By Winny Sun
The Federal Trade Commission (FTC) announced on April 24th that it would impose a fine up to $5 billion on Facebook for being involved in the Cambridge Analytica scandal. During the incident, a researcher called Aleksandr Koganraw developed a Facebook app that illegally collected data from more than 87 million Facebook profiles. The personal information was then used by the political consulting firm Cambridge Analytica to develop political strategies for the Trump campaign.
The social media giant recorded a $3 billion accounting charge in its first-quarter report, but estimated that the total fine would be between $3 and $5 billion since talks with the FTC are ongoing. This is the largest fine the FTC has ever imposed against a technology company, but investors don’t seem too bothered by the penalty.
In fact, Facebook’s shares rose by 10% late Wednesday afternoon. Investors celebrated the company’s strong revenues and dismissed the fine. Still, executives at Facebook shouldn’t be too optimistic.
Negotiations with the FTC could extend beyond just the fine. Jim Kohm, the head of the FTC’s enforcement division said that “the Commission [also] has the option to seek additional remedies as well as monetary penalties.”
Facebook is also in legal battles with various foreign countries. Just the next day, on April 25th, the Candian government accused Facebook of breaking national and local privacy laws by giving third parties access to private user data, and for having “superficial and ineffective safeguards and consent mechanisms.”
Ireland has also begun an investigation into the corporation after it learned that Facebook saved millions of passwords in plain-text format — as opposed to encrypting them — on its internal servers, possibly violating European privacy laws. In addition to ongoing investigations, Europe and Australia are also thinking of implementing tougher regulatory laws against social media sites.
The United States has long had the reputation of allowing big tech companies to roam free and grow unchecked, which has drawn both support and criticism. Senator Elizabeth Warren, Democrat of Massachusetts and presidential candidate, has said in the past that she would dismantle Facebook if elected.
“Facebook is a repeat offender [and] fines like this won’t stop them from breaking the law [and] violating our privacy again. It's going to take big, structural change,” she tweeted.
The record-breaking charge and growing regulatory scrutiny are not clearly reflected in Facebook’s stock performance. However, if the Silicon Valley company wants to avoid trouble in the future, it needs to implement “far-reaching reforms in management, privacy practices, and culture,” said Senator Richard Blumenthal, Democrat of Connecticut.
Facebook’s chief executive, Mark Zuckerberg, has acknowledged in the past the importance of regulations.
“Getting these issues right is more important than our interests. And I believe that regulation will help establish trust when people know that the right systems of governance and accountability are in place,” he once said.
However, as of now, it seems unlikely he will initiate any meaningful measures soon to truly protect consumers’ privacy. The $5 billion fine is only a small portion of Facebook’s $56 billion annual revenue. Until investors begin to worry about fundamental threats to Facebook’s growth and profitability, expect Facebook to continue to shrug off regulatory scrutiny.