US regulators on Wednesday slapped a record $5 billion fine on Facebook for privacy violations in a wide-ranging settlement that calls for revamping privacy controls and oversight at the social network.

The Federal Trade Commission said the penalty was the largest ever imposed on any company for violating consumers' privacy and one of the largest penalties ever assessed by the US government for any violation.

However, two Democratic members of the five-member FTC dissented, arguing the agreement failed to go far enough to rein in Facebook business practices that endanger consumers.

The agreement requires Facebook to create a privacy committee within its board of directors to be appointed by an independent nominating committee.

This would end "unfettered control" of decisions on privacy by Facebook's chief executive Mark Zuckerberg, the FTC statement said.

FTC Chairman Joe Simons said the penalty was appropriate to address concerns over Facebook's misuse of personal information.

"The magnitude of the $5 billion penalty and sweeping conduct relief are unprecedented in the history of the FTC," Simons said in a statement.

"The relief is designed not only to punish future violations but, more importantly, to change Facebook's entire privacy culture to decrease the likelihood of continued violations."

Under the agreement, Facebook's CEO and staff must submit to FTC quarterly certifications that the company is in compliance with the privacy program as well as an annual certification.

Facebook also will be required to conduct a privacy review of every new or modified product, service, or practice before it is implemented, including for its WhatsApp and Instagram services.

- Not far enough? -

FTC commissioner Rohit Chopra rejected the settlement, saying it "does little to change the business model or practices that led to the recidivism."

In a separate statement, dissenting FTC commissioner Rebecca Slaughter said the deal appears to absolve Facebook and key executives from liability. She said the government should instead take Facebook to court.

Marc Rotenberg of the Electronic Privacy Information Center called the FTC action "too little, too late" and called for tougher privacy laws.

"American consumers cannot wait another decade for the commission to act against a company that violates their privacy rights," Rotenberg said. "Congress should move quickly to establish a data protection agency."

Charlotte Slaiman of the consumer group Public Knowledge also expressed concern that the settlement would do little to change Facebook's business practices.

"Under this settlement, Facebook does not have to meaningfully change how it collects and uses your data," Slaiman said.

Facebook's top lawyer Colin Stretch said the agreement "will require a fundamental shift in the way we approach our work and it will place additional responsibility on people building our products at every level of the company."

As a result of the settlement, he said, "We hope to close this chapter and turn our focus and resources toward the future."

The probe into Facebook comes with Silicon Valley firms falling out of favor in Washington over concerns on privacy as well as market dominance. This week US antitrust enforcers said they would review major online platforms to determine if they have stifled competition, without signaling any specific action.

The FTC last year reopened its investigation of Facebook, which reached a 2011 settlement on handling private data, after a series of revelations on the mishandling of personal data.

The move came after Facebook acknowledged data on tens of millions of users had been hijacked by Cambridge Analytica, a consultancy working on the 2016 Donald Trump campaign.

- Settling Cambridge Analytica -

In a separate agreement with stock market regulators, Facebook agreed to pay a $100 million penalty for making "misleading disclosures regarding the risk of misuse of Facebook user data" in the investigation on Cambridge Analytica.

"We allege that Facebook exacerbated its disclosure failures when it misled reporters who asked the company about its investigation into Cambridge Analytica," said Erin Schneider, head of the regional enforcement division of the Securities and Exchange Commission.

The FTC announced a separate settlement on the Cambridge Analytica case that calls for its app developer Aleksandr Kogan and former Cambridge Analytica CEO Alexander Nix to delete or destroy any personal information they collected.

Cambridge Analytica itself has filed for bankruptcy and has not settled the FTC's investigation.

The news comes hours before Facebook was set to release its quarterly financial results likely to show continued growth in users of the social network and as a result, advertising revenues.

Zuckerberg has said the social network, which has more than two billion users worldwide, will be shifting away from its role as a "digital town square" to focus on private connections and small groups.

Facebook is also seeking to launch its own digital currency called Libra, which has raised concerns among regulators.

Legal woes dent Facebook profit but revenue, user base grows
San Francisco (AFP) July 24, 2019 - Facebook reported Wednesday that its quarterly profit plummeted due to the cost of a US privacy settlement and forecast that regulation would slow its money-making ad machine.

Profit in the second quarter fell 49 percent from a year ago to $2.6 billion while revenues increased 28 percent to $16.9 billion.

The lower profits were due in part to Facebook setting aside an extra $2 billion to cover a massive settlement with US regulators on privacy and data protection.

The $5 billion settlement announced by the Federal Trade Commission calls for revamped federal oversight of the social network's privacy policies.

Facebook also will be required to conduct a privacy review of every new or modified product, service, or practice before it is implemented, including for its WhatsApp and Instagram services.

In the earnings report, the leading online social network beat market expectations on revenue and user growth, and shares rose slightly in after-hours trade that followed release of the earnings figures.

"We had a strong quarter and our business and community continue to grow," said Facebook chief executive Mark Zuckerberg.

The number of people using Facebook monthly grew eight percent to 2.41 billion in the quarter that ended June 30.

The number of monthly users topped 2.7 billion when taking into account Instagram, WhatsApp and Messenger along with the main social network, according to Facebook.

"This company has repeatedly shown that it can grow both its ad revenue and its user base, even in the face of enormous challenges," said eMarketer analyst Debra Aho Williamson.

"Today's earnings release demonstrates that it still has that power."

Williamson said that for the moment, advertisers "remain dedicated to Facebook despite its problems. However, they are also paying more attention than ever to those problems."

- Headwinds to ads -

During an earnings call, Facebook executives warned that regulation and efforts inside the company to ramp up privacy would be "headwinds" to ad targeting that powers the company's revenue.

Compounding the effect of controls such as the General Data Protection Regulation in Europe and increased focus on privacy in operating systems and products are "creating headwinds that we think are going to impact us as we get later in the year and into 2020," said chief financial officer David Wehner.

Privacy and compliance efforts also require significant investment in process, people and infrastructure, he added.

The Facebook workforce had grown to 39,651 by the end of the quarter, with the Silicon Valley company hiring aggressively, particularly workers focused on security, privacy and eliminating content deemed unacceptable.

Zuckerberg renewed his call for legislators around the world to set clear, uniform standards on important issues such balancing free speech with fighting online bullying or election meddling.

"Either the right regulations will get put into place, or we expect frustration with our industry will continue to grow," Zuckerberg said.

"We think that having a more democratic process for setting what some of those norms are would be helpful."

Also factored into the quarterly results was a tax expense of $1.1 billion stemming from a court decision on the treatment of stock-based compensation.

Facebook shares gained 1.1 percent during Wednesday's trading session and swung slightly higher in after-hours exchanges following the earnings release.

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Is a $5 billion fine the least painful part of Facebook's settlement?
Washington (AFP) July 24, 2019
US regulators are expected to unveil Wednesday a settlement with Facebook - a reported $5 billion fine that might be the least painful part of the agreement for the social network. The deal, which follows a lengthy investigation by the Federal Trade Commission (FTC), allows Facebook to avoid prosecution for its data protection lapses. The real question, however, remains what type of restrictions and requirements will be placed on the internet giant to ensure future compliance. CEO and foun ... read more