Facebook’s ambitious plan to launch a global virtual currency is faltering under growing skepticism from business partners, politicians and financial regulators.
As the founders of Project Libra move toward a planned 2020 launch, crucial financial industry backers have bailed on the cryptocurrency system as Facebook faces rising threats from Washington.
Several Trump administration officials and lawmakers have grown increasingly concerned with Facebook’s immense market power and global reach. The project also raised alarms among financial regulators, who urged the company to tread carefully or risk a federal crackdown.
While Libra’s founders insist they will wait for Washington’s green light before launching, the company’s critics are pouncing to stop the project in its tracks.
“Facebook is too big and too powerful, and it is unconscionable for financial companies to aid it in monopolizing our economic infrastructure,” said Sen. Sherrod BrownSherrod Campbell BrownBuilding back better by investing in workers and communities US on track to miss debt payments as soon as Oct. 19: analysis On The Money — Presented by NRHC — Democrats cross the debt ceiling Rubicon MORE (Ohio), the ranking Democrat on the Senate Banking Committee. “I trust others will see the wisdom of avoiding this ill-conceived undertaking.”
The forces behind Libra have battled intense scrutiny from Washington since Facebook in June announced its plans to launch the project by 2020. The payments system would allow users to send and receive money transmitted through a proprietary cryptocurrency called Libra, which could be stored along with other virtual currencies like bitcoin.
The Libra Association is legally separate from Facebook, which is but one of 21 initial members of the project. On Monday the Libra Association said it hopes to have 100 members by the time the coin launches and has received interest from around 180 companies that could qualify.
Even so, the social media company’s deep involvement with Libra has raised alarms among lawmakers who warn Facebook can’t be trusted in the financial services sector.
“I’m concerned Facebook is aiming to shield itself from financial oversight by US regulators, which would explain their establishing a charter in Switzerland instead of Silicon Valley,” Rep. Lance GoodenLance GoodenWatchdog: 7 members of Congress allegedly failed to disclose stock trades GOP lawmakers demand answers on withheld restitution following Nassar revelation Hillicon Valley: Biden: Social media platforms 'killing people' | Tech executives increased political donations amid lobbying push | Top House antitrust Republican forms 'Freedom from Big Tech Caucus' MORE (R-Texas), a member of the House Financial Services Committee who recently joined a congressional trip to Switzerland to discuss Libra with regulators, said in a statement to The Hill.
Facebook’s reputation has soured in Congress after the Cambridge Analytica scandal, which saw a right-leaning public relations firm obtain data on hundreds of millions of Facebook users without their consent or knowledge. Lawmakers grilled Facebook CEO Mark ZuckerbergMark Elliot ZuckerbergEx-Facebook data scientist to testify before British lawmakers A defense for Facebook and global free speech Senate Democrat calls on Facebook to preserve documents related to whistleblower testimony MORE about the privacy breach over multiple fiery hearings last year and have since battered the company over concerns that it has amassed too much control over the lives of Americans and allowed foreign entities to manipulate Facebook’s platform to sow discord during the 2016 presidential election.
Facebook, which has more than 2 billion monthly users worldwide, is facing antitrust investigations from the Federal Trade Commission, the Department of Justice and key lawmakers in the House, a threat that has rattled the company.
Daniel Ives, an analyst and managing director with the investment firm Wedbush, described the company as “the center of the beltway firestorm” over Big Tech.
Facebook seems to be signaling that its executives are not intimidated by federal investigations into its market power and that it intends to push ahead.
“Facebook is trying to send a signal that they’re not going to back down and they’re going to go on the offensive,” Ives said.
Facebook has sought to distance Libra from its poisonous reputation, highlighting the other partners in the project. But Facebook’s missteps have left the company with little credibility among politicians and K Street insiders.
“That’s bullshit. I don’t think anybody buys that at all,” said a financial technology industry lobbyist. “As much as Facebook wants to say that this isn’t a Facebook program, they’re putting their CEO up to answer for it.”
The Libra project faces a crucial test next week when Zuckerberg testifies before the House Financial Services Committee. He’ll likely face a slew of pointed questions about the project and must satisfy the numerous regulatory concerns posed by Libra’s massive reach and complicated structure.
Lawmakers pressed David Marcus, head of Libra, at a prior hearing for answers about how the project would comply with the complex web of banking, illicit finance, securities and money transferring regulations likely applicable to Libra.
In a letter to House Financial Services Committee Chairwoman Maxine WatersMaxine Moore WatersThe Hill's Morning Report - Presented by Altria - Jan. 6 panel flexes its muscle Best shot at narrowing racial homeownership gap at risk, progressives say Hillicon Valley — Presented by LookingGlass — Congress looks to strengthen government's aging cyber infrastructure MORE (D-Calif.) over the summer, Marcus insisted, “We want, and need, governments, central banks, regulators, non-profits, and other stakeholders at the table and value all of the feedback we have received.”
While Marcus vowed to satisfy all concerns raised by regulators, lawmakers fumed as he offered little insight into how Libra could be supervised by the federal government.
“There’s a reason we’ve seen nearly every household name involved with Libra pull out of the project — the risks are not worth the rewards,” Rep. Brad ShermanBradley (Brad) James ShermanOvernight Defense & National Security — Congress begins Afghanistan grilling US says about 1,500 citizens remain in Afghanistan How Congress can advance peace with North Korea MORE (D-Calif.), one of the project’s top antagonists in Congress, said in a statement to The Hill. “I hope next week’s hearing will help Mark Zuckerberg recognize these risks, so that he can join his corporate partners in dropping this project.”
Top federal regulators have also questioned Facebook’s plans, including Federal Reserve Chairman Jerome Powell, who said Libra raises “many serious concerns” about financial stability.
The departure of top financial services firms Visa, Mastercard and PayPal underscores how steep the path to winning Washington’s approval will be for Libra, said Ian Katz, managing partner at policy advisory firm Capital Alpha Partners.
“They were seen as the adults in the room, the entities that have experience with payment networks and the know-how to thwart illicit transactions,” Katz wrote in a Sunday research note. “They could return to the association at some point, but as long as they’re absent, the Libra effort is seriously weakened.”
Both Visa and Mastercard, established financial institutions, are subject to serious regulatory scrutiny and likely balked at a project that put them at odds with some of the top regulators in the country, Katarina Pistor, director of Columbia Law School’s Center on Global Legal transformation, told The Hill.
Younger companies like Uber, Lyft and Spotify have remained on board, signing on to become some of the founding Libra Association members on Tuesday. In a statement, Spotify described the project as “in its early stages” but noted it will continue “exploring the opportunity offered by the Libra Association to empower billions of people globally, especially in financially underserved markets.”
All of the member companies are expected to put $10 million toward launching the controversial cryptocurrency.
“For many companies, it was a relatively cheap option to put $10 million in to get a sense of where this is going, what they could learn from it,” Pistor said. “The price of that option changed when the regulatory costs increased.”
As it stands, the Libra Council — the association’s top governance body — consists of 21 members, down from the 28 originally announced. But the organization is barreling ahead as it defends the project from critics and detractors.
“Despite all the regulatory noise and scary headlines, I still think it will launch in the U.S.,” Ives said.
But, he added, the public hearing starring Zuckerberg next week won’t make the effort any easier.
“That’s going to be a lot of grandstanding,” he said. “It will be time to get the popcorn out.”
Chris Mills Rodrigo contributed.
Updated 12:23 P.M.