Report: FTC Narrowly Approves $5 Billion Facebook Settlement

Credit: ShutterstockCredit: ShutterstockThe Wall Street Journal reported Friday that the Federal Trade Commission (FTC) approved a $5 billion settlement with Facebook over the Cambridge Analytica scandal that erupted in 2018. FTC commissioners voted 3-2 in favor of the settlement, which is also expected to include more careful regulations that are meant to protect the privacy of Facebook users, although it's not yet clear what those additional restrictions might be.

This settlement is supposed to resolve the Justice Department's investigation into Facebook following the Cambridge Analytica scandal. That scandal erupted in 2018 after it was revealed that Cambridge Analytica took advantage of Facebook's lackadaisical approach to protecting user privacy so it could gather data from 50 million people. That revelation prompted several others that eventually led to international scrutiny of Facebook's practices.

If the Justice Department approves the settlement--and it usually sides with the FTC on these matters--it would be the largest fine U.S. regulators have ever issued a tech company. It's not even a real competition, either, with the second-largest being a $22 million fine issued to Google in 2012. Yet critics have said the FTC should have done more, with Rep. David Cicilline (D-RI) saying in a tweet that the settlement was "a Christmas present" to Facebook.

Cicilline said in another tweet that $5 billion is "a fraction of Facebook's annual revenue" that "won't make them think twice about their responsibility to protect user data." That's actually an understatement--the company said it brought in revenues of roughly $15 billion in the first quarter of 2019. It has more than $40 billion in cash reserves, too, which means it could theoretically pay this $5 billion settlement another seven times over with cash alone.

Does that mean Facebook wants to be fined $5 billion a quarter through 2021? Probably not; that would be weird. But it does mean the privacy abuses that prompted this settlement have essentially become little more than accounting problems. The company already warned shareholders in the first quarter of 2019 that it expected this settlement to end up somewhere between $3 billion and $5 billion. Such is the cost of doing business.

The New York Times reported that the new restrictions imposed on Facebook as part of the settlement were also weaker than some expected:

"In addition to the fine, Facebook agreed to more comprehensive oversight of how it handles user data, according to the people. But none of the conditions in the settlement will impose strict limitations on Facebook’s ability to collect and share data with third parties. And that decision appeared to help split the five-member commission. The 3-to-2 vote, taken in secret this week, drew the dissent of the two Democrats on the commission because they sought stricter limits on the company, the people said."

Criticism of this settlement will likely draw attention to the core problem with regulating tech companies like Facebook. They are so massive--and exploiting the privacy of their users is so lucrative--that even a $5 billion settlement would merely be a line-item in their quarterly results. How many such settlements would these companies have to violate for regulators to do more than just tack a few zeroes onto the previous fine? Ask us in 2027.

Neither the FTC nor Facebook have publicly commented on the settlement or the reports describing it.