Senators unload on Facebook cryptocurrency at hearing

Facebook on Tuesday sought to defend its plans for a new global cryptocurrency at a contentious hearing as lawmakers aggressively blasted the project and questioned whether the embattled company should be in charge of launching such an ambitious venture.

David Marcus, head of Calibra — the new Facebook subsidiary that will be partially responsible for launching the cryptocurrency — assured lawmakers that the Libra coin will not launch until financial regulators are satisfied.

But Marcus’s testimony did little to quell concerns from bipartisan lawmakers on the Senate Banking Committee, many of whom delivered blistering condemnations of the company’s plans.{mosads}

“[Facebook] moved fast and broke our political discourse, they broke journalism, they helped incite a genocide and they’re undermining our democracy,” Sen. Sherrod Brown (D-Ohio), the ranking member of the committee, said during his opening remarks. “Now Facebook is asking people to trust them with their hard-earned paychecks.”

“It takes a breathtaking amount of arrogance to look at that track record and think, you know what we really ought to do next? Let’s run our own bank and our own for-profit version of the Federal Reserve for the world,” he continued.

Facebook executives have spent weeks meeting with regulators and lawmakers behind closed doors, and the hearing on Tuesday offered a first glimpse into how few inroads the company seems to have made with skeptical policymakers.

Another obstacle is the lack of clarity over which regulators would be responsible for overseeing Libra’s compliance with federal financial, data privacy and consumer protection laws.

Senate Banking Committee Chairman Mike Crapo (R-Idaho) even floated the possibility that the U.S. needs to establish an entirely new regulatory body to address privacy issues around cryptocurrencies like Libra, an idea floated by Federal Reserve Chairman Jerome Powell last week.

That Crapo, a conservative Republican, suggested a vast expansion of federal oversight reflects the depth of bipartisan concern among lawmakers and regulators.

But the criticism was not equally fervent on both sides. Several Republicans defended Facebook against the harshest rhetoric from the Democrats, calling Libra an idea with “tremendous potential benefits” and a “commendable” mission.

Facebook has branded Libra as an alternative payment system for the millions of people who do not use traditional banks.

“To announce in advance that we have to strangle this baby in the crib is wildly premature,” Sen. Pat Toomey (R-Pa.) said.

Even so, concerns about the Libra project cut across party lines, as lawmakers such as Sens. John Kennedy (R-La.) and Brian Schatz (D-Hawaii) asked why Facebook should assume responsibility for the enormous undertaking, given the level of mistrust surrounding the company from the public and Washington.

“I don’t trust Facebook,” Sen. Martha McSally (R-Ariz.) warned. “And I am not alone.”

Facebook has faced a slew of controversies in recent years over its privacy practices and handling of user data, as well as its failure to stave off foreign interference, misinformation, extremism and harassment.

The barrage of scandals — most prominently the Cambridge Analytica controversy, which saw a conservative public relations firm obtain data on hundreds of millions of Facebook users — has soured the relationship between Washington and Silicon Valley, with lawmakers expressing particular ire for Facebook after CEO Mark Zuckerberg testified before Congress last year.

Now the company has found itself at the center of another heated debate: how the government should handle the growth of cryptocurrency.

Marcus said Facebook has been engaged in ongoing conversations with financial regulatory bodies who are concerned about how Libra could be abused by terrorist financiers, money launderers and other criminals. Just last week, Powell warned he has “serious concerns” about Libra, warning against a “sprint toward implementation.”

And Treasury Secretary Steven Mnuchin held a press briefing about cryptocurrency on Monday, assuring reporters, “We will not allow digital asset service providers to operate in the shadows and will not tolerate the use of the cryptocurrencies in support of illicit activities.” He said Facebook has “a long way to go” to convince regulators that it is prepared to launch the controversial project.

Libra, which was first announced to great fanfare last month, would allow users to send and receive money by exchanging a proprietary cryptocurrency backed by dozens of major corporations.

While Libra will be controlled by a Swiss nonprofit separate from Facebook, the company will operate a virtual wallet called Calibra that is operated by a Facebook subsidiary and will be made available on Facebook’s messaging services WhatsApp and Messenger. The Calibra wallet will be one of multiple digital wallets that will be available in the Libra blockchain, but lawmakers raised concerns that Facebook will encourage its user base of 2.4 billion users to use its own wallet rather than those from other companies.

Sen. Mark Warner (D-Va.) asked Marcus to pledge Facebook will “make it easy” for users to use digital wallets other than Calibra.

“Absolutely,” Marcus said. “Consumers have the ability to move from wallet to wallet.”

But, he added later, Facebook will not embed any other wallets within its messaging services, potentially nudging its users toward Calibra.

Other members of the Senate Banking Committee pressed Marcus over how much control Facebook will have as a member of the Libra Association — the Switzerland-based nonprofit group that will be tasked with operating Libra.

“We will not control either Libra currency or the association,” Marcus said. “We agree no company should control such a network.”

Later on, Brown said the argument “just doesn’t ring true” and summarized a quote from author George Orwell: “All people are created equal, but some people are more equal than others.” 

He said Facebook will “pretty clearly” be the dominant player because of its 2 billion users.

Marcus is in for another grilling on Wednesday, across the Capitol.

Facebook is certain to take heat over similar issues — its enormous market power, its proposed entrance into a relatively unregulated industry, its history of privacy violations and its basic struggles with customer trust — when Marcus appears before House Financial Services Committee Chairwoman Maxine Waters (D-Calif.). Waters has called for a total moratorium on the Libra project until those issues have been resolved.

Democrats are even considering a bill that would ban major social media and technology companies from providing financial services and offering digital currencies.

“I wish we could trust Facebook,” said Brown, who told reporters that he will consider legislative action if the company continues to pursue the project. “It’s pretty clear there’s almost nobody in this committee that does.”