Monday 26 August 2019

Facebook hit with US$5bn fine over privacy violations. So what?

While it's the biggest fine ever levied on a tech firm, it's small change to the social media titan, writes Barbara Ortutay

The US Federal Trade Commission (FTC) last week approved a roughly US$5bn (€4.5bn) settlement with Facebook over its investigation into the social media company's handling of user data The fine is by far the largest the US regulator has given to a technology company, easily eclipsing the US$22m (€19.5m) fine levied on Google in 2012. Stock image
The US Federal Trade Commission (FTC) last week approved a roughly US$5bn (€4.5bn) settlement with Facebook over its investigation into the social media company's handling of user data The fine is by far the largest the US regulator has given to a technology company, easily eclipsing the US$22m (€19.5m) fine levied on Google in 2012. Stock image

Barbara Ortutay

The US Federal Trade Commission (FTC) last week approved a roughly US$5bn (€4.5bn) settlement with Facebook over its investigation into the social media company's handling of user data The fine is by far the largest the US regulator has given to a technology company, easily eclipsing the US$22m (€19.5m) fine levied on Google in 2012.

However the long-expected punishment, which Facebook is well prepared for, is unlikely to make a dent in the social media giant's deep pockets. But it will also likely saddle the company with additional restrictions and another stretch of strict scrutiny.

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Facebook and the FTC declined to comment on the 3-2 vote, which broke along party lines - Republicans in support and Democrats in opposition to the settlement.

For most companies, a US$5bn fine would be crippling. But Facebook is not most companies. It had nearly €50bn in revenue last year. This year, analysts expect around €61bn. As a one-time expense, the company will also be able to exclude the amount from its adjusted earnings results - the profit figure that investors and financial analysts look at.

"This closes a dark chapter and puts it in the rear-view mirror with Cambridge Analytica," said another analyst. "Investors still had lingering worries that the fine might not be approved. Now, Wall Street can breathe a little easier."

Facebook had earmarked US$3bn for a potential fine and in April said it was anticipating having to pay up to US$5bn. But while Wall Street - and likely Facebook executives - may be breathing a little easier, the fine alone has not appeased Facebook critics, including privacy advocates and lawmakers.

"The US$5bn penalty is barely a tap on the wrist, not even a slap," said Senator Richard Blumenthal, a Democrat from Connecticut. "Such a financial punishment for a purposeful, blatant illegality is chump change for a company that makes tens of billions of dollars every year."

He and others questioned whether the US regulators will force Facebook to make meaningful changes to how it handles user data. This might include limits on what information it collects on people and how it targets ads to them. It's currently unclear what measures the settlement includes beyond the fine.

Privacy advocates have been calling on regulators to come down on Facebook for a decade - but over that time the company's money, power and influence at government level across the globe has only increased.

"Privacy regulation is broken," said Nuala O'Connor, CEO of the Centre for Democracy and Technology. "While large after-the-fact fines matter, what is much more important is strong, clear rules to protect consumers."

The CDT is pushing for federal online privacy legislation in the US.

Some have called on the regulators to hold Facebook CEO Mark Zuckerberg personally liable for the privacy violations in some way, but this is not likely.

Since the Cambridge Analytica debacle erupted a year ago and prompted the FTC investigation, Facebook has vowed to do a better job corralling its users' data. That scandal revealed that a data mining firm affiliated with Donald Trump's 2016 campaign improperly accessed private information from 87 million Facebook users through a quiz app. At issue was whether Facebook violated a 2011 settlement with the FTC over user privacy.

Other leaky controls have also since come to light. Facebook acknowledged giving big tech companies like Amazon and Yahoo extensive access to users' personal data , in effect exempting them from usual privacy rules. And it collected call and text logs from phones running Google's Android system in 2015.

Wall Street appeared unfazed at the fine. Facebook's shares closed at US$204.87 on Friday and added 24c after hours. The stock is up more than 50pc since January. In fact, Facebook's market value has increased by €57bn since its April earnings report when it announced how much it was expecting to be fined.

The fine, however, doesn't spell the end of Facebook's troubles. The company faces a slew of other investigations which could carry their own fines - and, more importantly possible limits to its data collection. There are nearly a dozen separate probes being undertaken by Ireland's Data Protection Commissioner, whose office oversees EU privacy regulation.

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