Possible USD5 billion Facebook fine echoes European tech penalties

SAN FRANCISCO (AP) – The possibility of a USD5 billion federal privacy fine for Facebook suggests that United States (US) regulators may be taking a cue from the large penalties their European counterparts have been handing out to US technology giants.

While investors appear to have shrugged it off for now, the potential fine from the US Federal Trade Commission (FTC) would be more than a slap on the wrist for Facebook, especially if it comes with strings that limit how the company targets advertising to its massive user base.

Facebook said on Wednesday it is planning for a fine between USD3 billion and USD5 billion and formally set aside USD3 billion for the FTC, which is investigating whether the social network violated its users’ privacy. The amount is a contingency against a possible penalty; Facebook noted that the “matter remains unresolved.”

The company’s disclosure is the latest indication of US moves toward tighter regulation of the technology industry, which has enjoyed years of nearly unrestricted growth with little oversight. Talk of a national data-privacy law is swirling around Capitol Hill, states like California have already forged ahead with their own measures, and US presidential candidate Elizabeth Warren has proposed breaking up the biggest US tech companies.

In Europe, regulators have routinely slapped Google and other US firms with major fines. Google now owes almost USD10 billion in such penalties for alleged anticompetitive behaviuor; its parent company Alphabet is appealing. EU watchdogs also hit Apple with a back-taxes bill of more than USD15 billion .

Facebook, meanwhile, is already preparing for a future where targeted ads play a smaller role in its business, flexing its muscles in e-commerce and payments and touting a coming shift toward private communications.

Visitors take photos in front of the Facebook logo outside of the company’s headquarters in Menlo Park, California. – AP

The one-time charge slashed Facebook’s first-quarter profit considerably, although revenue grew by 26 per cent in the period. The FTC has been looking into whether Facebook broke its own 2011 agreement promising to protect user privacy.

Investors shrugged off the charge and sent the company’s stock up more than nine per cent to nearly USD200 in after-hours trading. Wall Street in general tends to forgive one-time accounting dents in companies’ earnings reports and focus instead on how the overall business is doing. Besides, even if Facebook ends up paying USD5 billion this year, it’s unlikely to seriously harm a company that’s expected to rake in profit of USD22 billion this year.

EMarketer Analyst Debra Aho Williamson, however, called it a “significant development” and noted that any settlement is likely to go beyond a mere dollar amount. The FTC move, she said, “may impact the ways advertisers can use the platform in the future.”

Facebook has had several high-profile privacy lapses in the past couple of years. The FTC has been looking into Facebook’s involvement with the data-mining firm Cambridge Analytica since last March. That company accessed the data of as many as 87 million Facebook users without their consent.

The 2011 FTC agreement bound Facebook to a 20-year privacy commitment and violations could subject Facebook to fines of USD41,484 per violation per user per day. The agreement requires that Facebook users give “affirmative express consent” any time that data they haven’t made public is shared with a third party.

Cambridge Analytica accessed information from so many users because it was able to access the data of people’s friends, and not just people who explicitly permitted access when they took a personality quiz. While Facebook did have controls in place that allowed people to restrict such access, they were buried in the site’s settings and difficult to find.