Questions surround Facebook’s possible billion-dollar fines

Plenty of questions remain about the U.S. government’s potential landmark enforcement action against Facebook after the company revealed this week that it anticipates paying between $3 billion and $5 billion to settle a yearlong investigation into its privacy practices.

Facebook revealed to investors on Wednesday that it had set aside $3 billion toward a potential fine from the Federal Trade Commission (FTC), which has been investigating whether Facebook violated a 2011 consent agreement with the agency.

{mosads}Any fine in the billions of dollars would be several orders of magnitude larger than the FTC’s current record penalty: a $22.5 million fine against Google for violating its consent agreement.

But any sum in the range predicted by Facebook is essentially pocket change to a company that brought in nearly $56 billion in revenue last year.

The question that most observers have is whether Facebook will be forced to make changes to its business model in order to settle the government’s concerns.

“I would say the fine itself isn’t a big deal given how much cash Facebook has on hand. The question will be what rules are in place to protect consumers in the future. That we don’t know,” said Michael Nathanson, an analyst with the research firm MoffettNathanson.

Wall Street has shrugged off the potential fine. After Facebook told investors about the range it expected it could pay, its shares jumped 7 percent. In other words, when the company admitted it might have to pay a $5 billion fine, it added about $30 billion to its market cap.

For many of the tech giant’s critics, a fine — even a record, multibillion-dollar one — would be insufficient to hold Facebook accountable and to show the rest of Silicon Valley that the U.S. is serious about policing their privacy practices.

“This is a slap on the wrist—a fraction of the profits Facebook makes in a year,” Sen. Elizabeth Warren (D-Mass.), a 2020 presidential candidate who has proposed breaking up Facebook, wrote in a tweet. “Facebook is a repeat offender & fines like this won’t stop them from breaking the law & violating our privacy again. It’s going to take big, structural change.”

Privacy advocates are hoping that the FTC is able to attach restrictions on Facebook’s business practices as conditions of any settlement the two sides reach.

“Consumers should be pleased if the FTC does indeed levy a fine against Facebook more than a hundred times greater than anything it’s done in the past,” said Laura Moy, the executive director of the Center on Privacy and Technology at Georgetown Law Center.

“But skeptics are right to be concerned about the possibility that even this will just be treated by the company as a cost of doing business,” Moy added. “Which points to another problem — how can we get a company like Facebook to behave when it’s so massive it can absorb a multibillion-dollar fine without batting an eye?”

The New York Times reported this week that a rift has emerged at the FTC, with at least one member of the commission pushing for sanctions that would impose new rules or oversight on Facebook’s business. The sanctions could also target Mark Zuckerberg, who as CEO and chairman of the board exercises outsize control over the company.

The FTC is wrapping up its probe at a time when regulators around the world are closing in on Facebook.

On Thursday, Canadian authorities announced they would take the company to court after it rejected their proposals for stricter monitoring of its privacy practices following its investigation into the Cambridge Analytica scandal. The U.K. data watchdog levied a fine of 500,000 euros, the maximum allowed under law, over the debacle as well.

Facebook also faces nearly a dozen investigations from the Irish Data Protection Commissioner over its compliance with Europe’s privacy laws.

And in February, German regulators delivered a blow to Facebook’s business model, ruling that its users could choose not to let the company track them across the internet.

Justin Brookman, the director of privacy and technology policy at Consumer Reports and a former policy director in the FTC’s technology office, said that beyond a massive fine, the agency should follow Germany’s lead and seek to constrain Facebook’s “all-encompassing data collection.”

“I would like to see something like that,” Brookman said. “I think tying it to their outside market power is perfectly reasonable.”

He added that whatever consequences Facebook ends up facing in the U.S. will likely reveal that the U.S. is lagging behind the rest of the world in regulating its own data giants.

“It’s going to reveal where there are gaps,” Brookman said. “Some people will argue it’s gaps in the FTC’s will [to crack down on tech giants], while some will argue it’s gaps in the law. It’s probably a combination of all that.”