Andrew Harnik/AP Photo
Facebook CEO Mark Zuckerberg at a House Financial Services Committee hearing on Capitol Hill in Washington, October 23, 2019
By most accounts, FACEBOOK CEO Mark Zuckerberg fared poorly at a recent hearing in the House Financial Services Committee. This is perhaps especially true with respect to questions about FACEBOOK’s Libra project—the technotrust’s ambitious attempt to mint “real money” for worldwide use.
For an overview of the Libra project heading into the hearing, readers can review this editorial.
Here are some highlights from the big day:
Regulatory Approval
Depending on when you tuned in, Zuckerberg promised FACEBOOK would not help to launch the Libra project anywhere in the world until “all” U.S. regulators approved, all “appropriate” U.S. regulators approved, or all “relevant” U.S. regulators approved. Perhaps anticipating this equivocation, Representative Carolyn Maloney (D-NY) asked Zuckerberg if FACEBOOK intended to obtain approval from seven specific regulatory agencies before launch. In response, Zuckerberg indicated that he would “seek” approval from “all of the regulators that have jurisdiction over a part of what we’re doing.”
Although Zuckerberg did mention that FACEBOOK is cooperating with the Financial Stability Oversight Council, per a call for an investigation by Emanuel Cleaver (D-MO), he did nothing to specify which agencies he thinks should actually regulate the Libra project, should it move forward. Echoing David Marcus’s talking point that Libra is simply a “payments system” or a “payment tool,” Zuckerberg argued the Libra coins themselves are relatively unimportant focal points (a statement contradicted by his boast that the digital Libra—and not the digital U.S dollar—is the patriot’s proper answer to the launch of the digital renminbi).
Ed Perlmutter (D-CO) asked if the Calibra digital wallet was like a bank, and Zuckerberg agreed, while adding that Libra would not apply for a bank charter. “That’s the problem!” Perlmutter exclaimed. After Madeleine Dean (D-PA) similarly argued that Zuckerberg was attempting to create a bank immune to banking regulations, Jesús “Chuy” García (D-IL) cornered the CEO into admitting he didn’t think the project should be subject to securities regulation either.
Reading between the lines, Zuckerberg and his colleagues appear dedicated to framing the Libra project as a bigger, better, faster Western Union, and not a mammoth financial enterprise touching on multiple bodies of law in multiple jurisdictions. Given the restrictions that the U.S. government would likely impose if it were to comprehensively regulate the project, we can expect FACEBOOK to continue this strategy.
Still, there’s no doubt that Zuckerberg held FACEBOOK out as an all-American, law-abiding corporate citizen—a maneuver policymakers and regulators can capitalize on moving forward.
Corporate Governance
Regardless of what eventually happens with the regulatory agencies, Zuckerberg seems dead set on destroying the notion that Libra coins are “Zuck-bucks.” In his opening statement, he reiterated that FACEBOOK is “not the ideal messenger” for the Libra project, despite later acknowledging that FACEBOOK VP David Marcus is still in charge of Calibra (the primary Libra wallet provider) and sits on the five-member Libra Association board.
More importantly, FACEBOOK’s increasing power over the Libra Association Council—in part because of several partners dropping out of the project—renders Zuckerberg’s declarations empty unless the association itself makes significant, material changes in the governance structure. Indeed, the hearing only underscored that FACEBOOK has far more “skin in the game” than other members. Amid questioning regarding the white male leadership of the Libra project by Al Green (D-TX), Zuckerberg testified that zero Libra Association members have actually invested the requisite $10 million, suggesting the entire project is still being fueled by FACEBOOK funds. Compounding confusion, Zuckerberg acknowledged that the association has eliminated Libra Investment Tokens and “morphed” or “abandoned” the general investment strategy, without providing further clarity.
Consumer Protection
As for more practical concerns, Zuckerberg provided little insight as to how Libra would actually work for currency users. Although Zuckerberg argued that runs on Libra would be “theoretically” impossible, he did not indicate that either Calibra or any “authorized resellers” would be compelled to honor user demands for exchange in a timely or sufficient manner.
Following related questions by Maloney and Bill Foster (D-IL), Sylvia Garcia (D-TX) pressured Zuckerberg into saying he didn’t know if “anonymous wallets” should exist within the Libra network, furthering muddying law enforcement concerns.
When Nydia Velázquez (D-NY) called FACEBOOK out for breaking promises regarding data firewalls between FACEBOOK and WhatsApp, Zuckerberg merely acknowledged that FACEBOOK needs to “build trust.” That needed trust was further undermined when Katie Porter (D-CA) highlighted that FACEBOOK is currently in federal court arguing that its terms of service release the company from liability … for theft of user data. In other words, FACEBOOK and Zuckerberg say one thing in public and another in litigation.
Finally, when questioned by Ayanna Pressley (D-MA), Zuckerberg indicated that FACEBOOK intended the Calibra wallet to be “free” to users—only reinforcing the educated suspicion that data collection and ad sales are the real moneymakers for FACEBOOK.
Conclusion
While it certainly appears as if FACEBOOK, Calibra, and the Libra Association will have to go back to the drawing board, regulators and policymakers should keep their eyes on the prize. In his rush to appear amenable, Zuckerberg may have overextended the corporation’s commitments, but he still left FACEBOOK and its allies some significant space to walk back sweeping statements.
Skeptics should bear in mind that the hearing occurred just one week after the Libra Association members met in Geneva to discuss the future of the project. FACEBOOK and its staunchest allies have thus far demonstrated a desire to keep moving Libra forward, despite concerns and criticisms. Regulators and policymakers should stay on the beat.
