with Aaron Schaffer
The announcement underscores how significantly the effort, which was initially known as Libra, has evolved since Facebook’s initial pitch nearly two years ago. Facebook first set out to build a coin backed by a basket of currencies that could be used all over the world, especially by the unbanked. But after facing criticism globally and seeing key partners withdraw, the project’s backers – which include Facebook and more than 20 other companies – instead opted to be structured more like a traditional payments system. The system will begin with a digital currency tied with the U.S. dollar.
The shift highlights the cost of regulators’ distrust of Facebook.
It's been difficult to measure the impact of the global regulatory scrutiny on Facebook, especially as the company continues to post record earnings even as cries mount for antitrust action and other new government regulation. But the scaled-down cryptocurrency plans highlight how the increased political concerns could generally inhibit the Facebook’s growth into new areas of business.
Regulators around the world raised concerns that Facebook’s push into cryptocurrency would threaten government-backed currencies, encourage money laundering and jeopardize consumers’ data. Politicians and regulators’ trust in the company had faltered after years of privacy scandals and concerns about how its services were abused to spread harmful content and disinformation.
Experts believe the new cryptocurrency model with operations based in the United States may be more palatable.
“It’s a realization that the effort will require a presence that is acceptable to U.S. regulators,” Richard Levin, chairman of the financial technology and regulation practice at the law firm Nelson Mullins, told the Wall Street Journal.
Diem also last year brought on a new chief executive, Stuart Levey, who served as a former U.S. Treasury undersecretary during the George W. Bush administration. His background positioned him to help the project win regulatory approval after a messy start.
Every move Facebook is making attracts more political scrutiny.
The company's cryptocurrency plans — which sparked congressional hearings and ruffled global feathers— highlight how wary governments are of Facebook expanding into new areas of business given its track record. Financial services are particularly sensitive, but regulators are broadly monitoring new ways Facebook's products could potentially harm society.
The latest sign: a bipartisan group of state attorneys general called on the company to halt plans to create a new children’s version of Instagram. They argued that social media can be detrimental to children’s physical and mental health, raising questions about Facebook's ability to keep children safe online. Facebook in that instance signaled it would forge ahead anyway, despite the warning. But by putting a stake in the ground before the service even launches, the attorneys general are ensuring there’s greater public scrutiny before the service is publicly available.
There’s a precedent for political scrutiny inhibiting a tech company from moving into new lines of business.
There are parallels to Microsoft, the last tech company to face similar regulatory blowback decades ago. Bill Gates has argued that people would be using Microsoft-powered smartphones rather than Apple or Android ones if the company hadn’t been so focused on antitrust litigation in the early 2000s.
“There’s no doubt that the antitrust lawsuit was bad for Microsoft, and we would have been more focused on creating the phone operating system and so instead of using Android today you would be using Windows Mobile,” Gates said at a New York Times conference in 2019. “If it hadn’t been for the antitrust case … we were so close, I was just too distracted. I screwed that up because of the distraction.”
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A Senate committee advanced tech critic Lina Khan's FTC nomination.
Eight of the committee’s 12 Republicans supported Khan’s nomination, Politico’s Leah Nylen reports. The bipartisan support for Khan’s nomination, which will go to the full Senate for approval, could signal broader support for scrutiny of tech giants including Amazon, Facebook and Google.
Khan “is focused on addressing one of the most pressing issues of the day: reining in the big social media platforms,” said Sen. Roger Wicker (Miss.), the committee’s top Republican. Wicker, who voted to approve Khan, said he had concerns about overregulation.
Amazon won an appeal over a European tax bill of more than $300 million.
Europe’s second-highest court blasted the analysis that went into a 2017 decision by the European Commission ordering the company to pay 250 million euros ($302 million) in taxes to Luxembourg, the Wall Street Journal’s Sam Schechner reports. The ruling is a blow to European tech enforcer Margrethe Vestager, who has been leading a campaign to recoup millions of dollars from major tech companies.
“We will carefully study the judgment and reflect on possible next steps,” Vestager said. The decision could be appealed to the European Court of Justice. Amazon said it the decision “is in line with our long-standing position that we followed all applicable laws and that Amazon received no special treatment.”
Last year, a European court overturned a $14.8 billion tax bill that Vestager said Apple owed Ireland. Vestager has appealed that case to the Court of Justice.
President Biden signed an executive order that aims to boost the cybersecurity of the federal government and its contractors.
The order directs the Commerce Department to develop cybersecurity standards for companies selling software services to the federal government, Ellen Nakashima reports. Officials say they hope the standards will trickle down to the private sector and increase cybersecurity for critical systems such as pipelines.
The 34-page-long order also calls for the removal of contractual barriers to reporting breaches of federal agencies; boosts a program that allows agencies to test the security of products before they’re purchased by the government; and reiterates that contractors are obligated to report incidents at federal agencies, as well as a raft of other provisions.
“It’s the most ambitious cybersecurity effort from an administration in decades,” said Ari Schwartz, a White House cyber official in the Obama administration.
Rant and rave
Twitter pundits quickly ridiculed WeWork CEO Sandeep Mathrani's assertion that workers who want to return to the office are the most engaged. Facebook's Tom Gara:
Researcher Jane Manchun Wong:
“Smoking is good for you” said tobacco company CEO— Jane Manchun Wong (@wongmjane) May 12, 2021
Writer and editor Max Ufberg:
E&E News's Timothy Cama:
Sen. Amy Klobuchar (D-Minn.), the chair of the Judiciary Committee's antitrust subcommittee, announced yesterday that her father died at the age of 93. “Even to the end, as he lived the final chapter of his life with Alzheimer's, he was still singing songs and telling incredible stories to my sister Meagan and me,” she said in a statement. “He loved our state. He loved journalism. He loved sports and adventure. And we loved him.”
Inside the industry
- Robert Baldwin, a former official at the Treasury Department and CIA, is joining the Association for Digital Asset Markets as its head of policy.
- Raghu Raghuram, VMWare's chief operating officer for products and cloud services, has been named the company's CEO effective June 1.
- Sen. Thom Thillis (R-N.C.), former Google CEO Eric Schmidt and Gilman Louie, who ran the CIA’s In-Q-Tel venture capital fund, discuss artificial intelligence at a Center for Strategic and International Studies event today at 3 p.m.
- Artificial intelligence scholar Kate Crawford speaks at a book talk hosted by the University of Washington’s Tech Policy Lab and Center for an Informed Public today at 7 p.m.
- A Senate Commerce Committee panel holds a hearing on protecting children online on May 18 at 10 a.m.
- Shirley Bloomfield, the CEO of NTCA — The Rural Broadband Association, testifies before a Senate Finance Committee hearing on infrastructure funding on May 18 at 10 a.m.
- A House Energy and Commerce Committee panel holds a hearing on vehicle technology on May 18 at 10:30 a.m.