Seems Hongmeng isn’t the Android replacement it’s been pitched as, after all. The initial story certainly tracked, as Huawei has been preparing for the very real possibility of life after Google, but the Chinese hardware giant says the operating system is primarily focused on industrial use.
The latest report arrives courtesy of Chinese state news agency, Xinhua, which notes that the OS has been in development for far longer than the Trump-led Huawei ban has been in effect. Hongmeng is a relatively simple operating system compared to the likes of Android, according to SVP, Catherine Chen. The news echoes another recent report that Huawei had initially developed the software for use on IoT devices.
None of this means that Huawei isn’t working on a full mobile operating system, of course. Or that the sees of this new OS couldn’t be adapted to do more.
And given the recent news, such a move would be a pretty good use of the company’s vast resources. After all, it’s no doubt seen the writing on the wall for some time. While no one anticipated that such a ban would arrive so suddenly, questions about the company have been floated in security circles for years now.
New restrictions from the Trump administration barred Huawei from working with American companies like Google, but temporary reprieves have allowed the smartphone maker to employ Android services — at least temporarily. Questions about the company’s health are still very much up in the air, however, as the ban ramps back up.
The UK’s next prime minister must prioritize a decision on whether or not to allow Chinese tech giant Huawei to be a 5G supplier, a parliamentary committee has urged — warning that the country’s international relations are being “seriously damaged” by ongoing delay.
In a statement on 5G suppliers, the Intelligence and Security committee (ISC) writes that the government must take a decision “as a matter of urgency”.
Earlier this week another parliamentary committee, which focuses on science and technology, concluded there is no technical reason to exclude Huawei as a 5G supplier, despite security concerns attached to the company’s ties to the Chinese state, though it did recommend it be excluded from core 5G supply.
The delay in the UK settling on a 5G supplier policy can be linked not only to the complexities of trying to weight and balance security considers with geopolitical pressures but also ongoing turmoil in domestic politics, following the 2016 EU referendum Brexit vote — which continues to suck most of the political oxygen out of Westminster. (And will very soon have despatched two UK prime ministers in three years.)
Outgoing PM Theresa May, whose successor is due to be selected by a vote by Conservative Party members next week, appeared to be leaning towards giving Huawei an amber light earlier this year.
A leak to the press from a National Security Council meeting back in April suggested Huawei would be allowed to provide kit but only for non-core parts of 5G networks — raising questions about how core and non-core are delineated in the next-gen networks.
The leak led to the sacking by May of the then defense minister, Gavin Williamson, after an investigation into confidential information being passed to the media in which she said she had lost confidence in him.
The publication of a government Telecoms Supply Chain Review, whose terms of reference were published last fall, has also been delayed — leading to carriers to press the government for greater clarity last month.
But with May herself now on the way out, having agreed to step down as PM back in May, the decision on 5G supply is on hold.
It will be down to either Boris Johnson or Jeremy Hunt, the two remaining contenders to take over as PM, to choose whether or not to let the Chinese tech giant supply UK 5G networks.
Whichever of the men wins the vote they will arrive in the top job needing to give their full attention to finding a way out of the Brexit morass — with a mere three months til a October 31 Brexit extension deadline looming. So there’s a risk 5G may not seem as urgent an issue and a decision again be kicked back.
In its statement on 5G supply, the ISC backs the view expressed by the public-facing branch of the UK’s intelligence service that network security is not dependent on any one supplier being excluded from building it — writing that: “The National Cyber Security Centre… has been clear that the security of the UK’s telecommunications network is not about one company or one country: the ‘flag of origin’ for telecommunications equipment is not the critical element in determining cyber security.”
The committee argues that “some parts of the network will require greater protection” — writing that “critical functions cannot be put at risk” but also that there are “less sensitive functions where more risk can be carried”, albeit without specifying what those latter functions might be.
“It is this distinction — between the sensitivity of the functions — that must determine security, rather than where in the network those functions are located: notions of ‘core’ and ‘edge’ ate therefore misleading in this context,” it adds. “We should therefore be thinking of different levels of security, rather than a one size fits all approach, within a network that has been built to be resilient to attack, such that no single action could disable the system.”
The committee’s statement also backs the view that the best way to achieve network resilience is to support diversity in the supply chain — i.e. by supporting more competition.
But at the same time it emphasizes that the 5G supply decision “cannot be viewed solely through a technical lens — because it is not simply a decision about telecommunications equipment”.
“This is a geostrategic decision, the ramifications of which may be felt for decades to come,” it warns, raising concerns about the perceptions of UK intelligence sharing partners by emphasizing the need for those allies to trust the decisions the government makes.
It also couches a UK decision to give Huawei access a risk by suggesting it could be viewed externally as an endorsement of the company, thereby encouraging other countries to follow suit — without paying the full (and it asserts vitally) necessary attention to the security piece.
“The UK is a world leader in cyber security: therefore if we allow Huawei into our 5G network we must be careful that that is not seen as an endorsement for others to follow. Such a decision can only happen where the network itself will be constructed securely and with stringent regulation,” it writes.
The committee’s statement goes on to raise as a matter of concern the UK’s general reliance on China as a technology supplier.
“One of the lessons the UK Government must learn from the current debate over 5G is that with the technology sector now monopolised by such a few key players, we are over-reliant on Chinese technology — and we are not alone in this, this is a global issue. We need to consider how we can create greater diversity in the market. This will require us to take a long term view — but we need to start now,” it warns.
It ends by reiterating that the debate about 5G supply has been “unnecessarily protracted” — pressing the next UK prime minister to get on and take a decision “so that all concerned can move forward”.
Smartphones have become a creative playground thanks to cameras and innovative apps, such as PicsArt. With PicsArt, anybody can add filters, stickers and tweak photos and videos in many different ways. It has been a massive hit with 130 million monthly active users. And that’s why I’m excited to announce that PicsArt founder and CEO Hovhannes Avoyan is joining us at TechCrunch Disrupt Berlin.
PicsArt started with a simple app that lets you edit photos before sharing them. There are many companies in this space, including VSCO, Snapseed and Prisma. But PicsArt has managed to become a cultural phenomenon in many countries including China.
If you’re thinking about editing a photo or video in one way or another, chances are you can do it in PicsArt. In addition to traditional editing tools (cropping, rotating, curves, etc.), you can add filters, auto-beautify your face, change your hair color, add stickers and text, cut out your face and use masks just like in Photoshop… I’m not going to list everything you can do because it’s a long list.
The result is an app packed with features that lets you express yourself, create visual storytelling and improve your social media skills. If you’re an Instagram user, chances you’ve seen more than one photo that has been edited using PicsArt.
While the app is free with ads, users can also subscribe to a premium subscription to unlock additional features. And PicsArt is not just about editing as you can also use the app as its own social network.
PicsArt is based in the U.S. and has raised $45 million over the years. But the company is also betting big on Armenia with a big engineering team over there.
And it’s a natural fit as Hovhannes Avoyan is originally from Armenia. In addition to PicsArt, he has founded many successful startups in the past — Lycos, Bertelsmann, GFI, Teamviewer and Helpsystems. Many entrepreneurs would have a hard time founding just one of these companies, so I can’t wait to hear how Avoyan manages to work on so many different products and turn those products into successes.
In addition to panels and fireside chats, like this one, new startups will participate in the Startup Battlefield to compete for the highly coveted Battlefield Cup.
Hovhannes Avoyan is a serial entrepreneur, investor and scholar. He is the founder and CEO of PicsArt, the #1 photo and video editing app and community with more than 130 million monthly active users. PicsArt is backed by Sequoia Capital, Insight Venture Partners, DCM and Siguler Guff. The company employs more than 350 people and is headquartered in San Francisco with offices across the globe in Yerevan, Armenia; Los Angeles; Beijing; and an AI Lab in Moscow.
Avoyan brings more than 25 years of experience in computer programming and global business management. Prior to PicsArt, Avoyan founded five other startups, all of which had successful acquisitions by global companies including Lycos, Bertelsmann, GFI, Teamviewer, and Helpsystems.
He is a graduate of Harvard Business School’s Bertelsmann Senior Executive's program. He received his B.S. and M.S. from the State Engineering University of Armenia and his M.A. in Political Science and International Affairs from the American University of Armenia. He’s also a frequent speaker at business conferences on topics ranging from business strategy to international team building and Al.
It’s been hard to get away from FaceApp over the last few days, whether it’s your friends posting weird selfies using the app’s aging and other filters, or the brief furore over its apparent (but not actual) circumvention of permissions on iPhones. Now even the Senate is getting in on the fun: Sen. Chuck Schumer (D-NY) has asked the FBI and the FTC to look into the app’s data handling practices.
“I write today to express my concerns regarding FaceApp,” he writes in a letter sent to FBI Director Christopher Wray and FTC Chairman Joseph Simons. I’ve excerpted his main concerns below:
Furthermore, it is unclear how long FaceApp retains a user’s data or how a user may ensure their data is deleted after usage. These forms of “dark patterns,” which manifest in opaque disclosures and broader user authorizations, can be misleading to consumers and may even constitute a deceptive trade practices. Thus, I have serious concerns regarding both the protection of the data that is being aggregated as well as whether users are aware of who may have access to it.
In particular, FaceApp’s location in Russia raises questions regarding how and when the company provides access to the data of U.S. citizens to third parties, including potentially foreign governments.
For the cave-dwellers among you (and among whom I normally would proudly count myself) FaceApp is a selfie app that uses AI-esque techniques to apply various changes to faces, making them look older or younger, adding accessories, and, infamously, changing their race. That didn’t go over so well.
There’s been a surge in popularity over the last week, but it was also noticed that the app seemed to be able to access your photos whether you said it could or not. It turns out that this is actually a normal capability of iOS, but it was being deployed here in somewhat of a sneaky manner and not as intended. And arguably it was a mistake on Apple’s part to let this method of selecting a single photo go against the “never” preference for photo access that a user had set.
Fortunately the Senator’s team is not worried about this or even the unfounded (we checked) concerns that FaceApp was secretly sending your data off in the background. It isn’t. But it very much does send your data to Russia when you tell it to give you an old face, or a hipster face, or whatever. Because the computers that do the actual photo manipulation are located there — these filters are being applied in the cloud, not directly on your phone.
His concerns are over the lack of transparency that user data is being sent out to servers who knows where, to be kept for who knows how long, and sold to who knows whom. Fortunately the obliging FaceApp managed to answer most of these questions before the Senator’s letter was ever posted.
The answers to his questions, should we choose to believe them, are that user data is not in fact sent to Russia, the company doesn’t track users and usually can’t, doesn’t sell data to third parties, and deletes “most” photos within 48 hours.
Although the “dark patterns” of which the Senator speaks are indeed an issue, and although it would have been much better if FaceApp had said up front what it does with your data, this is hardly an attempt by a Russian adversary to build up a database of U.S. citizens.
While it is good to see Congress engaging with digital privacy, asking the FBI and FTC to look into a single app seems unproductive when that app is not doing much that a hundred others, American and otherwise, have been doing for years. Cloud-based processing and storage of user data is commonplace — though usually disclosed a little better.
Certainly as Sen. Schumer suggests, the FTC should make sure that “there are adequate safeguards in place to protect the privacy of Americans…and if not, that the public be made aware of the risks associated with the use of this application or others similar to it.” But this seems the wrong nail to hang that on. We see surreptitious slurping of contact lists, deceptive deletion promises, third-party sharing of poorly anonymized data, and other bad practices in apps and services all the time — if the federal government wants to intervene, let’s have it. But let’s have a law or a regulation, not a strongly worded letter written after the fact.
Netflix said on Wednesday that it will roll out a cheaper subscription plan in India, one of the last great growth markets for global companies, as the streaming giant scrambles to find ways to accelerate its slowing growth worldwide.
The company said lowering its subscription plan, which starts at $9 in the U.S., would help it reach more users in India and expand its overall subscriber base. According to third-party research firms, Netflix has fewer than 2 million subscribers in India.
The company did not specify the exact amount it intends to charge users for the mobile only, cheaper plan. During the testing period, Netflix also provided some users the option to get a subscription that would only last for a week. The company also did not say if it intended to bring the cheaper plan to other markets. TechCrunch has reached out to Netflix for more details.
“After several months of testing, we’ve decided to roll out a lower-priced mobile-screen plan in India to complement our existing plans. We believe this plan, which will launch in Q3, will be an effective way to introduce a larger number of people in India to Netflix and to further expand our business in a market where Pay TV ARPU is low (below $5),” the company said in its quarterly earnings report.
The India challenge
Selling an entertainment service in India, the per capita GDP of which is under $2,000, is extremely challenging. The vast majority of companies that have performed exceedingly well in the nation offer their products and services at a very low price. Just look at Spotify, which entered India earlier this year and for the first time decided to offer full access to its service at no cost to local users. Even its premium option that features playback in higher quality costs Rs 119 ($1.6) per month.
That’s not to say that winning in India, home to more than 1.3 billion people, can’t be rewarding. Disney-owned streaming service Hotstar, which offers 80% of its content catalog at no cost, has amassed more than 300 million monthly active users. There are about 500 million internet users in India, according to industry reports.
In fact, Hotstar set a global record for most simultaneous views to a live event — about 25.3 million users — during the recently concluded ICC cricket world cup. It broke its own previous records. Hotstar’s free offering comes bundled with ads, while its ad-free premium option costs Rs 999 ($14.5) for a year-long access.
Amazon, another global rival of Netflix, bundles its Prime Video streaming service in its Prime membership, which includes access to faster delivery of packages and its music service, for Rs 999 a year.
For Netflix, the decision to lower its pricing in India comes at a time when it has hiked the subscription cost in many parts of the world in recent quarters. In the U.S., for instance, Netflix said earlier this year that it would raise its subscription price by up to 18%.
During a visit to India early last year, Netflix CEO Reed Hastings said the country could eventually emerge as the place that would eventually add the next 100 million service to his platform. “The Indian entertainment business will be much larger over the next 20 years because of investment in pay services like Netflix and others,” he said.
So far, Netflix has largely tried to lure customers through its original series. (Many popular U.S. shows such as NBC’s “The Office” that are available on Netflix’s U.S. catalog are not offered in its India palate.) The company, which has produced more than a dozen original shows and movies for India, this week unveiled five more that are in the pipeline.
Facebook is leaning on fears of China exporting its authoritarian social values to counter arguments that it should be broken up or slowed down. Its top executives have each claimed that if the U.S. limits its size, blocks its acquisitions or bans its cryptocurrency, Chinese company’s absent these restrictions will win abroad, bringing more power and data to their government. CEO Mark Zuckerberg, COO Sheryl Sandberg and VP of communications Nick Clegg have all expressed this position.
The latest incarnation of this talking point came in today’s and yesterday’s congressional hearings over Libra, the Facebook-spearheaded digital currency it hopes to launch in the first half of 2020. Facebook’s head of its blockchain subsidiary Calibra, David Marcus, wrote in his prepared remarks to the House Financial Services Committee today that (emphasis added):
I believe that if America does not lead innovation in the digital currency and payments area, others will. If we fail to act, we could soon see a digital currency controlled by others whose values are dramatically different.
WASHINGTON, DC – JULY 16: Head of Facebook’s Calibra David Marcus testifies during a hearing before Senate Banking, Housing and Urban Affairs Committee July 16, 2019 on Capitol Hill in Washington, DC. The committee held the hearing on “Examining Facebook’s Proposed Digital Currency and Data Privacy Considerations.” (Photo by Alex Wong/Getty Images)
Marcus also told the Senate Banking Subcommittee yesterday that “I believe if we stay put we’re going to be in a situation in 10, 15 years where half the world is on a blockchain technology that is out of reach of our national-security apparatus.”.
This argument is designed to counter House-drafted “Keep Big Tech Out of Finance” legislation that Reuters reports would declare that companies like Facebook that earn over $25 billion in annual revenue “may not establish, maintain, or operate a digital asset . . . that is intended to be widely used as medium of exchange, unit of account, store of value, or any other similar function.”
The message Facebook is trying to deliver is that cryptocurrencies are inevitable. Blocking Libra would just open the door to even less scrupulous actors controlling the technology. Facebook’s position here isn’t limited to cryptocurrencies, though.
The concept crystallized exactly a year ago when Zuckerberg said in an interview with Recode’s Kara Swisher, “I think you have this question from a policy perspective, which is, do we want American companies to be exporting across the world?” (emphasis added):
We grew up here, I think we share a lot of values that I think people hold very dear here, and I think it’s generally very good that we’re doing this, both for security reasons and from a values perspective. Because I think that the alternative, frankly, is going to be the Chinese companies. If we adopt a stance which is that, ‘Okay, we’re gonna, as a country, decide that we wanna clip the wings of these companies and make it so that it’s harder for them to operate in different places, where they have to be smaller,’ then there are plenty of other companies out that are willing and able to take the place of the work that we’re doing.
When asked if he specifically meant Chinese companies, Zuckerberg doubled down, saying (emphasis added):
Yeah. And they do not share the values that we have. I think you can bet that if the government hears word that it’s election interference or terrorism, I don’t think Chinese companies are going to wanna cooperate as much and try to aid the national interest there.
WASHINGTON, DC – APRIL 10: Facebook co-founder, Chairman and CEO Mark Zuckerberg testifies before a combined Senate Judiciary and Commerce committee hearing in the Hart Senate Office Building on Capitol Hill April 10, 2018 in Washington, DC. Zuckerberg, 33, was called to testify after it was reported that 87 million Facebook users had their personal information harvested by Cambridge Analytica, a British political consulting firm linked to the Trump campaign. (Photo by Chip Somodevilla/Getty Images)
This April, Zuckerberg went deeper when he described how Facebook would refuse to comply with data localization laws in countries with poor track records on human rights. The CEO explained the risk of data being stored in other countries, which is precisely what might happen if regulators hamper Facebook and innovation happens elsewhere. Zuckerberg told philosopher Yuval Harari that (emphasis added):
When I look towards the future, one of the things that I just get very worried about is the values that I just laid out [for the internet and data] are not values that all countries share. And when you get into some of the more authoritarian countries and their data policies, they’re very different from the kind of regulatory frameworks that across Europe and across a lot of other places, people are talking about or put into place . . . And the most likely alternative to each country adopting something that encodes the freedoms and rights of something like GDPR, in my mind, is the authoritarian model, which is currently being spread, which says every company needs to store everyone’s data locally in data centers and then, if I’m a government, I can send my military there and get access to whatever data I want and take that for surveillance or military.
I just think that that’s a really bad future. And that’s not the direction, as someone who’s building one of these internet services, or just as a citizen of the world, I want to see the world going. If a government can get access to your data, then it can identify who you are and go lock you up and hurt you and your family and cause real physical harm in ways that are just really deep.
These are of course legitimate questions, but we don’t hear so much about China, which combines astonishing ingenuity with the ability to process data on a vast scale without the legal and regulatory constraints on privacy and data protection that we require on both sides of the Atlantic . . . [and this data could be] put to more sinister surveillance ends, as we’ve seen with the Chinese government’s controversial social credit system.
In response to Facebook co-founder Chris Hughes’ call that Facebook should be broken up, Clegg wrote in May that “Facebook shouldn’t be broken up — but it does need to be held to account. Anyone worried about the challenges we face in an online world should look at getting the rules of the internet right, not dismantling successful American companies.”
If we in Europe and America don’t turn off the white noise and begin to work together, we will sleepwalk into a new era where the internet is no longer a universal space but a series of silos where different countries set their own rules and authoritarian regimes soak up their citizens’ data while restricting their freedom . . . If the West doesn’t engage with this question quickly and emphatically, it may be that it isn’t ours to answer. The common rules created in our hemisphere can become the example the rest of the world follows.
You could break us up, you could break other tech companies up, but you actually don’t address the underlying issues people are concerned about . . . While people are concerned with the size and power of tech companies, there’s also a concern in the United States about the size and power of Chinese tech companies and the … realization that those companies are not going to be broken up.
WASHINGTON, DC – SEPTEMBER 5: Facebook chief operating officer Sheryl Sandberg testifies during a Senate Intelligence Committee hearing concerning foreign influence operations’ use of social media platforms, on Capitol Hill, September 5, 2018 in Washington, DC. Twitter CEO Jack Dorsey and Facebook chief operating officer Sheryl Sandberg faced questions about how foreign operatives use their platforms in attempts to influence and manipulate public opinion. (Photo by Drew Angerer/Getty Images)
Indeed, China does not share the United States’ values on individual freedoms and privacy. And yes, breaking up Facebook could weaken its products like WhatsApp, providing more opportunities for apps like Chinese tech giant Tencent’s WeChat to proliferate.
But letting Facebook off the hook won’t solve the problems China’s influence poses to an open and just internet. Framing the issue as “strong regulation lets China win” creates a false dichotomy. There are more constructive approaches if Zuckerberg seriously wants to work with the government on exporting freedom via the web. And the distrust Facebook has accrued through the mistakes it’s made in the absence of proper regulation arguably do plenty to hurt the perception of how American ideals are spread through its tech companies.
Breaking up Facebook may not be the answer, especially if it’s done in retaliation for its wrong-doings instead of as a coherent way to prevent more in the future. To that end, a better approach might be stopping future acquisitions of large or rapidly growing social networks, forcing it to offer true data portability so existing users have the freedom to switch to competitors, applying proper oversight of its privacy policies and requiring a slow rollout of Libra with testing in each phase to ensure it doesn’t screw consumers, enable terrorists or jeopardize the world economy.
Resorting to scare tactics shows that it’s Facebook that’s scared. Years of growth over safety strategy might finally catch up with it. The $5 billion FTC fine is a slap on the wrist for a company that profits more than that per quarter, but a break-up would do real damage. Instead of fear-mongering, Facebook would be better served by working with regulators in good faith while focusing more on preempting abuse. Perhaps it’s politically savvy to invoke the threat of China to stoke the worries of government officials, and it might even be effective. That doesn’t make it right.
Private equity firm Blackstone just announced that it has reached an agreement to acquire mobile advertising company Vungle.
The companies aren’t disclosing the financial terms, but as part of the transaction, Vungle has also reached a settlement with founder Zain Jaffer, who filed a wrongful termination lawsuit against the company earlier this year.
(Update: Multiple sources with knowledge of the deal said that the acquisition price was around — or north of — $750 million. One of those sources also said it was an all-cash transaction.)
“As a best-in-class performance marketing platform, Vungle represents a key growth engine for the mobile app ecosystem,” said Blackstone principal Sachin Bavishi in a statement. “Our investment will help deliver on the company’s tremendous growth potential and we look forward to partnering with management to extend Vungle’s strength across mobile gaming and other performance brands.”
Meanwhile, CEO Rick Tallman said the deal will allow the company to “further accelerate Vungle’s mission to be the trusted guide for growth and engagement, transforming how users discover and experience mobile apps.”
Vungle was founded back in 2011, and, according to the acquisition release, it’s currently working with 60,000 mobile apps worldwide, serving more than 4 billion video views per month and working with publishers like Rovio, Zynga, Pandora, Microsoft and Scopely.
In his lawsuit, Jaffer alleged that after the charges were dropped, “Vungle unfairly and unlawfully sought to destroy my career, blocked my efforts to sell my own shares or transfer shares to family members, and tried to prevent me from purchasing shares in the Company.”
In a statement today, Jaffer said, he is “pleased with the terms of the settlement, which are confidential.” He also commented on the acquisition:
It is extremely gratifying for me to see our early vision, execution and the hard work of so many talented people rewarded like this. From Day 1, Vungle has been at the forefront of the changing advertising landscape. Today, companies of all sizes, and in all industries, are utilizing in-app video ads as an integral part of their customer acquisition strategies.
The acquisition is expected to close later this year. According to Crunchbase, Vungle previously raised more than $25 million from Crosslink Capital, Thomvest Ventures, Seven Peaks Ventures, GV, AOL Ventures, Uncork Capital, 500 Startups and Angelpad, where the startup was incubated. (AOL Ventures was backed by TechCrunch’s parent company AOL, a.k.a. Oath, a.k.a. Verizon Media.)
The head of Facebook’s blockchain subsidiary Calibra David Marcus has released his prepared testimony before Congress for tomorrow and Wednesday, explaining that the Libra Association will be regulated by the Swiss government because that’s where it’s headquartered. Meanwhile, he says the Libra Association and Facebook’s Calibra wallet intend to comply will all U.S. tax, anti-money laundering and anti-fraud laws.
“The Libra Association expects that it will be licensed, regulated, and subject to supervisory oversight. Because the Association is headquartered in Geneva, it will be supervised by the Swiss Financial Markets Supervisory Authority (FINMA),” Marcus writes. “We have had preliminary discussions with FINMA and expect to engage with them on an appropriate regulatory framework for the Libra Association. The Association also intends to register with FinCEN [The U.S. Treasury Department’s Financial Crimes Enforcement Network] as a money services business.”
Marcus will be defending Libra before the Senate Banking Committee on July 16th and the House Financial Services Committees on July 17th. The House subcomittee’s Rep. Maxine Waters has already issued a letter to Facebook and the Libra Association requesting that it halt development and plans to launch Libra in early 2020 “until regulators and Congress have an opportunity to examine these issues and take action.”
The big question is whether Congress is savvy enough to understand Libra to the extent that it can coherently regulate it. Facebook CEO Mark Zuckerberg’s testimonies before Congress last year were rife with lawmakers dispensing clueless or off-topic questions.
Sen. Orin Hatch infamously demanded to know “how do you sustain a business model in which users don’t pay for your service?,” to which Zuckerberg smirked, “Senator, we run ads.” If that concept trips up Congress, it’s hard to imagine it grasping a semi-decentralized stablecoin cryptocurrency that took us 4,000 words to properly explain, and a six-minute video just to summarize.
Attempting to assuage a core concern that Libra is trying to replace the dollar or meddle in financial policy, Marcus writes that “The Libra Association, which will manage the Reserve, has no intention of competing with any sovereign currencies or entering the monetary policy arena. It will work with the Federal Reserve and other central banks to make sure Libra does not compete with sovereign currencies or interfere with monetary policy. Monetary policy is properly the province of central banks.”
Marcus’ testimony comes days after President Donald Trump tweeted Friday to condemn Libra, claiming that “Unregulated Crypto Assets can facilitate unlawful behavior, including drug trade and other illegal activity. Similarly, Facebook Libra’s ‘virtual currency’ will have little standing or dependability. If Facebook and other companies want to become a bank, they must seek a new Banking Charter and become subject to all Banking Regulations, just like other Banks, both National and International.”
TechCrunch asked Facebook for a response Friday, which it declined to provide. However, a Facebook spokesperson noted that the Libra Association won’t interact with consumers or operate as a bank, and that Libra is meant to be a complement to the existing financial system.
Regarding how Libra will comply with U.S. anti-money laundering (AML) and know-your-customer (KYC) laws, Marcus explains that “The Libra Association is similarly committed to supporting efforts by regulators, central banks, and lawmakers to ensure that Libra contributes to the fight against money laundering, terrorism financing, and more,” Marcus explains. “The Libra Association will also maintain policies and procedures with respect to AML and the Bank Secrecy Act, combating the financing of terrorism, and other national security-related laws, with which its members will be required to comply if they choose to provide financial services on the Libra network.”
He argues that “Libra should improve detection and enforcement, not set them back,” because cash transactions are frequently used by criminals to avoid law enforcement. “A network that helps move more paper cash transactions—where many illicit activities happen—to a digital network that features regulated on- and off-ramps with proper know-your-customer (KYC) practices, combined with the ability for law enforcement and regulators to conduct their own analysis of on-chain activity, will present an opportunity to increase the efficacy of financial crimes monitoring and enforcement.”
As for Facebook itself, Marcus writes that “The Calibra wallet will comply with FinCEN’s rules for its AML/CFT program and the rules set by the Office of Foreign Assets Control (OFAC) . . . Similarly, Calibra will comply with the Bank Secrecy Act and will incorporate KYC and AML/CFT methodologies used around the world.”
These answers might help to calm finance legal eagles, but I expect much of the questioning from Congress will deal with the far more subjective matter of whether Facebook can be trusted after a decade of broken privacy promises, data leaks and fake news scandals like Cambridge Analytica.
That’s why I don’t expect the following statement from Marcus about how Facebook has transformed the state of communication will play well with lawmakers that are angry about how those changes impacted society. “We have done a lot to democratize free, unlimited communications for billions of people. We want to help do the same for digital currency and financial services, but with one key difference: We will relinquish control over the network and currency we have helped create.” Congress may interpret “democratize” as “screw up,” and not want to see the same happen to money.
Facebook and Calibra may have positive intentions to assist the unbanked who are indeed swindled by banks and money transfer services that levy huge fees against poorer families. But Facebook isn’t acting out of pure altruism here, as it stands to earn money from Libra in three big ways that aren’t mentioned in Marcus’ testimony:
It will earn a share of interest earned on the Libra Reserve of traditional currencies it holds as collateral for Libra that could mount into the billions if Libra becomes popular.
It will see Facebook ad sales grow if merchants seek to do more commerce over the internet because they can easily and cheaply accept online payments through Libra and therefore put marketing spend into those efficiently converting channels like Facebook and Google.
It will try to sell additional financial services through Calibra, potentially including loans and credit where it could ask users to let it integrate their Facebook data to get a better rate, potentially decreasing defaults and earning Facebook larger margins than other players.
The real-world stakes are much higher here than in photo sharing, and warrant properly regulatory scrutiny. No matter how much Facebook tries to distance itself from ownership of Libra, it started, incubated and continues to lead the project. If Congress is already convinced “big is bad,” and Libra could make Facebook bigger, that may make it difficult to separate their perceptions of Facebook and Libra in order to assess the currency on its merits and risks.