Facebook expects FTC fine of up to $5bn in privacy investigation
| Upcoming FTC fine to dwarf $22.5m 2012 penalty
In the continuing saga of Facebook’s failure to comply with data privacy laws, resulting in multi-million dollar fines, the social media giant is expecting to face a fine of up to $5 billion from the Federal Trade Commission (FTC) for allegedly violating a 2011 privacy consent decree.
The fine will be a record penalty for a tech company by the FTC. However, it would seem that Facebook is unlikely to lose much sleep over the amount.
According to its first quarter financial reports, Facebook expects to pay as much as $5billion to the FTC, which otherwise showed continued revenue growth to more than $15billion for the first three months of the year.
According to The Week, Facebook recorded a $3bn legal expense “in connection with the inquiry of the FTC into our platform and user data practices”, the company said.
We estimate that the range of loss in this matter is $3.0bn to $5.0bn, …The matter remains unresolved, and there can be no assurance as to the timing or the terms of any final outcome.
In March 2018, an investigation was launched by the FTC into Facebook’s privacy practices, in response to the Cambridge Analytica scandal. The inquiry focused on whether the data practices that allowed Cambridge Analytica to obtain Facebook user data violated the company’s 2011 agreement with the FTC.
Facebook and the FTC have reportedly been negotiating over the settlement, which will dwarf the prior largest penalty for a privacy lapse, a $22.5million fine against Google in 2012.
The expectation of a heafty FTC fine could be an omen of future trouble, warned the eMarketer analyst Debra Aho Williamson. “This is a significant development, and any settlement with the FTC may impact the ways advertisers can use the platform in the future,” she said.
The stock market’s positive response to the results drew the immediate ire of the Democratic congressman David Cicilline, who chairs the House subcommittee on antitrust, commercial and administrative law.
“Last month, I said that a fine in the low billions of dollars would amount to a slap on the wrist for Facebook,” he wrote on Twitter. “Tonight, we learned that’s how Wall Street sees it too – as a slap on the wrist. If the FTC won’t act, Congress has to.”
On a conference call with investors, the CEO, Mark Zuckerberg, focused his remarks on the plan to build out a “privacy-focused” encrypted messaging platform and his thinking about regulation and the “important social issues facing the internet”.
The plan to stitch together the various messaging platforms in Facebook’s “family of apps” was announced in March as a pivot to a “privacy-focused communications platform”. Zuckerberg said that he anticipates the build-out of the new service to take “five years or longer”.
We’re going to intentionally take a longer period of time than we might have in order to get safety right,” he said. “A few years ago we probably would have rolled this out and then dealt with issues later.
Zuckerberg also expressed confidence that the company could “strengthen privacy without meaningfully impacting our business”, though the chief financial officer, David Wehner, warned that the company expects revenue growth rates to “decelerate sequentially” due to “ad targeting-related headwinds”.
Those “headwinds” include increasing numbers of people taking advantage of Europe’s privacy regulation by opting out of ad targeting and Facebook’s long-promised “clear history” tool, which Wehner said would launch in the fall.
Zuckerberg’s reference to “issues facing the internet” echoes the CEO’s messaging from last quarter, when he began characterizing Facebook’s numerous scandals as being challenges for the entire internet, and not just his company.
Facebook was dogged during the quarter by another string of revelations of improper data practices, the departure of a key executive, intensifying scrutiny by regulators and lawmakers in the US and UK, and international outrage over the company’s role in broadcasting and disseminating video of the terrorist shooting in Christchurch that killed 50 Muslims worshippers.
Jessica Liu, a marketing analyst for Forrester said Facebook needs to show that it’s improving on user data practices and content management. Speaking about Facebook’s data handling practices, Liu said:
Its track record has been atrocious, …No more platitudes. What action is Facebook Inc actually taking?