Facebook’s $5bn Let-Off: The social media company to be fined by the Federal Trade Commission

August 5, 2019

3 min read

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What's going on here?

Facebook agreed a record $5 billion settlement with the Federal Trade Commission that also imposed new obligations over how the tech giant handles personal data. However, the agreement also granted Facebook immunity and did not hold any of its officers personally liable.

What does this mean?

The $5 billion figure is the largest civil penalty that the Federal Trade Commission (FTC) has ever slapped on a company, a much greater sum than Google’s $22 million fine in 2012. The financial sanction comes after the Cambridge Analytica scandal that was exposed in March of last year. Facebook allowed the political consulting firm Cambridge Analytica to harvest data through a third-party app, which breached Facebook’s 2011 agreement with the FTC.

The decision on the final figure was split with two Democrats opposing the majority ruling of the Republicans in a 3-2 vote. The Democrats argued that the fine should be far greater, as $5 billion represents a fraction of Facebook’s $55.8 billion revenues in 2018. Matt Stoller (a specialist in monopoly power at the Open Markets Institute) commented that “this isn’t a fine, it’s a favour to Facebook, a parking ticket”. Yet Mark Zuckerberg, CEO and founder of Facebook, argued that with the newly imposed obligations and reforms, Facebook’s privacy protections will now “go beyond anything required by US law today”, adding that “now, [Facebook is] going to set a completely new standard for our industry”.

What's the big picture effect?

The record-breaking fine has made a lot of headlines due to the size of the fine but, as is clear from the FTC’s split ruling, many believe that this is not enough to make a difference.

Commentators have seen Zuckerberg’s statement that Facebook’s setting a “completely new standard for the industry” as a damning indictment of US data protection laws. Moreover, these more expansive rules that make Facebook go above and beyond the requirements of the US are also made by Facebook and have not prevented recent data breaches. Facebook’s security history is a worrying omen for the future. Here are a few of the company’s highlights:

  • In 2013 a “technical glitch” left 6 million of Facebook’s users’ phone numbers and email addressed “inadvertently” exposed.
  • In 2018 the Cambridge Analytica scandal meant that over 77 million Facebook user’s data had been harvested without their consent.
  • In 2019 Facebook “unintentionally” copied the email contacts of 1.5 million users without their consent (read about that story here)

The fact that Facebook’s stock price jumped over 1% on the announcement of the fine demonstrates that it has been perceived by investors as just a “parking ticket” or, as one Democratic congressman put it, a “Christmas present five months early”.

With new accusations of the social media platform spreading misinformation and a further FTC anti-competition investigation ongoing, there is a great cause for concern for Facebook. With Facebook’s plan to operate its own digital currency known as Libra (check out our report on that here) regulators will be focused on the strength of Facebook’s security systems amongst other things. So, whilst Zuckerberg may have escaped with a small slap on the wrist, as a result of the privacy scandals, many Democrats have taken a much stronger position against the company. This makes more expansive regulation on privacy and increased antitrust scrutiny more probable, and this trend could give Zuckerberg and his shareholders something to seriously worry about.

Report written by Will Holmes

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