Facebook Inc. took a beating for a second straight day over its controversial cryptocurrency plans as Democratic lawmakers argued the proposal posed vast privacy and national security risks.
At a Wednesday hearing before the House Financial Services Committee, Chairwoman Maxine Waters (D-Los Angeles) compared Facebook to Wells Fargo & Co. and Equifax Inc., two scandal-ridden companies that have come under scrutiny for harming consumers. If Facebook issues its Libra token, she added, the company will “wield immense power that could disrupt” governments and central banks.
Waters and other committee Democrats have crafted legislation to bar the company from proceeding with the coin until it can be properly vetted. In his testimony, Facebook executive David Marcus reiterated that the social media giant won’t go ahead with the cryptocurrency until regulators and governments across the world are satisfied. Democrats were unmoved.
Still, Marcus found more friends in the House than he did Tuesday in front of the Senate Banking Committee, giving some hope that Facebook could weather the political storm it unleashed a few weeks ago when it announced its Libra plans. One Republican on the financial services panel called the digital money idea brilliant, while others said they worried their Democratic colleagues were trying to stifle progress and thwart vital financial technology.
“Washington must go beyond the hype and ensure that it’s not the place where innovation goes to die,” said Rep. Patrick T. McHenry of North Carolina, the panel’s highest-ranking Republican. While saying he was appropriately skeptical of Facebook’s proposal, McHenry urged lawmakers to move beyond making the company a political whipping boy.
“Change is here. Digital currencies exist,” he said. “Facebook’s entry in this new world is just confirmation.”
It hasn’t been an easy few weeks for Facebook and its cryptocurrency project. Before the Capitol Hill grillings, President Trump lambasted Libra on Twitter, and Federal Reserve Chairman Jerome H. Powell and Treasury Secretary Steven T. Mnuchin indicated that the company would have a tough time satisfying a slew of regulatory issues.
A parade of senators from both parties criticized Facebook at Tuesday’s Senate panel hearing, saying the company can’t be trusted to handle people’s financial transactions. Much of the day focused on Facebook’s missteps involving privacy breaches and allowing Russian propaganda designed to influence the 2016 presidential election on its platform.
Despite the outcry, it would be difficult for Congress to block Facebook’s plans. U.S. lawmakers haven’t passed any significant laws on cryptocurrencies, and no federal agency has established itself as the primary overseer for virtual coins. At least half a dozen regulators including the Securities and Exchange Commission, the Commodity Futures Trading Commission and parts of the Treasury Department have claimed some turf.
In his House testimony Wednesday, Marcus again said the company knew it was only “at the beginning of this journey” and was eager to get input from governments, central banks and others across the globe. The digital money operations are being headquartered in Switzerland.
“We expect the review of Libra to be among the most extensive ever,” he said. “We are fully committed to working with regulators here and around the world.”
But his refusal to agree to the moratorium proposed by Democrats, or even a pilot program that would test how Libra functions before a full-scale launch, infuriated Rep. Carolyn B. Maloney (D-N.Y.), whose constituency includes many Wall Street bankers. “You’ve breached the trust of users over and over again,” she said, adding that lawmakers should consider halting the project.
Under questioning, Marcus alluded to the regulatory gray area that its digital coin could occupy.
He told the panel that Facebook doesn’t consider the token to be a security or an exchange-traded fund, meaning it would not be regulated by the SEC. And though he said Libra may be seen as a commodity under current law, its oversight is still an open question. “We believe it is a payment tool,” Marcus said.
Facebook is talking to the Swiss financial regulator as well as the Group of Seven about what rules might apply, he added. Among the issues he said are being addressed: privacy concerns, money laundering, terrorism finance and any potential effect on sovereign currencies.
Marcus also sought to downplay Facebook’s leading role in the project, noting that it would be just one of dozens of corporations involved. However, he acknowledged that thus far the social media giant was the only company to have spent money or developed the technology for the project.
Republicans on the panel generally argued that it was premature for Congress or regulatory agencies to clamp down on Libra. The government, they said, shouldn’t get in the way of private-sector progress.
“This is absolutely brilliant,” Rep. Sean P. Duffy (R-Wis.) told Marcus. “I was shocked at how bright it was.”