rep. Barry Loudermilk, R-Ga. “But I do appreciate anyone who challenges the status quo.”
Facebook has designed Libra so it can be governed by dozens of big corporate partners, organized through a Swiss nonprofit. This is supposed to reduce Facebook’s power over the currency, but it led to questions Wednesday about how much power U.S. regulators would have if governance of the system was not taking place in the United States.
“I want to be very clear, we do not want to compete with the dollar or sovereign currencies,” Marcus said at the hearing.
Marcus said the plan would open low-cost online commerce to millions of people around the world who lack access to bank accounts and would make it cheaper to send money across borders.
Companies such as Apple, Google, Facebook and Amazon have long enjoyed nearly unbridled growth and a mythic stature as once-scrappy startups — born in garages and a dorm room and a road trip across the United States — that grew up to dominate their rivals. But as they’ve grown more powerful, critics have also grown louder, questioning whether the companies stifle competition and innovation, and if their influence poses a danger to society.
The House Judiciary Committee focused on whether the companies’ business practices run afoul of century-old laws originally designed to combat railroad and oil monopolies.
For some legislators, mostly Democrats, those laws are in need of updates or at least more stringent enforcement. Ultimately such action could lead to breaking up big online platforms, blocking future acquisitions or imposing other limits on their actions.
Subcommittee chairman David Cicilline, D-R.I., claimed that technology giants had enjoyed “de facto immunity” thanks to current antitrust doctrine, which typically equates anticompetitive behavior with higher prices for consumers. That allowed them to expand without restraint and to gobble up potential competitors, he argued, creating a “startup kill zone” that prevents smaller companies from challenging incumbents with innovative services and technology.
Amazon also faced some pointed questioning. Cicilline asked Nate Sutton, an associate general counsel at the online retailer, whether it uses the data it collects about popular products to direct consumers to Amazon’s own in-house products.
Sutton said the company doesn’t use third-party sellers’ data to “directly compete” with them. Cicilline, affecting disbelief, twice reminded Sutton that he was under oath. “Amazon is a trillion-dollar company that runs an online platform with real-time data,” he said.
Amazon also faces a widening inquiry in Europe over whether it unfairly uses data collected from third-party sellers who rely on its platform.
The European Union’s top antitrust regulator said Wednesday that it had opened a formal antitrust investigation into the matter.
“E-commerce has boosted retail competition and brought more choice and better prices,” said Margrethe Vestager, Europe’s competition commissioner.
“We need to ensure that large online platforms don’t eliminate these benefits through anti-competitive behavior.”
In a statement, Amazon said, “We will cooperate fully with the European Commission and continue working hard to support businesses of all sizes and help them grow.”
Amazon’s website is the main storefront for many third-party merchants, with a substantial number paying a fee to store goods in the company’s warehouses and using its delivery network to ship products.
Yet third-party sellers have long suspected that if Amazon notices that a particular product is selling well, it comes up with its own version — and offers it at a lower price.