From privacy regulators to Walmart, Facebook’s Libra faces growing threats

Facebook’s Libra cryptocurrency project has come under attack from several directions in the past few days.

In a joint statement on August 6, data protection regulators from the United States, United Kingdom, European Union, Canada, and Australia came head-on, issuing a joint statement slamming the Libra project and Facebook for failing to address the fledgling cryptocurrency’s privacy risks.

Meanwhile, Walmart came at Facebook and Libra from the flank, patenting a cryptocurrency of its own on August 1. While the world’s largest retailer and No. 1 on the Fortune 500 list has said it does not intend to create its own stablecoin at this time, it would almost certainly be a serious competitor in Facebook’s home market, the United States.

Facebook is taking the threats Libra faces seriously, particularly in light of how the head of its Calibra wallet project, David Marcus, was treated on Capitol Hill last month. It has reportedly hired a lobbyist connected with the most powerful senator on the committee that will oversee the cryptocurrency.

Regulators demand answers

Data privacy overseers from the European Union and major English-speaking countries came together on a statement today highlighting “the potential risks associated with the Libra Network and our expectations of the Libra Network to protect personal information.”

Commissioner Rohit Chopra of the U.S. Federal Trade Commission was joined by European Data Protection Supervisor Giovanni Buttarelli, U.K. Information Commissioner Elizabeth Denham, Canadian Privacy Commissioner Daniel Therrien, and Australian Information and Privacy Commissioner Angelene Falk, as well as their counterparts in Albania and Burkina Faso, in expressing their “shared concerns” about the project.

“These risks are not limited to financial privacy, since the involvement of Facebook Inc., and its expansive categories of data collection on hundreds of millions of users, raises additional concerns,” they said, promising to work closely with other national regulators. “We are supportive of the economic and social benefits that new technologies can bring, but this must not be at the expense of people’s privacy.”

In a significant understatement, the regulators also noted that the social media giant’s

“handling of people’s information has not met the expectations of regulators.”

Chopra’s agency fined Facebook a record $5 billion last month for mishandling the personal data of its users in the Cambridge Analytica scandal. An ongoing European investigation could over the same affair could cost it up to $1.63 billion, while the U.K. levied a penalty of more than $600,000. Falk’s agency is investigating Facebook over Australians affected by the same breach, while Canada’s regulator—which cannot impose fines—may seek a court order forcing Facebook to change its methods.

The commissioners also said that given that Libra’s goal of launching by 2020, they were “surprised and concerned” that Facebook and its Calibra cryptocurrency wallet subsidiary “failed to specifically address the information handling practices that will be in place to secure and protect personal information.”

During hearings in the Senate and House of Representatives last month, Marcus promised legislators that Calibra and the Libra Association would “take the time to get this right” while refusing to promise not to launch the cryptocurrency, which is to be backed one-to-one by a basket of fiat currencies, before a U.S. regulatory framework is in place.

A major concern of the regulators is the potential for Facebook and Calibra to combine personal data from the social media site with financial information from its cryptocurrency wallet, they said. While Marcus has pledged that will never happen, Calibra’s Customer Commitment on consumer data privacy says it “will not share account information or financial data with Facebook or any third party without customer consent.” Those last three words are a mighty big potential loophole.

The statement outlines six questions the commissioners want Calibra and Facebook to answer before Libra launches.

These include details about how all of their data processors will be identified and screened for compliance—a flaw at the heart of the Cambridge Analytica scandal—as well as how it will be shared among the currently 28 and eventually 100 Libra Association members.

Others are less questions than demands for privacy protection features. One asks how Calbira will ensure it collects and uses “only the minimum amount of personal information necessary,” to run its wallet and comply with “know you customer” (KYC), “anti-money laundering” (AML), and anti-terrorism financing laws.

Another requests “privacy-protective default settings that do not use nudge techniques or ‘dark patterns’ to encourage people to share personal data with third parties or weaken their privacy protections.”

The letter ends by asserting that “[s]trong privacy safeguards are the foundation for innovation in the digital world,” and pledging to work together at the national level to make sure this principle is respected.

Lobbying for Libra

In response to all this, Facebook yesterday expanded its lobbying efforts with the hiring of a former aide to the Senate Banking Committee’s chairman, Sen. Mike Crapo (R-Idaho).

Politico reported on August 5 that Susan Zook, recently of Mason Street Consulting, will focus on lobbying Republicans on the powerful committee which has oversight of cryptocurrencies.

The news site added that Facebook spent $7.5 million on Washington lobbyists so far this year, which is not unreasonable given its huge fight with the FTC and other countries’ regulators over the Cambridge Analytica scandal and fine.

Aside from his power position on the committee, Sen. Crapo is a good target because he has taken a cautious but less hostile tone on Libra and cryptocurrencies in general than many of his colleagues, particularly the Democrats.

While noting that preserving “the integrity of our financial system” was the committee’s goal, Crapo also expressed support for industry innovation in a July 30 hearing focusing on Bitcoin and other cryptocurrencies. “[The] U.S. welcomes responsible innovation, including new technologies that may improve the efficiency of the financial system and expand access to financial services,” he said. 

While he wasn’t that friendly when the committee grilled Marcus on July 16, Crapo’s opening statement asked for answers to the questions and concerns Libra has raised, rather than attacking it outright, like the committee’s ranking minority member, Sen. Sherrod Brown (D-Ohio). The latter blamed Facebook for everything from breaking democracy to inciting genocide.

Walmart jumps on the cryptocurrency bandwagon

It’s not just political pressure Libra faces, it’s also competition. Retail giant Walmart’s patent filing for a fiat-back stablecoin similar to Libra describes a blockchain-based cryptocurrency that could be either restricted to use at Walmart and its partners or usable anywhere.

Announced on August 1, the filing points to Walmart offering low-income users a low-fee, interest-bearing cryptocurrency account that acts as an alternative to both bank accounts and credit cards. A Walmart digital currency would be “an alternative way to handle wealth at an institution that can supply the majority of their day-to-day financial and product needs,” the filing said.

Walmart was forced to abandon attempts to create its own bank more than a decade ago. The retailer also offers a money transfer service on its own and in partnership with MoneyGram offering lower fees. This is a major stated goal of the Libra Association, which wants to create an even cheaper remittance service for the world’s 1.7 billion unbanked poor.

Walmart’s proposed cryptocurrency may offer bank-like functions ranging from low-fee money storage with interest to providing an alternative to bank-issued debit and credit cards. In this, it joins the likes of Apple and Google in using digital payments to come after banks’ customers.

It also suggests the retailer may take on the predatory payday loan industry and its sky-high interest rates, saying “short-term, emergency loans may be offered, where the customer is charged no interest or a fair interest rate.”

Walmart’s filing also envisions the possibility of restricting the currency’s use in various ways. These range from following government regulations for the use of funds from the Supplemental Nutrition Assistance Program (formerly food stamps) to preventing children from buying candy or an R-rated DVD.