Facebook Crypto Plan Draws Fresh Fury From House Democrats

(Bloomberg) -- 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 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.

California’s 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 company won’t go ahead ahead with the cryptocurrency until regulators and governments across the world are satisfied. Democrats, however, 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 Representative Patrick McHenry, the panel’s highest-ranking Republican. While saying he was appropriately skeptical of Facebook’s proposal, North Carolina’s McHenry urged lawmakers to move beyond making the company a political whipping boy.

@RepMaxineWaters says of Facebook, and its plan to launch Libra Watch LIVE https://t.co/fdm5CaESeG

— Beth Ponsot (@bponsot) July 17, 2019

“Change is here. Digital currencies exist,” he said. “And Facebook’s entry in this new world is just confirmation.”

Read More: Big Tech Is Taking a Bipartisan Beating All Over Washington

It hasn’t been an easy few weeks for Facebook and its cryptocurrency project. Ahead of its Capitol Hill grillings, President Donald Trump took to Twitter to lambaste Libra, while Federal Reserve Chairman Jerome Powell and Treasury Secretary Steven 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 Banking hearing, saying the company can’t be trusted to handle consumers’ 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.

Read More: Why Everybody (Almost) Hates Facebook’s Digital Coin

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, enraged Carolyn Maloney, a New York Democrat 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.

Read More: Facebook Spurs Washington to Confront Its Crypto Dithering

Facebook is currently talking to the Swiss financial regulator as well as the Group of Seven about what rules might apply, he added. Among the issues that are being addressed: privacy concerns, money laundering, terrorism finance and any potential impact 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 noted, shouldn’t get in the way of private sector progress.

“This is absolutely brilliant,” Representative Sean Duffy, a Wisconsin Republican, told Marcus. “I was shocked at how bright it was.”

(Adds details on hearing throughout.)

To contact the reporters on this story: Ben Bain in Washington at bbain2@bloomberg.net;Robert Schmidt in Washington at rschmidt5@bloomberg.net

To contact the editors responsible for this story: Jesse Westbrook at jwestbrook1@bloomberg.net, Molly Schuetz

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