Mark Zuckerberg Is Warned: Don't Use '100 Lawyers' to Find Regulatory Loophole for Libra
House Financial Services Committee members repeatedly asked for confirmation that Facebook and Libra will wait for the approval of U.S. regulators to bring the product to market.
October 23, 2019 at 04:15 PM
5 minute read
The original version of this story was published on The Recorder
Mark Zuckerberg told members of the House Financial Services Committee Wednesday that Facebook's cryptocurrency platform Libra will not launch in any country without the approval of U.S. regulators.
Zuckerberg said at least 10 times within the first two hours of the hearing that Facebook and Libra will wait for the approval of U.S. regulators to bring the product to market, but several committee members were not convinced.
Rep. Brad Sherman, D-California, said he fears Zuckerberg would use Facebook's legal muscle to bypass regulatory hurdles.
"Your lawyers are going to show that there's a loophole in a 1940s investment company act that gets you where you want to go, and the regulators can't stop you," Sherman said. "And you're going to call that regulatory approval as if the people of 1940 knew what you had in mind. What you've made clear is you will go forward unless Donald Trump-appointed regulators stop you, and you will go forward if you can find loopholes in statutes."
Sherman warned Zuckerberg against relying on his lawyers telling him he is free and clear to move forward with Libra.
"I know you've got at least 100 lawyers that will tell you what you're doing is legal and that you will be safe," he said. "Given the harm that this can do, they can be really wrong. If this explodes the way it might, you won't be able to hide behind the idea that you didn't create the Libra organization."
Zuckerberg assured the committee that Facebook will pull out of the independent body steering Libra, called the Libra Association, if it moves forward without regulatory approval.
"I would hope the association would weigh our recommendation and what we say publicly that we think should happen," Zuckerberg said. "But if at the end of the day, we don't receive the clearances we think we need to move forward and the association decides to move forward without us, I think we will be in a position where we will not be a part of the association."
Committee Chairwoman Maxine Waters kicked off the hearing by saying Facebook uses its influence over one-third of the world's population to skirt regulations.
"That's clear to me that perhaps you believe you're above the law," said Waters, a Democrat from California. "It appears you are aggressively increasing the size of your company and are willing to step on or over anyone, including your competitors, women, people of color, your own users and even our democracy to get what you want."
Zuckerberg acknowledged that the backdrop of privacy and disclosure controversies the company has experienced in recent years might not inspire confidence in his ability to launch the payment service.
"I think this is something that needs to get built, but I get that I'm not the ideal messenger right now," he said. "We've faced a lot of issues over the past few years. And I'm sure there are a lot of people who wish it were anyone but Facebook who were helping to propose this."
The committee members also asked for lists of the regulators Zuckerberg is working with domestically and abroad. The Facebook executive said his team is cooperating with Switzerland's financial and data regulators.
Rep. Carolyn Maloney, D-New York, said Libra would fall under the jurisdiction of several regulators, including the Federal Reserve, Federal Deposit Insurance Corp.; the Office of the Comptroller of the Currency, U.S. Securities and Exchange Commission; Commodity Futures Trading Commission; and the Consumer Financial Protection Bureau. She asked Zuckerberg which regulators Facebook will specifically seek approval from.
"Probably all of them for different things," Zuckerberg said. "I think the processes with each of them will be different. All of the regulators that have jurisdiction over a part of what we're doing, we'll work with them and will seek approval from."
Wednesday's hearing follows calls for an immediate moratorium led by Waters and a team of committee Democrats in July.
"Because Facebook is already in the hands of over a quarter of the world's population, it is imperative that Facebook and its partners immediately cease implementation plans until regulators and Congress have an opportunity to examine these issues and take action," the lawmakers wrote in a letter to Zuckerberg. "During this moratorium, we intend to hold public hearings on the risks and benefits of cryptocurrency-based activities and explore legislative solutions. Failure to cease implementation before we can do so, risks a new Swiss-based financial system that is too big to fail."
Waters also requested a moratorium in June.
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