[Senate Hearing 116-71]
[From the U.S. Government Publishing Office]
S. Hrg. 116-71
EXAMINING FACEBOOK'S PROPOSED DIGITAL CURRENCY AND DATA PRIVACY
CONSIDERATIONS
=======================================================================
HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED SIXTEENTH CONGRESS
FIRST SESSION
ON
EXAMINING FACEBOOK, INC.'S PLANNED CURRENCY LIBRA, ITS GOVERNING LIBRA
ASSOCIATION, AND THE CALIBRA DIGITAL WALLET, INCLUDING THE STRUCTURE
AND MANAGEMENT OF LIBRA AND ITS UNDERLYING FINANCIAL INFRASTRUCTURE AND
THE PARTNERS AND GOVERNANCE OF LIBRA ASSOCIATION.
__________
JULY 16, 2019
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Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Available at: https: //www.govinfo.gov/
________
U.S. GOVERNMENT PUBLISHING OFFICE
37-919 PDF WASHINGTON: 2019
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
MIKE CRAPO, Idaho, Chairman
RICHARD C. SHELBY, Alabama SHERROD BROWN, Ohio
PATRICK J. TOOMEY, Pennsylvania JACK REED, Rhode Island
TIM SCOTT, South Carolina ROBERT MENENDEZ, New Jersey
BEN SASSE, Nebraska JON TESTER, Montana
TOM COTTON, Arkansas MARK R. WARNER, Virginia
MIKE ROUNDS, South Dakota ELIZABETH WARREN, Massachusetts
DAVID PERDUE, Georgia BRIAN SCHATZ, Hawaii
THOM TILLIS, North Carolina CHRIS VAN HOLLEN, Maryland
JOHN KENNEDY, Louisiana CATHERINE CORTEZ MASTO, Nevada
MARTHA MCSALLY, Arizona DOUG JONES, Alabama
JERRY MORAN, Kansas TINA SMITH, Minnesota
KEVIN CRAMER, North Dakota KYRSTEN SINEMA, Arizona
Gregg Richard, Staff Director
Laura Swanson, Democratic Staff Director
Joe Carapiet, Chief Counsel
Catherine Fuchs, Counsel
Brandon Beall, Professional Staff Member
Elisha Tuku, Democratic Chief Counsel
Corey Frayer, Democratic Professional Staff Member
Cameron Ricker, Chief Clerk
Shelvin Simmons, IT Director
Charles J. Moffat, Hearing Clerk
Jim Crowell, Editor
(ii)
C O N T E N T S
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TUESDAY, JULY 16, 2019
Page
Opening statement of Chairman Crapo.............................. 1
Prepared statement........................................... 44
Opening statements, comments, or prepared statements of:
Senator Brown................................................ 3
Prepared statement....................................... 45
WITNESS
David A. Marcus, Head of Calibra, Facebook....................... 5
Prepared statement........................................... 46
Responses to written questions of:
Chairman Crapo........................................... 51
Senator Brown............................................ 56
Senator Moran............................................ 58
Senator Reed............................................. 65
Senator Menendez......................................... 69
Senator Warner........................................... 73
Senator Warren........................................... 78
Senator Schatz........................................... 85
Senator Cortez Masto..................................... 92
Additional Material Supplied for the Record
Letter to Mark Zuckerberg submitted by Chairman Crapo and Senator
Brown.......................................................... 99
Facebook response submitted by David Marcus...................... 101
Letter submitted by the Electronic Privacy Information Center.... 107
Letter submitted by the Independent Community Bankers of America. 110
Letter submitted by the National Association of Federally-Insured
Credit Unions.................................................. 114
Statement submitted by Caitlin Long.............................. 116
(iii)
EXAMINING FACEBOOK'S PROPOSED DIGITAL CURRENCY AND DATA PRIVACY
CONSIDERATIONS
----------
TUESDAY, JULY 16, 2019
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10:01 a.m., in room SH-216, Hart
Senate Office Building, Hon. Mike Crapo, Chairman of the
Committee, presiding.
OPENING STATEMENT OF CHAIRMAN MIKE CRAPO
Chairman Crapo. This hearing will come to order.
Today we will receive testimony from David Marcus, head of
Calibra at Facebook.
On May 9, Senator Brown and I sent a letter to Facebook
shortly after it was reported that the company was recruiting
financial institutions and online merchants to help launch a
cryptocurrency-based payments system using its social network.
Our letter asked Facebook for more information about how
the system would work, its access to and use of consumer
financial information, and Facebook's access to and use of
information on individuals or groups of individuals in credit,
insurance, employment, or housing. I appreciate Facebook's
response last week.
Shortly after the letter was sent, Facebook formally
announced its intention to launch the payments system Libra and
issued a white paper providing some information about the
project.
Since then, U.S. and global regulators have taken notice,
including the Federal Reserve, U.K.'s Financial Conduct
Authority, Financial Stability Board, G7, and others.
Last week during the Federal Reserve's semiannual Monetary
Policy Report to Congress, Chairman Powell raised concerns
about the cryptocurrency's potential for inciting money-
laundering and financial instability problems and also
expressed concern over customers' privacy.
Yesterday, Secretary Mnuchin stated the Treasury Department
has ``very serious concerns that Libra could be misused by
money launderers and terrorist financiers.''
The Bank of England Governor Mark Carney said, ``Libra, if
it achieves its ambitions, would be systemically important. As
such it would have to meet the highest standards of prudential
regulation and consumer protection. It must address issues
ranging from anti- money laundering to data protection to
operational resilience.''
Concerns include, but are in no way limited, to how the
payment system will work, how it will be managed, and how
Libra, the Libra Association, Calibra, and Facebook will all
interact; what consumer protections will apply, and potential
implications for consumers with respect to financial loss from
fraud or the project's failure; how individuals' data will be
protected, and how individuals' privacy will be preserved; how
the Libra ecosystem interacts with the Bank Secrecy Act and
other existing anti- money-laundering regulations; and ways
that Libra could threaten financial stability and the steps
that could be taken preemptively to mitigate those risks.
Despite the uncertainties, Facebook's stated goals for the
payments systems are commendable.
According to the World Bank, 1.7 billion adults remain
unbanked, but two-thirds of them own a mobile phone or
otherwise have access to the Internet.
If done right, Facebook's efforts to leverage existing and
evolving technology and make innovative improvements to
traditional and nontraditional payments systems could deliver
material benefits, such as expanding access to the financial
system for the underbanked and providing cheaper and faster
payments.
Still, Libra is based on a relatively new and continually
evolving technology in which it is not entirely clear how
existing laws and regulations apply.
I am particularly interested in its implications for the
protection and privacy of individuals' data.
Facebook has massive reach and influence within society
with over 2 billion active monthly users and access to vast
amounts of personal information, including that which is
received directly from users and information that can be
derived from their behavior, both on and off Facebook.
Libra and Calibra will only expand this reach by increasing
commerce on Facebook, Inc., platforms.
This raises several questions.
The Banking Committee has held hearings on data privacy,
including as it pertains to the European Union's General Data
Protection Regulation, data brokers, and the Fair Credit
Reporting Act.
Given the significant amount of user information already
held by the largest social media platforms and the prospect of
gaining even more financial information, Congress needs to give
individuals real control over their data.
Europe has already done this by imposing obligations on
companies and establishing rights for individuals with respect
to their data.
We need to establish similar obligations for data
collectors, brokers, and users and implement an enforcement
system to ensure the collection process is not abused and that
data is adequately protected.
Individuals are the rightful owners of their data. They
should be granted a certain set of privacy rights and the
ability to protect those rights through informed consent,
including full disclosure of the data that is being gathered
and how it is being used.
Regulations should be clear and understandable for both
collectors and consumers and should not punish those who opt
out of collection practices.
Individuals should also have the ability to review their
data, correct inaccuracies, and have ample opportunity to opt
out of it being shared or sold for marketing and other
purposes.
Chairman Powell also said last week that, ``The privacy
rules that we apply to banks, we have no authority to apply to
Facebook or to Libra.'' He added that we may even need to
create a new regulator to address such issues.
As we determine the next steps, what is clear is the
importance that financial innovation happen here in America. In
this way, the Libra announcement has heightened the need for
policymakers and regulators to establish clear rules of the
road.
During this hearing, I look forward to hearing more about
Facebook's project, steps it plans to take and has taken with
regulators to ensure compliance with all laws and regulations,
and how it intends to ensure individuals' privacy is maintained
and information is protected.
Senator Brown.
OPENING STATEMENT OF SENATOR SHERROD BROWN
Senator Brown. Thank you, Mr. Chairman.
Facebook is dangerous. Now, Facebook might not intend to be
dangerous, but surely they do not respect the power of the
technologies they are playing with. Like a toddler who has
gotten his hands on a book of matches, Facebook has burned down
the house over and over and called every arson a ``learning
experience.''
Facebook has two competing missions: make the world more
open and connected, and make a lot of money. And as Facebook
attempts to serve both these missions, they wreak havoc on the
rest of us.
Look at its version of disrupting the newspaper industry.
Facebook has made it easier to share what you are reading with
friends. But at the same time, Facebook has redirected most of
the media industry's profits away from actual journalists and
into its own coffers. They have done it without the benefit of
re-creating the local news desk, without conducting the hard-
nosed journalism that keeps politicians in business and honest,
and without meeting even the most basic journalistic standards.
This kind of ``creative disruption'' that does not actually
create anything is just disruption.
Or look at the impact Facebook's profit motive has had on
the way it connects people. Facebook and other tech companies
will tell you the Internet just holds up a mirror to society
and reflects what we already are.
But that is not true.
To be profitable, Facebook has juiced its algorithm to hold
up a magnifying glass to society rather than a mirror--kind of
like the way I learned in Boy Scouts to use a magnifying glass
to burn a hole in a piece of wood--concentrating our focus on
the most divisive issues, pushing the most controversial
opinions to the top of our news feeds. Usually those are posts
that play on people's fears and worst impulses, but they may
not be based on any sort of fact.
Facebook does all it can to manipulate its billions of
users so it can direct our eyes toward their ads and turn an
even bigger profit.
This is no exaggeration. In fact, Facebook tested whether
it could manipulate our emotions. The corporation ran a
psychological experiment on more than half-a-million users to
see if it could manipulate our moods. Turns out it can.
And that emotional manipulation has led to horrifying
results.
I do not have to tell you what amplifying our divisions has
done to discourse in our country--not just between political
parties. I would bet half the people in this room at least have
had to block an old high school classmate or even a family
member on Facebook.
Or look around the world, more troubling. A U.N. report
detailed how Facebook was used to spread propaganda in Myanmar
that led to genocide. In the first month of violence, more than
600 members of the Rohingya people were killed; more than
700,000 refugees had to flee the country.
I do not think for a minute that Facebook created hate, but
we know that their competing missions of connecting people and
turning a profit created an algorithm and a business model that
intensified it.
It is hard to remember a world without Facebook. It is hard
to remember a time before we had to tell our kids ``be careful
what you do on the Internet, because it will not go away.''
Today we expect everyone to know that what happens online
has consequences offline. It is just common sense.
That is why it is so hard to for us to understand why
Facebook--the company that ushered in this revolution--does not
seem to comprehend that its actions have real-world
consequences. They do not seem to understand why their
intention to run their own currency out of a Swiss bank
account, the topic of today's hearing, has been met with such
fierce opposition.
Facebook's CEO Mark Zuckerberg has said that Facebook might
be more like a Government than it is a company. But no one
elected Mark Zuckerberg.
And what kind of dystopian Government wants to turn
families and friends against each other rather than bring
people together? Well, maybe I should not answer that.
Facebook has demonstrated, through scandal after scandal,
that it does not deserve our trust. It should be treated like
the profit-seeking corporation it is, just like any other
company.
Mr. Zuckerberg and his executives have proven over and over
that they do not understand governing or accountability.
They are not running a Government. They are running a for-
profit laboratory. No Facebook executives, to my knowledge,
have been harmed by Facebook's experiments. But look what has
happened everywhere that Facebook has run its social experiment
on us.
Their motto has been, ``Move fast and break things''. They
certainly have.
They moved fast and broke our political discourse; they
moved fast and broke journalism; they moved fast and helped
incite a genocide; and they have moved fast and they are
helping to undermine our democracy.
Now Facebook asks people to trust them with their hard-
earned paychecks. It takes a breathtaking amount of arrogance--
a breathtaking amount of arrogance--to look at that track
record and think, ``You know what we really ought to do next?
You know what we ought to do next? Let us run our own bank and
our own for-profit version of the Federal Reserve and let us do
it for the whole world.''
I understand that, given the financial crisis and given the
massive inequality and unfairness to workers in our country and
given the fact that so many in this body have forgotten what
happened 10 years ago, it is tempting to think anyone could do
a better job than the Wall Street megabanks.
But the last thing we need is to concentrate even more
power in huge corporations.
Look at Facebook's record. We would be crazy to give them a
chance to experiment with people's bank accounts, to use
powerful tools they do not understand, like monetary policy, to
jeopardize hardworking Americans' ability to provide for their
families.
This is a recipe for more corporate power over markets and
consumers, and fewer and fewer protections for my constituents.
Thank you, Mr. Chairman.
Chairman Crapo. Thank you, Senator Brown.
We will now proceed with your testimony, Mr. Marcus.
You may proceed.
STATEMENT OF DAVID A. MARCUS, HEAD OF CALIBRA, FACEBOOK
Mr. Marcus. Thank you, Chairman.
Chairman Crapo, Ranking Member Brown, and Members of the
Committee, thank you for the opportunity to appear before you
today. My name is David Marcus, and I am the head of Calibra at
Facebook. For most of my life, I have been an entrepreneur
building products aimed at improving people's lives. For many
years, my focus has been financial services. I became PayPal's
president after it acquired my last startup, and I moved to
Facebook about 5 years ago to run Messenger and more recently
to lead our blockchain efforts.
In my written testimony, I describe the mechanics of Libra.
Today I want to explain why I am optimistic about what Libra
can offer the world.
But before I get there, I want to make clear that we
recognize we are only at the beginning of this journey. Federal
Reserve Chairman Powell has said publicly that the process for
launching Libra needs to be patient and thorough rather than a
sprint to implementation. Secretary Mnuchin reinforced those
views at his press conference yesterday. We strongly agree with
both of them. We will take the time to get this right.
We expect the review of Libra to be among the most
extensive ever. We are fully committed to working with
regulators here and around the world, and let me be clear and
unambiguous. Facebook will not offer the Libra digital currency
until we have fully addressed regulators' concerns and received
appropriate approvals.
I would like to start by sharing the vision for Libra.
Libra is intended to address an important problem. Imagine a
daughter who wants to send money home to her mom in another
country. Of the $200 she sends, $14 on average will be lost
because of fees. It can also take several days or even a week
for the mother to receive the money, a delay that can prove
disastrous in an emergency, not to mention lines may be long,
and collection points may be in high-crime areas.
But it does not have to be that way. Wouldn't it be easier
and safer if people could securely and inexpensively receive
money transfers through their smartphones just like they do for
so many other things today? That is what Libra is about:
developing a safe, secure, and low-cost way for people to
efficiently move money around the world.
To realize Libra's promise, Facebook and 27 other
organizations have founded the independent Libra Association.
These include companies in the payments, technology,
telecommunications, blockchain, and venture capital industries,
as well as nonprofits like Women's World Banking, who are here
today, along with staff from the Libra Association.
The Libra Association will govern the Libra blockchain
network and administer the Libra Reserve. It will establish the
rules of the road and will prioritize privacy and consumer
protection, and it will implement safeguards that require
service providers in the Libra network to fight money
laundering, terrorism financing, and other financial crime. We
expect these safeguards will at least meet, if not exceed,
existing standards and improve the integrity of the global
financial system.
When fully formed, we expect the Libra Association to
include 100 diverse members. Facebook will only have one vote
and will not be in a position to control the association. Nor
will Facebook or the Libra Association position themselves to
compete with sovereign currencies or interfere with monetary
policy. In fact, the Libra Association will work with the
Federal Reserve and other central banks to minimize the risk of
any competition with their currencies or interference with
their monetary policies. These areas are properly the province
of central banks.
Finally, I would like to turn to Facebook's role in
establishing and realizing the potential of Libra. To
facilitate Libra's use, Facebook has established a subsidiary,
known as ``Calibra'', that will offer one of many digital
wallets on the Libra network. Using the Calibra wallet,
consumers will be able to save, spend, and send Libra right
from their smartphone. If this is successful, Facebook will
benefit from more commerce across the family of apps.
Calibra will be affordable and accessible and will also be
safe and secure, with strong safeguards to protect users'
accounts and information. We expect the Calibra wallet will be
governed by rules administered or enforced by FinCEN, OFAC, and
the FTC. It will also be regulated by State financial
regulators. Calibra is committed to protecting the privacy of
its customers. The Calibra wallet will not share individual
customer data with the Libra Association or with Facebook,
except for limited circumstances such as preventing fraud or
criminal activity and complying with the law.
I am excited about the potential that Libra and Calibra
hold, and I am proud to have initiated this effort here in the
United States. I believe that if America does not lead
innovation in digital currency and payments area, others will.
If our country fails to act, we could soon see a digital
currency controlled by others whose values are dramatically
different from ours. I believe that Libra can drive positive
change for many people and can provide an opportunity for
leadership consistent with our shared values.
I look forward to answering your questions, Mr. Chairman.
Chairman Crapo. Thank you very much, Mr. Marcus.
I am going to start out with the question that--you
anticipated my question, actually, at the beginning of your
statement, with regard to jurisdiction, frankly, and the
regulatory rules of the road. It seems to me that digital
technology innovations like this may be inevitable and could be
beneficial. I also believe that the United States should lead
in developing what the rules of the road should be. You have
already indicated your awareness of Secretary Mnuchin's remarks
yesterday, a statement that Chairman Powell gave in responses
to this Committee when he was before us just a week or so ago,
and other concerns that have been raised by Federal regulators.
By setting up Libra in Geneva, Switzerland, it makes me
wonder whether the rules of the road and supervisory oversight
will be focused more on the Swiss Financial Market Supervisory
Authority. However, in your testimony you state, as you have
again stated today, that ``Facebook will not offer Libra
digital currency until we have fully addressed the regulatory
concerns and received appropriate approvals.''
My first question is: Do you agree with me that the United
States should lead in establishing the rules of the road and
the legal oversight of Libra and similar digital currency
initiatives?
Mr. Marcus. Chairman, thank you for your question. Yes,
absolutely, I agree that the U.S. should lead, and I want to
reaffirm that we chose Switzerland not to evade any
responsibilities or oversight but, rather, because it is a
well-established international place with headquarters for WHO,
WTO, even the BIS, Bank of International Settlements. And
despite the fact that the Libra Association will be
headquartered in Switzerland, it will still register with
FinCEN and, as a result, will have oversight from U.S.
regulators. But I completely agree with you, Chairman, that the
U.S. should lead.
Chairman Crapo. I appreciate that, and you have already
indicated that you see that in the United States you will need
to deal with FinCEN, OFAC, SEC, and some State regulators. I
have been thinking about this question. The United States
approaches the regulation of data and data privacy in a
sectoral way. We have multiple regulators over different pieces
of economic activity and other types of social activity. Europe
does this differently, for example, through its GDPR, where it
is a broad-based rule across sectors.
If you look at just FSOC in the financial world, we have
got the Treasury, the Federal Reserve, the SEC, the FDIC, the
OCC, CFPB, the NCUA, the CFTC, the FHFA. And I guess my
question to you is: Have you analyzed and determined in our
sectoral approach to regulation which of all of these
regulators would have a piece of creating the rules of the road
if the United States stays on this sectoral approach?
Mr. Marcus. Chairman, this is not for me to say, but all I
can say today is that we are committed to working until we
satisfy all the concerns and meet the regulatory bar before we
proceed. In the U.S. there are a number of regulators that we
are engaged with, and we are also engaged with the G7 working
group that includes finance ministries and central banks that
are looking into Libra, and we are working collaboratively with
them as well.
Chairman Crapo. Well, thank you. And it seems to me--I
understand that you cannot tell us which agencies really are
going to take a claim to some piece of what is happening with
the establishment of Libra. But you have committed that you
will comply with the regulatory requirements of all U.S.
regulators.
Mr. Marcus. Yes, Chairman.
Chairman Crapo. Let me go quickly to one more question. I
have got a lot of them. I will have to submit some of those to
you after the hearing. You recently told the Banking Committee
that Facebook, Inc., collects data from transactions that occur
on platform and use it for advertising and personalization.
Briefly, would you please describe the personal data collection
from on-platform transactions? And what I am talking about is
will this type of information be collected for on-platform
transactions that use the Calibra wallet? For example, when a
user buys a product on Facebook through Calibra, will Facebook,
Inc., allow other digital wallets to be used within its family
or products? And if you could, just explain how that will work.
Mr. Marcus. Chairman, one thing is really important, and I
want to state this very clearly. We will have with the Calibra
wallet to compete with a number of other wallets that will
operate on top of the Libra network, and the Libra network will
be interoperable, meaning that wallets can send money from one
wallet to another wallet, which is not possible with the
current system. And as a result, to earn people's trust, we
will have to have the highest standards when it comes to
privacy, and the way we have built Calibra is that no financial
data or account data that is actually collected in Calibra to
offer the service will actually be shared with Facebook, and
the way that we have built this is to separate social and
financial data because we have heard loud and clear from people
they do not want those two types of data streams connected. So
this is the way the system is designed.
Now, for transactions that would happen on any of our
family of apps, the same way that any merchants completing a
transaction, we will offer many options, including, of course,
the option for people to pay with credit, debit cards, and
other wallets, as well as with their Calibra wallet.
Chairman Crapo. All right. Thank you.
Senator Brown.
Senator Brown. Thank you, Mr. Chairman.
I would point out in response to Chairman Crapo's
questions, you are the only one with--we talk about
competition, but you are the only one with a reach of 2 billion
people, so that is important to remember.
Facebook has a long track record of abusing users' trust.
You know that, Mr. Marcus. Until recently, you headed
Facebook's messaging team as they were allowing--you were
allowing other companies like Netflix and Spotify and the Royal
Bank of Canada access and read Facebook users' private
messages. So be clear about what went on at Facebook. Facebook
told us they were keeping our data safe when they were really
allowing other companies to sift through private messages. You
had to shut down those programs after a huge backlash.
Over and over, Facebook has said, ``Just trust us,'' and
every time Americans trust you, they seem to get burned.
Facebook told the FEC in 2012 that it would stop abusing our
data, and then last week got a $5 billion, with a ``B''--five-
thousand million--fine for violating that agreement. As we
know, you have even run psychological experiments on users.
So sitting here today, Mr. Marcus, after all the times
Facebook has abused the public's trust--and you know that--do
you really think people should trust Facebook with their hard-
earned money? Yes or no.
Mr. Marcus. Senator, you heard it directly from Mark--and I
will reiterate this--that trust is primordial----
Senator Brown. I did not hear it directly from Mark. I am
hearing it from you.
Mr. Marcus. Trust is primordial, and we have made mistakes
in the past, and we have been working and are continuing to
work really hard to get better, and we have invested in a
number of programs, notably on privacy, election integrity, and
a number of other issues. But I want to answer your question
directly for Libra. The reason we designed Libra in such a way
that Facebook will only be one among 100 different members of
the Libra Association and will have no special privilege means
that you will not have to trust Facebook. We understand----
Senator Brown. Well, Mr. Marcus, you know better than that.
You know that only Facebook has access to 2 billion people, and
to say that you are just one of many is simply not true. After
people's data and private messages have been stolen and sold,
after you have let Russian bots try to throw the 2016
election--with no contrition, I might add--after you have
abetted genocide in foreign countries, you really think people
should trust you with their bank accounts and our economy? I
just think that is delusional.
Let me ask a related question. If you think hardworking
families should trust Facebook's monopoly money, I would like
to see how much you and your company trust it. You get a
paycheck in dollars, I assume. I assume you get some pretty
good compensation in Facebook stock, too. Will you pledge today
in this Committee that you and your team who are working on
this project will accept 100 percent of your salary and other
compensation in this Facebook currency?
Mr. Marcus. Senator, Libra is not designed to compete with
bank accounts or compete with those things----
Senator Brown. That is not the question. The question is:
Will you accept all of your compensation in this new currency
that you want us to trust you so much?
Mr. Marcus. Senator, Libra is not meant to compete with
bank accounts. We will, for instance, not pay interest. It is
like cash, like digital cash.
Senator Brown. That is really avoiding the question. Do you
trust your currency so much that you and your team are willing
to see 100 percent of your compensation be paid to you in that
currency? Which it could be if you decided it could.
Mr. Marcus. Senator, if your question is whether I would
trust all of my assets in Libra, the answer is yes, I would,
because----
Senator Brown. No, my question was----
Mr. Marcus. ----and my pay.
Senator Brown. ----do you trust this enough to make your
compensation paid fully in your currency?
Mr. Marcus. Senator, I would because it is backed one for
one with a reserve----
Senator Brown. You could have said yes at the beginning of
the question then.
Mr. Marcus. Senator, with respect, I wanted to clarify that
we are not trying to compete with bank deposits or----
Senator Brown. Let me finish with the last question. You
said you are open to Facebook about your company creating--you
have said that you are open to feedback about your company
creating a new currency. I have told you I think this is a bad
idea. The Republican Chairman of this Committee has raised
concerns. The Democratic Chair Maxine Waters in the House has
demanded you give up on this project. The Chairman of the
Federal Reserve sat in front of this Committee at the Humphrey-
Hawkins hearing last week and voiced numerous and serious
concerns. Even the President of the United States has told
Facebook to back down. That is not to mention the many
international leaders who have raised serious, serious alarm.
My question is this: Is there anything, Mr. Marcus, that
elected leaders and economic experts can say that will convince
you and Facebook that it should not launch this currency?
Mr. Marcus. Senator, we agree with all of the concerns,
very legitimate concerns that were raised by Chairman Powell,
Secretary Mnuchin, and many others. And this is why we released
our white paper so much ahead of any public launch, because we
wanted to ensure that we take the time to get this right, and
getting this right means addressing these concerns in full and
ensuring that there is proper regulatory oversight for this
project. And we are fully committed to doing what it takes to
get there.
Senator Brown. But, Mr. Marcus, with all due respect, if
all of us who have seen the collective amnesia of this Congress
in terms of what happened 10 years ago, in my Zip code in
Cleveland, 44105, where there were more foreclosures than any
Zip code in the United States a decade ago, if all of us find
this to be a bad idea, think you should not do this launch, are
you still going to do it?
Mr. Marcus. Senator, what I heard from Chairman Powell,
from Secretary Mnuchin, and many others is that there were
serious, legitimate concerns that arose from Libra, and I will
commit again to do what it takes to address these concerns; and
if those concerns are not addressed and if the regulatory
oversight is not appropriate, then, you know, we will not
launch until it is.
Senator Brown. That speaks a lot, Mr. Chairman, to their
accountability and their trustworthiness. Thank you.
Chairman Crapo. Senator Toomey.
Senator Toomey. Thank you, Mr. Chairman. Thank you, Mr.
Marcus, for joining us.
Let me just say it strikes me as wildly premature for us to
come to the conclusion that we have to act now to prevent what
could be a very constructive innovation in financial services.
I think there are tremendous potential benefits in blockchain
technology and cryptocurrencies. I can imagine, I think it is
clear they could help us lower payment transaction costs. They
could facilitate access to capital. They provide pseudonymity.
They could provide levels of security that other forms of
currency have not. Limited pickup as a medium of exchange might
be explained partly by the volatility of these
cryptocurrencies, and here we have what strikes me as an
interesting iteration maybe, including a mechanism to provide a
diminished volatility, which is backing it with a basket of
currencies.
So I just think we should be exploring this and considering
the benefits as well as the risks and take a prudent approach.
But to announce in advance that we have to strangle this baby
in the crib I think is wildly premature.
Let me ask a question, Mr. Marcus, about the ultimate
motive of this. It seems to many of us that if this were to
unfold as you have described and Calibra and Libra were adopted
widely, there would be very, very valuable data about payments.
In your testimony, my understanding is you have said that it is
your intention--this is for Calibra--never to share that data
without consent. So is it the business model, is it the plan to
at some point in the foreseeable future seek the consent of the
participants so that you would be able to commercialize that
data somehow?
Mr. Marcus. Senator, no, this is not the intention at all.
The plan, as far as Facebook is concerned, to monetize Calibra
and this initiative is actually to enable the 90 million small
businesses that are currently on the Facebook platform and the
many users that are on the platform as well to engage in more
commerce together; and if they engage in more commerce, there
will be more advertising spend from those small businesses.
That would be a first indirect effect of having Calibra and the
Libra network be successful, and then over time, what we hope
is that through the Calibra wallet we can offer more services
in partnerships with existing banks and financial services
companies to drive new revenue streams for the company.
Senator Toomey. So the intent is never to even seek the
consent of the consumer with regard to that payment data,
consent to commercialize?
Mr. Marcus. Senator, I cannot think of any reason right now
for us to do this.
Senator Toomey. My understanding is that the basket of
currencies invested in very liquid, high-quality assets that is
used as to provide the intrinsic value of this currency, there
would be presumably income from that. We have got a lot of
negative interest rates around the world, but let us assume
that we have got more positive interest rates than negative.
That generates a revenue stream, and I think from your
testimony the intent is to use that to cover some various
costs.
But at some point that could become very, very substantial,
and I saw a reference to paying out dividends to the founders,
the original investors. But this is also described as a not-
for-profit. So it strikes me as odd for a not-for-profit to
generate what could be huge income and then distribute it to
the investors. That sounds like a for-profit.
And so one possibility is you could pay dividends in Libra
to reflect the value of the income from the underlying assets,
but could you explain how paying potentially unlimited
dividends to the investor is not a for-profit operation?
Mr. Marcus. Yes, Senator. Thank you for your question.
First, I want to address the fact that Libra does not pay
interest because Libra is like cash and is mainly going to be
used as a payment instrument. And as far as the interest and
the not-for-profit question goes, the way that this is
structured is that it will have some income that is actually
targeted toward paying the operating costs of the association
and potentially returning some return to all of the
organizations that will invest in the ecosystem to make it
happen. But the plan is not for this income to be, you know,
unlimited and to be, you know, all of the income going back to
investors. Obviously, we will need to find a way over time to
create new pools of incentive that go back to people in
businesses using the Libra network, and this is part of the
conversation we are notably having on how to manage the reserve
and the returns and how to have appropriate oversight on the
reserve with this working group that the G7 organized with
central banks, finance ministries, and the FSB. And I believe
that the reserve will require very specific oversight and a
regulatory framework in order to ensure proper management.
Senator Toomey. Thank you, Mr. Chairman.
Chairwoman Waters. Senator Tester.
Senator Tester. Thank you, Mr. Chairman and Ranking Member
Brown. Thank you for being here today, David. I appreciate you
being in front of the Committee.
I have some concerns, a number of concerns, one of them
being consumer security. In cryptocurrencies like bitcoin,
transactions are final. That means if somebody gets hacked, if
somebody steals bitcoin, there is not much I can do about it.
On the other hand, if somebody steals funds from a bank account
or makes fraudulent charges on a credit card, the consumer for
the most part almost always is held whole by the institution.
How will Libra handle theft?
Senator Tester. Senator, I can speak for the Calibra
wallet, and the Calibra wallet will offer consumer protection
against fraud and account recovery the same way that the
leading wallets today out there and financial services
companies provide customer protection.
Senator Tester. OK. So in a situation where a fraudulent
charge has been made with my account, you are saying that
Calibra will make the consumer whole, correct?
Mr. Marcus. That is correct, Senator.
Senator Tester. Is that immediate? Will that be immediate?
And will it be without question? So what I am asking is: I pull
out my driver's license and my credit card falls on the ground,
that is really my fault. But when they take that credit card to
Cleveland, Ohio, and buy hoverboards with it, the bank always
makes it fine. OK? The question is--and it is immediate. Will
it be immediate in your case?
Mr. Marcus. Senator, we will do our best to resolve those
types of issues and claims as fast as possible, and we are
investing heavily in 24/7 live customer support when it comes
to the Calibra wallet to ensure that we can resolve those
issues for our customers.
Senator Tester. I think it is critical that that is
resolved before it goes live. So when I deposit money into a
bank, I am very confident that I can withdraw it from that
bank. OK? My grandfather was not, by the way, and that is why
even on these homesteads that are around, every once in a while
you will find a glass jar full of money, because they did not
trust the banks. It was only when we got deposit insurance that
the banks had the kind of faith.
What kind of faith do we have in Libra?
Mr. Marcus. Thank you for your question, Senator. Libra is
actually going to be backed by a reserve, one for one, so it is
not ever going to be a fractional reserve.
Senator Tester. OK.
Mr. Marcus. And as a result, it is designed to be stable
and retain its value.
Senator Tester. I got that. So in 2008, as the Ranking
Member pointed out, there was a run on the banks. There were
some big companies that went belly up, including 157 banks,
Lehman Brothers, WAMU, Bear Stearns, and others. Nobody
anticipated there would be a run like there was. Nobody.
How can you assure us--and, by the way, I still felt
confident that my money was safe in my bank. How can you make
those assurances? How can you do it when we are talking about a
for-profit entity--whether it is called nonprofit or not, it is
a for-profit entity. You are not doing this just for the fun of
it. How can we be assured that our money is going to be there?
Mr. Marcus. Senator, when it comes to Libra, because the
reserve is actually one for one and not fractional, the issue
we have had and the events that you highlighted were because
some of these institutions did not have the appropriate
reserves.
Senator Tester. OK.
Mr. Marcus. And we also want the appropriate regulatory
oversight to ensure that anyone will have the ability to
understand how big the reserve is and how many Libra coins, if
you will, are in circulation at any given point in time to rest
assured that the value they hold is backed at any given point
in time with the same amount in the reserve.
Senator Tester. So when we met last week--and thanks for
coming in. By the way, the reserve question has to be answered,
and it has to be something, by the way, that is not up to you
guys to determine what that reserve is, because when times get
tough, stuff happens, OK? And so there has to be that kind of
reliability there for that; otherwise, we are in no different
situation as we were in in the 1930s, because you are a big
outfit.
There have been a lot of comments about Facebook today that
was brought up about some of this stuff that has happened on
Facebook that has not been meritorious--and I am being
generous--and it is true. And it has to do with bad actors
because, quite frankly, there are people on Facebook that are
doing stuff all the time that have a different agenda than
right and good and mom and dad and apple pie and Chevrolet. OK?
How are you going to prevent bad actors from using the
application? And the past performance with Facebook has been
not that aggressive. Let the money come in, we will worry about
it later. And it has had some pretty negative impacts on a lot
of stuff worldwide. Tell me how you are going to prevent bad
actors from using this. And then I will shut up.
Mr. Marcus. Senator, when anyone will open a Calibra
account--because you will need to open a separate account. You
cannot actually just use your Facebook account to open a
Calibra wallet. You will have to authenticate and upload your
Government-issued ID. As a result, we will have real identity
on top of the Calibra wallet, and we will have systems and a
dedicated team to prevent fraudulent activity and, of course,
to meet our requirements of anti- money-laundering and
counterterrorism funding monitoring.
Senator Tester. It is a huge issue, and I think it would
benefit this effort if Facebook did a better job right now
doing exactly what you said. Thank you for being here.
Chairman Crapo. Senator Tillis.
Senator Tillis. Thank you, Mr. Chairman. Mr. Marcus, thank
you for being here.
First off, I would like to associate myself with some of
the comments of Senator Toomey. I think it is a good idea for
us to explore this because, quite honestly, cryptocurrency now
is still kind of a wild, wild West that is not very well
regulated, and there are a number of examples that I am aware
of where consumers have lost everything with their engagement
with some of the better-known cryptocurrencies out there.
I am trying to understand the distinction. You are going to
have a transaction processing platform that I think several
people have agreed to enter a consortium. I assume that that is
with the intent of using the underlying platform. You are not
creating something that is at the expense of credit card
companies or other wallet platforms on the Internet. Is it a
facilitator for those and take all comers, assuming that they
are trusted payment platforms?
Mr. Marcus. Yes, Senator, and I want to stress that both
Visa and Mastercard are taking this journey with us, as well as
PayPal and Mercado Pago and Coinbase and a number of other
wallets. But I want to also stress that you do not have to
become a member to accept Libra as a form of payment or to
build services on top of the Libra network.
Senator Tillis. Well, that is what I was trying to get at.
There is a distinction between a currency, which would be a
Libra, and the underlying infrastructure you are providing to
facilitate payments. Is that correct?
Mr. Marcus. That is correct, Senator.
Senator Tillis. Now I want to get to something that I think
you all have to--first off, what kind of capital investment are
you all projecting? If you are hoping to launch it next year, I
assume you have got a pretty exhaustive implementation plan in
place. What kind of capital investment are you all looking at
to put in the underlying infrastructure?
Mr. Marcus. Senator, I think that is one of the reasons why
Facebook is an appropriate sponsor as well. We have the
resources to innovate, and we are ready to put those resources
to build valuable tools for people, and that is what we are
going to do here. We have not determined exactly how much we
are going to invest, and this is a process that----
Senator Tillis. So the consortium would be a part of the
investment?
Mr. Marcus. Yes, every member, Senator, will have an
opportunity to invest and participate in funding the network.
Senator Tillis. I think something that would be very
helpful for this Committee and maybe other Members is to get
really a briefing on the entire stack here. I think you have
said repeatedly you are not a bank. You are not going to hold
deposits. You cannot have a run in a traditional sense. I
understand what you are doing with the reserve, I guess, for
transactions and process. I think it would be very helpful for
the Committee Members and staff to understand that, so a
briefing of that type would be--what I have been able to study
on the Internet is fairly limited in terms of really
understanding the stack, and then understanding what parts of
the stack probably should be subject to some sort of regulatory
oversight.
I do want to express a concern. We had a Committee hearing
on Judiciary, I think it was just last week, talking about how
social media platforms have been hijacked by transnational
criminal organizations, by pedophiles, by sexual predators. I
do not think that you ever implemented--or no social media
platform, I hope, was implemented for that purpose. But people
are smart and devious, and they hijack it. I hope that is not
part of your implementation and you are looking at all the ways
that your payment platform, like all the other ones, could be
potentially exploited for criminal activity. That is another
reason why I think a briefing on the fuller architecture, the
implementation timeline, maybe your own suggestion of where
regulatory oversight would be pretty important to making sure
you are going to create a trusted platform. We need to get that
kind of information to the Committee and to the Members who are
interested in digging in.
I believe that if--the United States can either follow some
other jurisdiction on pursuing this, or we can lead, and I
believe in the same way that we have the gold standard for the
banking system in the United States, we have an opportunity to
set an international standard that will ultimately provide
greater consumer protections for a lot of the other upstart
equivalent--not exactly equivalent architecturally to what you
are planning on doing. So I think it is worth you all doing
this. I do have concerns about privacy, about potential
exploitation of the platform, but I believe the United States,
our regulatory environment, and a consortium that is well
funded is more likely to produce a gold standard, something
that does drive down the cost of transactions, actually
providing better value for people who have the least amount of
money to pay the transaction fees that they are paying today.
So I look forward to seeing this develop.
Thank you.
Mr. Marcus. Thank you, Senator.
Chairman Crapo. Senator Warner.
Senator Warner. Thank you, Mr. Chairman. Good to see you,
Mr. Marcus.
I am all for financial innovation and better payment
methods. I am intrigued by blockchain and distributive ledger
technology, but I share a lot of the concerns that my
colleagues do up here, particularly with an enterprise as large
as yours, 2 billion users.
If we look back during the antitrust investigation of
Microsoft during the 1990s, the Justice Department found that a
key strategy that Microsoft used, which was internally dubbed
``embrace, extend, extinguish,'' just that the strategy was to
go out and find new technology and then either copy it or buy
it up--I call it ``catch and kill.'' It has been a methodology
that Facebook has used extraordinarily effectively, buying up
or copying other emerging technologies that might be disruptive
to your dominance.
Now we move into blockchain, which, again, has the ability
to be extraordinarily disruptive. Why shouldn't we view
Facebook's efforts here with Libra and Calibra simply as
another manifestation of the catch-and-kill approach?
Mr. Marcus. Senator, I am glad you asked that question,
because the way that we have developed the technology, the
early technology for Libra, is that we have invested, we put
our best engineering talent in building the code base, the
technology for the Libra network. And then what we did is we
open-sourced it, and as a result, it does not belong to us
anymore. It is now belonging to the community, and they will
help build the code, and we will relinquish our control over
both the code base and the network through the process.
Senator Warner. Let me follow up then because--will you
commit that Facebook will not develop preferential incentives
that unfairly tie Calibra, which is going to be your money-
making venture, to other Facebook products as a way from
prohibiting Libra users to use wallets other than Calibra?
Mr. Marcus. Senator, I would even go further, which is that
not only have we started the technology and shared it in open
source, but the network is actually completely----
Senator Warner. No, that is not the question. The question
is incentives within your existing products. You did not answer
Chairman Crapo's question, where he said with your dominance
how do you make sure that your already existing global
platforms like WhatsApp and Messenger will actually support
third-party wallets. Will you at least clarify your answer to
Chairman Crapo's question and say Facebook will make sure that
WhatsApp and Messenger will support third-party wallets?
Mr. Marcus. Senator----
Senator Warner. Yes or no.
Mr. Marcus. Senator, I want to clarify because there is a
new----
Senator Warner. Not clarification. This is a fair--you did
not answer Chairman Crapo. Please answer my question.
Mr. Marcus. Senator, the network is interoperable, meaning
that people who are using the Libra network from within
WhatsApp will be able to send and receive from other wallets--
--
Senator Warner. The other----
Mr. Marcus. ----not Calibra wallets.
Senator Warner. So if a user wishes to use--a Facebook user
wishes to use a wallet other than Calibra, will you make it
easy to allow export of their keys, their financial data, and
other Calibra data--if somebody started as a Calibra wallet
user and would decide I do not want Calibra anymore, I want to
go to Nuco, will you make it easy for them to move their keys,
their data, their financial information all over to that other
third party?
Mr. Marcus. Absolutely, Senator.
Senator Warner. So right there you have agreed on data
portability and potential interoperability in terms of the use
of these wallets. So my hope will be you will have that same
approach when I lay out my legislation for data portability and
interoperability on existing platform use. So I hope your
commitment on Calibra will extend to your current applications
as well. Can I get a commitment there as well?
Mr. Marcus. I cannot commit for other parts of the company,
but----
Senator Warner. I appreciate that you have been willing to
work with us, but it would be really great if you would go
ahead and make that same commitment on Facebook basic products,
because if we want to bring in competition, you have got to
have that data portability and interoperability. But at least
on Calibra, you are on the record as making sure that you will
put no barriers in place to moving from one wallet to another.
Mr. Marcus. Senator, we believe that this is actually
primordial for the Libra network, that consumers have the
ability to move from wallet to wallet to ensure that there are
good, competitive dynamics that work in favor of consumers. We
really believe that.
Senator Warner. And so, again, I will come back again to
Chairman Crapo's question about your globally dominant products
already in terms of WhatsApp and Messenger. They will support
third-party wallets other than Calibra.
Mr. Marcus. Senator, I want to clarify, which is----
Senator Warner. Every time you start with, ``I want to
clarify,'' it gives me a great level of pause. Chairman Crapo
has asked the question. I have asked the question. It seems to
me pretty simple. WhatsApp and Messenger, globally dominant
products, will they support third-party wallets or will they
have incentives that will push people to simply using the
Facebook product Calibra?
Mr. Marcus. So this is why I want to clarify, Senator, if I
may, because it is a nuanced answer. If your question is
whether we will embed other wallets inside of WhatsApp and
Messenger, the answer is no. If you are asking whether other
wallets will have full interoperability, meaning that you do
not have to use the Calibra wallet inside of Messenger and
WhatsApp to be able to send or receive money to people who are
using the Calibra wallet inside of Messenger and WhatsApp, the
answer is yes.
Senator Warner. Embedding is different than putting
preferential treatment and preferential areas--I did not get to
the questions around third-party developers having some
concerns about getting access. But, again, Mr. Chairman, I
think some of your questions that you have asked is one of the
reasons we are going to need to take a great deal of time to
work this through. Thank you, Mr. Marcus.
Chairman Crapo. Senator Rounds.
Senator Rounds. Thank you, Mr. Chairman. Mr. Marcus, thanks
very much for appearing here before us today.
Before I begin my questions, I just want to take a moment
to commend the South Dakota Division of Banking for their
forward thinking and willingness to allow for innovation in the
digital currency space. Another founding member of the Libra
Association, Anchorage, just received permission from the
Division of Banking to become a South Dakota-chartered trust
company. Thanks to the business-friendly climate in my State,
Anchorage, which is a Silicon Valley cryptovault company, has
chosen to open its second headquarters in Sioux Falls, South
Dakota. The significance of this extends far beyond the borders
of South Dakota. Our Division of Banking should serve as a
model for how Governments can study and learn about digital
currencies while at the same time allowing pioneering companies
like Anchorage to innovate and try out new products and
services. So, once again, congratulations to Anchorage and
welcome to South Dakota.
I am curious. I have had an opportunity on several
different occasions to travel to Africa and to watch what is
going on within Africa and the challenges they have there with
very small amounts of value within their own currencies, and
yet on a day-to-day basis there are literally millions of
people there that look to buy very small, incremental items on
a day-to-day basis. They do not have any type of a product out
there today really that works well that is internationally
based.
Can you talk a little bit about what you see in other
countries, the direction they are going and what the
opportunities are for this type of a platform to allow a very
simple and inexpensive way to transact for values received or
currencies or products, commodities, and exchange without a
high cost of doing so? Just a thought in that regard. I have
not really heard that discussed yet today.
Mr. Marcus. I appreciate your question, Senator. The way
that anyone in the world will have the ability to use Libra
using the wallet of their choice will be to install a small app
on a $40 Android device with a basic data plan, and from that
point on have the ability to move from the cash economy to the
digital economy and benefit from having the ability to transact
not only domestically but internationally at very low or no
cost and benefit from services that will be built on the Libra
network by other companies as well. And as a result, we really
hope--and this is our ambition--that we can lower the barriers
for access to modern financial services and massively lower
costs for the people who need it the most, and in the process
potentially also lower access to capital because if suddenly
you have a global platform that enables free or low-cost money
movement, then access to capital should be cheaper and the
barriers will be lower as well.
Senator Rounds. See, I think you are going to have a lot of
competition. I think there are going to be a lot of different
organizations that understand that this is the wave of the
future. And I think the questions have been fair with regard to
the different applications that are out there and how they
would fit on your platform and be allowed, and I think that is
going to be an item of discussion for some time to come.
But with it also comes kind of the regulatory layout that
you work within. You have chosen to set this up in Switzerland.
What did Switzerland offer that the United States did not? And
what is it about our regulatory framework that puts us perhaps
at a disadvantage?
Mr. Marcus. Senator, the choice of Switzerland, again, is
not to evade any responsibility or regulatory oversight. It was
really because we believe that a global digitally native
currency that will be used by people all around the world would
benefit from being headquartered in an international place that
is also the home of many respected international organizations,
and that was where we came from.
The reality, though, is if you look at the current
composition of the Libra Association members, those are mostly
American companies. Calibra is an American subsidiary of a
large American company. It will be licensed and operate in the
U.S. And I think that the beneficiaries in terms of companies
of the Libra network will likely be American companies under
the American jurisdiction and with proper regulatory oversight
in the U.S.
Senator Rounds. I think the proposal that you have has huge
potential, and I think the challenges for the transaction of
the exchange for services and so forth today still has lots of
obstacles to be overcome, including that of security and
privacy. But, nonetheless, we are going to look forward to
observing and participating in this because I really do think
it is the wave of the future, and as Senator Tillis said, we
are either going to be responding to it, or we can be actively
involved in learning from it.
Thank you.
Chairman Crapo. Senator Cortez Masto.
Senator Cortez Masto. Mr. Marcus, thank you very much. We
appreciate you being here and answering the questions. This is
obviously very, very innovative for all of us, and it is
exciting, but I do have a couple of questions to see if you
have thought through some of the concerns I think many of us
also have.
One of them for me in particular, something I dealt with as
Attorney General of the State of Nevada, is the issue of money
laundering. I know there is clear regulatory oversight that we
have right now to address the issue of money laundering. That
comes in so many forms, but one of them is terrorist financing
that supports--the money laundering supports in terrorist
financing.
So my question to you is: How will the Libra Association
itself be ensuring that it is guarding against any type of
money-laundering activity? Have you thought about that?
Mr. Marcus. Yes, Senator, and this is something that I care
about deeply personally, and the way we are thinking about
protecting the integrity of the network from money laundering,
criminal activity, terrorism funding is by not only moving a
lot of cash transactions into the digital world--you know, cash
transactions is where most crimes currently happen, and we
believe that if a lot of transactions move to digital, it will
be better. And the way that we are applying AML programs is
that, as far as the Calibra wallet is concerned, we will have
strong identity, because for every new Calibra account opened,
you will have to upload a Government-issued ID and
authenticate. And as a result, we will have AML programs on the
Calibra wallet.
As far as the Libra network is concerned, we will have an
AML program as well. And despite the fact that the Libra
Association will be based in Switzerland, it will register with
FinCEN and as a result will have to comply with AML and KYC
practices.
Senator Cortez Masto. I am glad you just brought up FinCEN
because that was my next question. Would the association itself
fall under the Bank Secrecy Act jurisdiction?
Mr. Marcus. Senator, the association will not actually
touch consumers. It will process--it will just organize----
Senator Cortez Masto. So who is going to be subject to the
Bank Secrecy Act and FinCEN then? I guess that is my question.
Mr. Marcus. So the Calibra wallet and all of the wallets
that are operating under their jurisdiction will, of course,
comply with BSA, will perform KYC and have AML programs. And we
are engaged with Treasury on this to make sure that the setup
of the network is not only not going to take a step back in
terms of the efficacy of the AML and CTR programs--CFT
programs, but improve the efficacy because of the way that we
are implementing and configuring the network.
Senator Cortez Masto. So you are currently talking right
now with FinCEN to get sign-off on how you address money-
laundering issues?
Mr. Marcus. We are, Senator.
Senator Cortez Masto. OK. I appreciate you providing more
transparency around that. And let me just say this is a new day
and age when it comes to cash and carrying around a briefcase
full of cash. Transnational criminals and terrorists do not do
that anymore. And what you are creating right now is an
opportunity for them to engage in continuing money laundering
and criminal activity. So know that. That is one. To say that
we are going to be complying with AML activities is one thing.
I want to see the specifics of it, so I appreciate your
willingness to talk with FinCEN and talk with us about how we
address this issue.
Another one that has come up, as I sit on the Banking
Committee here, and we have talked about it several times, is
sanctions laws. The head of policy and communication for Libra
was recently on a podcast and was asked how Libra would react
if a Government like the United States required that the Libra
Association blacklist certain addresses in order to comply with
sanctions laws, as is typical in what we do here. The response
was, I quote, ``The association will not interact with any
jurisdiction. It will instead leave that to the entities that
provide an on and off ramp to Libra, the currency.''
Can you clarify that? How are we supposed to address this
issue when it comes to blacklisting and sanctions laws?
Mr. Marcus. Senator, this is a question that we are also
engaged with the Treasury Department on, and the one thing that
we have committed is that we will respect the Travel Rule and
as a result perform the right checks, and including OFAC
checks. And this is definitely true for the Calibra wallet.
I do not know in what context those comments were made, but
I believe that it may be because the association itself is not
running anything. It is just coordinating governance. But the
actual service providers that are going to be regulated service
providers will enforce Travel Rule, perform OFAC checks, and
ensure that those who are subject will, of course, perform
those functions.
Senator Cortez Masto. Thank you. I notice my time is up. I
have further questions. I will submit those for the record as
well.
Thank you.
Mr. Marcus. Thank you, Senator.
Chairman Crapo. Senator Kennedy.
Senator Kennedy. Mr. Marcus, I am going to move kind of
fast here today, so I apologize in advance if I interrupt you.
We only have 5 minutes.
I want to first agree with a lot of the comments that
Senator Toomey made. We need to encourage innovation. But I
want to explore today the underpinnings of Libra.
Can we agree that a banker should be trustworthy?
Mr. Marcus. Yes, Senator.
Senator Kennedy. Can we agree that a banker should be
honest?
Mr. Marcus. Yes, Senator.
Senator Kennedy. Can we agree that a banker should respect
a customer's privacy?
Mr. Marcus. Senator, yes, of course, but we are not going
to engage in banking----
Senator Kennedy. Can we agree that Facebook knew in the
spring of 2016 that Russia was attempting through Facebook to
disrupt the U.S. Presidential election?
Mr. Marcus. Senator, with regards to those events, we
definitely moved too slow, and we----
Senator Kennedy. Isn't it true that your general counsel
and your chief security officer knew in the spring of 2016?
Isn't it true that Mr. Zuckerberg and your CFO, Ms. Sandberg, I
believe, knew in December of 2016? Isn't it also true that you
did not tell your board of directors--they did not tell the
board of directors until 2017--until September 2017? Isn't that
accurate?
Mr. Marcus. Senator, we definitely moved too slow to
recognize the activities that were happening on the platform,
but since----
Senator Kennedy. Excuse me for interrupting, but I have
only got 5 minutes. In September 2017, when senior management
told your board of directors, you also issued--Facebook also
issued a statement. It said, yeah, the Russians have tried to
disrupt the election through Facebook, but they only spent
$100,000, and they only ran 3,000 ads. That was a lie, wasn't
it?
Mr. Marcus. I am sorry, Senator?
Senator Kennedy. That was a lie, wasn't it?
Mr. Marcus. I do not believe it was, but----
Senator Kennedy. Well, later Facebook admitted that
actually the Russian ads had reached 126 million people, didn't
they?
Mr. Marcus. Senator, I believe that the people who answered
that question at the time answered to the best of their
knowledge at the time.
Senator Kennedy. Right. When Mr. Zuckerberg was conducting
his listening tour across the whole country, the first half, I
think, of 2017, when he was feeding cows in Wisconsin and
having dinner with refugees in Minneapolis, he knew about the
Russian involvement, didn't he?
Mr. Marcus. I do not know, Senator.
Senator Kennedy. OK. He did not say anything, did he?
Mr. Marcus. I do not remember the timeline, Senator.
Senator Kennedy. OK. In the spring of 2017, spring and
summer, our Intelligence Committee in the U.S. Senate started
investigating the Russian attempts to disrupt the election
through Facebook. Facebook issued a statement saying there were
no such attempts. That was a lie, wasn't it?
Mr. Marcus. Senator, I cannot--I do not remember the
timeline, and I believe that people have always answered
truthfully with the information they had at the time.
Senator Kennedy. OK. In June of 2018--let me fast forward a
little bit--we found out that Facebook was sharing user data
with device makers, a whole bunch of them, 40 of them--Amazon,
Microsoft, Samsung. Facebook did not disclose that to the user,
did it?
Mr. Marcus. Senator, my understanding--and, again, it was
not my responsibility or my team--is that this was designed to
enable those phone manufacturers to build integration within
the Facebook product to serve those consumers using these
devices.
Senator Kennedy. OK. Your algorithms are such that if I
watch a video on a topic, I am immediately shown videos on more
extreme versions of that topic. We call that ``stickiness.'' Is
that correct?
Mr. Marcus. This is not the way that the Facebook platform
operates today, Senator.
Senator Kennedy. But it did for a long time, right?
Mr. Marcus. Senator, Mark really led through the----
Senator Kennedy. Well, can we agree on this, that Facebook
has now become the major news source for many, many people,
probably the major news source. Is that true?
Mr. Marcus. I do not believe it is, Senator. I believe that
more and more people are interacting with other people on the
platform----
Senator Kennedy. Well, 60 percent of your users say they
get their news off Facebook as their primary source.
Isn't it true--I really want your opinion--that Facebook
has chosen to advance a set of values in which truthful
reporting has been displaced by flagrant displays of bullshit?
Mr. Marcus. I do not know how to answer that question,
Senator.
Senator Kennedy. OK.
[Laughter.]
Senator Kennedy. Well, here is my last question, and I
agree again with Senator Toomey. I have great respect for
Facebook. But Facebook now wants to control the money supply.
What could possibly go wrong?
Mr. Marcus. Senator, we will not control either Libra, the
currency, or the association. And we agree that no company
should control such a network or digital currency.
Senator Kennedy. I would like a second round, if we could,
Mr. Chairman.
Chairman Crapo. If we have time, I will be glad to do that
for Senators who so wish.
Senator Smith.
Senator Smith. Thank you very much. Welcome.
I have got a lot of questions about this. You will
understand the level of skepticism that you see here, and I
appreciate you being here to answer our questions.
I want to try to understand a little bit better this
association. So the Libra Association expects to have, you
think, about 100 founding members who together you say will be
making decisions about investment strategy and regulatory
compliance and social impact goals. Who is in charge?
Mr. Marcus. Senator, the way that the governance of the
association works is that you will have this council of 100 or
more members that will make decisions and will elect a board
that will be between 5 to 19 members, and that board will then,
of course, elect a managing director, and the association will
have a staff to perform the governance function that it is
supposed to look after.
Senator Smith. You know, in the U.S. Senate, we also have
100 members, but it is clear who is in charge. Mitch McConnell
is in charge. And so I am trying to understand in this sort
of----
Senator Kennedy. I thought it was shared.
[Laughter.]
Senator Smith. Chair Crapo is in charge of this Committee.
I am trying to understand. You describe sort of almost a
consensus--will decisions be made on a consensus basis? I
understand that there is some sort of a two-third majority, but
help me understand how decisions get made.
Mr. Marcus. Of course, Senator. The decisions are
basically--the structure of the governance is one where there
are certain things that should be really hard to change, and
those are important things to the spirit of how the network is
supposed to operate, the spirit in which the reserve is
supposed to operate. And I believe that when it comes to the
reserve, by the way, we will need appropriate regulatory
oversight.
Senator Smith. Would there be like a constitution or a body
of rules that would be agreed to ahead of time that would guide
the decision making?
Mr. Marcus. Yes, Senator, and it will be made public.
Senator Smith. And how do you parse out kind of minority
rights versus majority rights on this board?
Mr. Marcus. As it stands, the way that it is starting,
every member, if we have 100 members, will have an equal voice
at the council.
Senator Smith. Well, what if there is a disagreement and
there is--you know, is the minority then just automatically
overwhelmed by the majority in this board?
Mr. Marcus. It will depend on the type of decision. Not all
decisions will need supermajority to reach a consensus,
Senator.
Senator Smith. So it seems to me possible in any board, in
any group of humans, people develop coalitions, and it just
seems to me that there is a big question about how, you know,
every voice is going to be heard in this incredibly powerful
association headquartered in Switzerland.
Is this board like a corporate board in the sense--what if
there was a conflict of interest that developed?
Mr. Marcus. We hope that we will avoid conflicts of
interest, of course, Senator, but, again, we have a lot of work
to do between now and the launch, and this is why we shared our
white paper early on, to get all of the feedback and the input
and ensure that we can address all the concerns, get proper
regulatory oversight, and part of that is also going to be
governance of the association.
Senator Smith. Well, I think these are really, really
important questions, because we are imagining this association
headquartered in Switzerland that would have amazing power over
the financial health of this country, over my constituents, and
over--you know, so I think these questions of accountability
are extremely important.
Let me switch topics a little bit. What is the long-term
business opportunity for Facebook here?
Mr. Marcus. Senator, two business opportunities. One is
really the ability for the 90 million small businesses and the
many users we have on the platform to transact with one
another, so as a result, more commerce on the Facebook platform
and our family of apps. And if there is more commerce, there
will be more advertising revenue for Facebook. So that is one
indirect effect of enabling----
Senator Smith. More commercial activity on Facebook equals
more money for Facebook, more money.
Mr. Marcus. Yes, Senator. And the other part of it is if we
earn people's trust with the Calibra wallet and they decide to
use it over time, we can offer in partnerships with financial
institutions and banks other services that will be new sources
of revenue for the company.
Senator Smith. So competing on wallet, you know, getting a
bigger market share of wallets. But it seems to me--I know I am
out of time, Mr. Chair, but it seems to me that what Facebook
is really good at is figuring out how to monetize people's
personal data, not only the data that Facebook gets directly
but the ambient data that Facebook collects through all of the
many, many millions of activities that we take every year. What
Facebook is really good at is capitalizing literally on that
data. And so I have to say I am not reassured by your statement
that you cannot see any reason right now why there would not be
data sharing between these platforms.
I have some additional questions for the record, Mr. Chair.
Thank you.
Chairman Crapo. Thank you.
Senator McSally.
Senator McSally. Thank you, Mr. Chairman.
Mr. Marcus, I do not trust Facebook, and it is because of
the repeated violations of your users' privacy, repeated
deceit, and I am not alone. As you know, in 2011 there was a
consent decree with the Federal Trade Commission related to
your privacy practices. So that is where it started there with
investigative bodies, but it has not ended. Even after that
consent decree, Facebook is under investigation again, and FTC
has approved a fine for about $5 billion just recently because
of your repeated violations of your users' information, for
example, you know, without users' permission, sharing personal
profile information with outside software developers, selling
that off again; data breaches; allegations that you repeatedly
change users' privacy settings without notice. The SEC, of
course, is also investigating events surrounding the sale of
personal information from Facebook. The New York State's Office
of Attorney General has an investigation into unauthorized
collection of 1.5 million Facebook users' email contact
databases. On and on and on. There are allegations of bugs, oh,
sorry, we did not mean to allow them to download photos, and it
is one after another after another after another. So I do not
trust you guys.
So instead of cleaning up your house, now you are launching
into another business model with Calibra here, and you have got
documents that talk about your privacy commitment for Calibra.
So in that privacy commitment, you say that you will not be
sharing account information or financial data with Facebook or
any third party without customer consent. So how do we know
that this is not going to change? And how do we know you are
actually going to do that based on your track record of failing
and violating and deceiving in the past?
Mr. Marcus. It is a totally fair question, Senator, and I
want to answer it in two parts.
The first is that, as you know, we have been working
really, really hard on addressing the issues; some of them you
have raised. We have invested incredible resources in election
integrity and privacy. Mark has made it his top priority, and
we will continue to do that until those issues are fully
resolved and addressed to satisfaction.
On the Libra side, we have designed this network in such a
way that Facebook does not and will not control it or the
currency, and that there will be plenty of competition. And I
want to take a moment to explain why there will be a lot of
competition.
First, there is interoperability, so regardless of the
wallet you choose, you will be able to pay across wallets,
which is currently not possible.
Senator McSally. I do not want to get into the technical
stuff. I am talking about the trust issue. So you violated
privacy in the past as a company. You continue to have issues.
You continue to change even the privacy rules without informing
users. Yet you are launching a new product, and you are
claiming that their privacy is going to be protected. So how
are users to know that that is also not going to change and
they are not going to be violated? That is what I am getting
at. The core issue here is trust.
Mr. Marcus. And, Senator, the point is really that people
can get all of the benefit from this network without using our
wallet, and I know that we will have to earn people's trust for
a very long period of time in order to get the benefit of them
wanting to use the Calibra wallet instead of any of the other
wallets they will have the choice of using.
Senator McSally. So let me follow up also. I know Senator
Toomey asked a question. Your privacy document says that
Calibra will be transparent, offering customer choices and
controls using clear, simple language and easy-to-find privacy
controls that detail what data is collected, used, shared, and
for what purposes. You are telling me--and I think you said
this already, but can you clarify?--the user will not be able
to have consent as to their data being collected?
Mr. Marcus. I am sorry. I do not understand the question,
Senator.
Senator McSally. OK. For Calibra, you specifically say in
your privacy document that there will be easy-to-understand
controls on what is being collected. So will the user have
consent for their data being collected when they are using
Calibra?
Mr. Marcus. Yes, Senator.
Senator McSally. So then do they have to consent in order
to use Calibra?
Mr. Marcus. Yes, Senator.
Senator McSally. OK. So that is really no choice, right? So
in order to use it, your data has to be collected. There is no
option to opt out.
Mr. Marcus. Senator, if you want to use the Calibra wallet,
you will have to, for instance, authenticate and upload a
Government-issued ID. And if consumers do not want us to
collect that Government-issued ID, for instance, at the very
first step, then, of course, they will not be able to use the
service, because we will be compliant to KYC regulation.
Senator McSally. So what is the business model of Calibra
then? You mentioned the interface with Facebook just recently,
that the more people who are using it, the more, you know,
people will stay on Facebook. And then you can just continue to
collect their personal information and target them with ads and
sell off their information. Is that the business model of
Calibra? Or how are they going to make money?
Mr. Marcus. With respect, Senator, that is not what I said.
But what I said is----
Senator McSally. But that is actually what happens.
Mr. Marcus. I will focus on the specific question you
asked, Senator, which is that we have 90 million businesses,
many of them that grow thanks to the Facebook advertising
platform. They are able to reach new consumers. They are able
to hire. And we believe that if they now have the ability to
sell to more constituents across the Facebook platform and more
people have access to the services and products of those 90
million businesses, then more commerce will happen on the
Facebook platform.
Senator McSally. A wonderful public good that you guys are
committed to. I know I am way over time here, and that was
extremely sarcastic. Thank you.
[Laughter.]
Chairman Crapo. Senator Sinema.
Senator Sinema. Thank you, Chairman Crapo, and thank you to
our witness for being here today.
Mr. Marcus, Arizonans have heard a lot of promises from
Facebook over the years about privacy. For example, Facebook
promised, when it acquired WhatsApp, that it would not scrape
our message data to deliver targeted ads. But 2 years later,
Facebook broke its promise and monetized our personal message
data.
With real doubts about Facebook's commitment to privacy,
Arizonans are rightfully skeptical about the proposed digital
currency Libra. The goal of Libra is to reach the unbanked and
underbanked, which is a noble goal. But it is important to
remember that those who have not utilized a bank or credit card
will be more susceptible to scammers and predatory practices.
Your head of product, Kevin Weil, told TechCrunch on June
18th that there are ``no plans for the Libra Association to
take a role in actively vetting'' developers of wallets,
exchanges, or other related apps. But failing to vet developers
would expose Arizonans to scammers, which is unacceptable.
Do you stand by Kevin's statement?
Mr. Marcus. Senator, first I want to correct something,
which is that WhatsApp is fully encrypted, so even Facebook
does not have access to messages on WhatsApp. But to answer
your question, which is a very important one, I would say two
things.
One is that while the Libra Association will not get in the
way of developers developing things, we will need as an
association to find the right approach to ensure that
publishing services on the Libra network has controls. And the
one thing I wanted to say as well is that financial literacy is
really important, and that at the Libra Association there will
be grant and investment made into financial literacy.
And as far as the Calibra wallet is concerned, not only
will we have consumer protections that will protect your
constituents if they ever have a fraud issue, but we will make
sure that there is appropriate education in the product from
the get-go.
Senator Sinema. Well, that was very helpful information,
but that response does not actually address my concern because
Libra's goal is to reach a population that studies show are
especially vulnerable to financial fraud and abuse. Without
more vetting processes for these developers, Arizonans will be
more likely to be scammed using Libra, which can jeopardize
their hard-earned savings and financial security.
So while we are on the subject of scams, here is a
hypothetical scenario for you. Let us say an unsavory app
developer that is based on Pakistan utilizes an exchange that
is based in Thailand to rip off an Arizonan who is using a
wallet that was built in Spain. So they steal all of their
Libra, and that, of course, is minted by an association based
on Switzerland. So which law enforcement or governmental agency
in which country does the Arizonan call to seek his or her
legal and financial recourse in this situation?
Mr. Marcus. That is an excellent question, Senator, and the
answer to that is that your constituents will likely use an
American, U.S.-based wallet provider that will have consumer
protections and that will make your constituents whole if
something bad happens to them.
Senator Sinema. So in my scenario, this Arizonan was using
a wallet that was built in Spain. Would they still have access
to American recourse for legal and financial problems?
Mr. Marcus. Senator, it will depend on the wallet consumer
protection, the same way that today you have different consumer
protections and services offered by different financial
institutions and others. And I believe that it will be the role
of the Libra Association to ensure that there is proper
education so that consumers can make informed choices.
Senator Sinema. I think the point here is that, despite
having legal and technical background in this room, this is a
difficult question to answer. You posited that they would
likely be using an American wallet. But if they were using a
wallet from another country, that complicates the answer. This
is a real challenge, and Arizonans deserve answers on what
rights they would have as consumers and how they would use
them.
I also have some national security concerns. Despite
granting anonymity, traditional cryptocurrencies are not the
first choice of drug cartels, terrorists, and human traffickers
because cryptocurrencies are not very easy to use. But Libra is
not a cryptocurrency. It is a digital currency that promises
both anonymity and ease of use, which raises concerns about its
potential exploitation for illicit purposes. I am concerned
that drug cartels and human traffickers, major problems, of
course, in Arizona and border regions, may try and use Libra to
finance their operations along our southern border. Your
testimony says that you will comply with the rules set by the
Office of Foreign Assets Control with respect to financial
sanctions. But if a drug cartel or one of its sanctioned
persons attempts to complete a transaction using Libra, would
you comply with OFAC policy or would you allow the drug cartel
transaction to be added to the ledger?
Mr. Marcus. Senator, first of all, Libra is not anonymous,
so we will have an AML program, and as far as the Calibra
wallet is concerned, we will have full KYC and AML programs. As
a result, those types of activities will be very difficult to
conduct on this network, and you have my commitment that we
will take the time before launch to ensure that the network and
the proper measures are taken to avoid this network to be used
for other purposes than it was designed for.
Senator Sinema. Thank you.
Mr. Chair, my time has expired. This is just a proposal,
but folks in my State are concerned, and we need better
answers. So I look forward to working with you and the
Committee on this. I yield back.
Chairman Crapo. Thank you.
Senator Cotton.
Senator Cotton. Mr. Marcus, thank you for your appearance
and your testimony. Your CEO in testimony before Congress
referred to Silicon Valley as ``an extremely left-wing place.''
That is why so many center-right voices have concerns about
censorship on platforms like Facebook, but also Twitter and
Google and so forth. I worry about the possibility that a
digital wallet and digital currency like Libra could extend
that into the payments system. There is reason to worry about
because Democratic Members of this Committee have made it a
habit of contacting major financial institutions and
encouraging them not to do business with, say, gun
manufacturers or with Government contractors who serve ICE or
the Customs and Border Patrol.
What safeguards, if any, will Libra have to ensure that you
treat on par people with views that may be disfavored in an
extremely left-wing place like Silicon Valley?
Mr. Marcus. I appreciate your question, Senator, and you
are right that Silicon Valley tends to have a bias. But I want
to reaffirm that Facebook is a technology company where ideas
across the political spectrum are welcome and treated equally.
And as far as the Calibra wallet is concerned, we wanted to
ensure that people, as long as they have a legitimate use of
the product, can do what they want with their money.
Of course, there are some restrictions and regulated
products, but my commitment to you is we will be thoughtful in
writing those policies, and we will be happy to follow up with
you when we get closer to finalizing those policies.
Senator Cotton. That does not sound like much safeguard to
me other than a commitment before you come under pressure from
Democrats. Just wait until tomorrow until you go before the
House Financial Services Committee. If you think the Democrats
on this Committee have hounded banks, wait until you see what
you are in for over there. I mean, how do we--so a federally
licensed firearm dealer wants to sell firearms at a gun show,
or maybe a neighbor wants to sell a shotgun to his neighbor, or
a Christian baker wants to practice his faith when he bakes his
cake, or someone wants to pay a subscription to, say, Breitbart
instead of the New York Times, what confidence can people who
have center-right views have that Libra is going to be
available to them on an equal basis as those who want to shut
down gun retailers or shut down oil pipelines or Government
contractors who are working with Immigration and Customs
Enforcement?
Mr. Marcus. Senator, firearms, for instance, are a
regulated product. They are already regulated and treated as
such on the Facebook platform. And I know it is a complicated
issue, and when it comes to writing this policy, again, I am
committing that we will be very thoughtful.
I have to say that, as far as I am concerned personally, I
believe that we should only get in the way in very exceptional
cases, and by being thoughtful of getting in the way of people
doing what they want with their money as long as it is lawful.
But we also need to be thoughtful in how we write those
policies.
Senator Cotton. Well, thank you for that commitment, and I
do hope we have transparency, because I assure you, you will be
getting letters from that side of the dais, to say nothing of
the House Financial Services Committee Democrats, just like all
the major banks on Wall Street have been getting those letters.
And, for that matter, your own workforce is going to bring that
kind of pressure to bear on you as well.
Let us shift gears in the time I have left. We have heard a
lot of talk about money laundering this morning. It is a big
problem. I share the concerns we have heard this morning. Money
laundering is typically done by individuals engaged in criminal
activities like drug trafficking, human trafficking, and so
forth.
There is also the question of sanctions. One of the
advantages of having the world's reserve currency is that we
have the ability to impose extremely effective worldwide
sanctions because most, almost all, transactions are dealt with
in dollars worldwide. Could you talk a little bit about how
Libra would have an impact on the United States dollar as
reserve currency and, therefore, on the United States
Government's ability to impose sanctions? This is different
from money laundering about individuals. We are talking about
sanctions on Nation States like, say, Iran that is developing
its own cryptocurrency and cracking down on others specifically
to try to avoid sanctions?
Mr. Marcus. Senator, I am glad you brought this us because
I believe that if we do not lead in this space, others will.
And the same way that we will end up having two Internets and
two different infrastructures, we will have two different
financial systems and two different financial networks. And one
will be out of reach of sanctions that are so effective in
enforcing our foreign policy and preserving our national
security. And this is why I believe that Libra is an
alternative that consumers will have the ability to use with
wallets that will de facto enforce the sanctions that are led
by our national security apparatus and Treasury.
So I actually believe that if we stay put, we are going to
be in a situation in 10, 15 years where we are really going to
have half of the world that is going to operate on, by the way,
a blockchain-based technology that will be out of reach from
our national security apparatus.
Senator Cotton. All right. Thank you.
Chairman Crapo. Senator Schatz.
Senator Schatz. Thank you, Mr. Chairman. Mr. Marcus, thank
you for being here.
On cybersecurity, on foreign interference, on privacy, on
extremism, on fake news, is it fair to say you are still
working on solving those problems as a company?
Mr. Marcus. Yes, Senator, we have a number of issues that
we are hard at work solving.
Senator Schatz. So you are working on solving those
problems. They are not fixed yet. Correct?
Mr. Marcus. Some of them are, and a lot deserve a lot more
work.
Senator Schatz. Which ones are fixed?
Mr. Marcus. I would say that some of the issues that we
have had in the past----
Senator Schatz. Right. Cybersecurity, foreign interference,
privacy, extremism, fake news: which ones of those have you
fixed?
Mr. Marcus. Well, you know, for instance, Senator, the
issue that happened back in the day with Cambridge Analytica
cannot----
Senator Schatz. Right, not which ones have--hold on. Not
which ones have you made significant progress. Have you fixed
any of those?
Mr. Marcus. Well, I would say that all of them will always
require a great deal of work.
Senator Schatz. So let us just pretend it is the two of us
having a conversation. My question is this: What do you say to
someone who says maybe before you do a new thing and an
enormously important thing, you should go ahead and make sure
you have got your own shop fixed? So what do you say to that?
Mr. Marcus. Senator, I believe that the status quo is
really a huge burden on so many people around the world when it
comes to financial----
Senator Schatz. Wait. Hold on. You are making an argument
for cryptocurrency generally. You are making an argument for
this proposition generally. The question I have is: Facebook
has a lot of problems. You guys have had a rough couple of
years. And so the question is: Why are you moving on to a new
and challenging thing other than the grandiosity of Silicon
Valley which causes you to get bored with your own thing and
try to move into a new line of business? So the question is not
would it be great to eliminate credit card fees. The question
is not should the United States lead in this area. The question
is: Why Facebook? And why before you have fixed your other
stuff?
Mr. Marcus. Senator, I believe it is important that we
continue to innovate on behalf of the people we serve, and the
same way that we have been able to bring communication prices
down with our messaging app, because now anyone with a $40
smartphone can actually communicate for free with the world, we
want to continue innovating on behalf of the very people we
serve, and we hope that we can do the same thing for them when
it comes to access to modern financial services.
Senator Schatz. Do you have a specialized expertise with
anti- money-laundering sanctions, prudential regulations,
protecting financial information, preventing discrimination and
other violations of consumer financial laws?
Mr. Marcus. Senator, I do, and my team does as well.
Senator Schatz. No, I am sorry. Not you personally. Does
Facebook have that?
Mr. Marcus. Senator, through the team that I have
assembled, yes, now it does.
Senator Schatz. Within Facebook?
Mr. Marcus. Senator, within----
Senator Schatz. Or are you talking about the consortium?
Mr. Marcus. Senator, within Calibra, which is the
subsidiary that it created, it has the proper know-how to
operate----
Senator Schatz. So you have hired up for this?
Mr. Marcus. Yes, Senator.
Senator Schatz. OK. Does your consortium have bylaws?
Mr. Marcus. Senator, the charter of the association is in
the process of being ratified by its members, and it will be
made public.
Senator Schatz. So that is a no?
Mr. Marcus. Senator, when we launched the website and white
paper in June 2018, we have guidelines. But the reason that we
did not want all the other members to sign an existing bylaw or
charter is we wanted them to take part in writing it, because,
again, we do not want to control the network, and we think it
is important that those decisions are made collegially with the
other cofounding members.
Senator Schatz. So what I am hearing--and they are
terrified to talk about this publicly--is that members of the
consortium actually have lots of questions, too, similar to the
questions that are being offered on this dais. And they have
great reservations about moving forward, but they do not want
to be left out because of Facebook's market power. And so how
do you address the bigger question, not just the one that I
asked earlier about you not having fixed your own shop before
you move into currency--which seems just on the face of it to
be nuts. How do you answer the question about size and power
and the idea that lots of people out there think Facebook is
already too big and too powerful and now you are going to get
into currency? So how do you address that question?
Mr. Marcus. Senator, we answer that question with the very
setup that we have at the Libra Association and the way that
this network is not only governed, but the way that we will
have to face tremendous competition on top of this network with
other companies that already have a lot of existing financial
accounts, that are already KYC, that are already operating,
that have trust. So you have companies like PayPal and others
that will, of course, collaborate but compete with us for----
Senator Schatz. I guess you have not--and I appreciate
this, but you really have not answered the most basic question
of all, which is: Why in the world should Facebook, of all
companies, given the last couple of years, do this?
Mr. Marcus. Senator, because we have the ability and the
means to innovate on behalf of the people we serve, and we
should not stand back and wait to do it if we can help the very
people that we want to serve. Because we have the resources and
the engineering talent, I believe we should.
Senator Schatz. Because of your size.
Mr. Marcus. Senator, because of our resources and our
engineering talent.
Senator Schatz. Because you are so big that you should get
bigger.
Mr. Marcus. That is not the point I was making, Senator.
Senator Schatz. Thank you.
Chairman Crapo. Senator Menendez--excuse me, you are right.
Senator Jones.
Senator Jones. Thank you. Mr. Chairman, thank you.
Mr. Marcus, I want to talk about quickly some of the money-
laundering issues that I have got real concerns about, and I
understand that Calibra is committed to verify users and those
kinds of things. But for money-laundering purposes, if you have
got a worldwide issue and you have got partners all over the
world, how are you going to get your partners to verify these
third-party products? And how are we going to prevent this
money laundering? I think that is a major concern. How are you
going to deal with your partners?
Mr. Marcus. Senator, first I want to commit that we will
not launch until we have satisfied those concerns with Treasury
and other regulators around the world and how the network is
configured and it operates. But, more practically, the way that
the network is going to operate is that all the on and off
ramps will be regulated, and we will have proper KYC and AML.
As a result, activities such as money laundering, terrorism
funding will have an opportunity to be monitored, and the
intention here is really not for the efficacy of these programs
to take a step back. Quite the opposite. We believe that we can
help improve the efficacy of these programs, and we will work
hard to make that happen because this is something that I care
deeply about.
Senator Jones. Well, I appreciate that. I do have some
concerns about that because, as Senator Brown said earlier, we
have seen Facebook run into problems in their platform time and
time again on any number of issues. And I think Senator Brown's
comment was it is just another learning experience. But at some
point, if things continue, and especially with a currency like
this, if all of a sudden this operates and you continue to see
all manner of criminal activity and money laundering, at some
point an innovative prosecutor is going to look across the
table and say, ``You, sir, are contributing to this. You are an
aider and abettor.'' Are you prepared for that down the road?
If you do not do your job and this currency is used to
facilitate human trafficking, drugs, fraud, things like that,
are you prepared for Facebook and all of your Calibra and Libra
users to be looked at as criminal defendants?
Mr. Marcus. Senator, we are prepared to take the amount of
time that will be required to ensure that those things do not
happen and that we improve on the efficacy of these programs.
We really do not want this creation to be a tool for these
types of activities, and this is why this time, before
launching, we are taking so much time and sharing our plans
early on and have started this long, consultative phase.
Senator Jones. And I did not mean to imply by my question
that you are intending to do that. I know that. But I also know
there are unintended consequences, and if things do not go
right, at some point somebody is going to have to step up. But
thank you for that.
The other thing I want to talk about briefly is taxes and
how some of this will be taxed. As you know, the current IRS
law treats digital currency as property, which means under
current law every single transaction or purchase made with
Libra will be a taxable event. The transaction will be taxable.
So many businesses in the current cryptospace now help their
customers comply with tax laws by submitting detailed lists of
transactions to both the IRS and the consumer, similar to how
stockbrokers might send both a customer and the IRS a 1099-B.
So does Facebook plan on recording and reporting all Libra
transactions directly to the IRS and to consumers to ensure
that they fulfill their tax requirements?
Mr. Marcus. Senator, this is an important issue, and the
way that we are approaching this is twofold. One is Libra,
unlike other digital currencies out there, will not be volatile
to the dollar. So as a result, the variations in prices between
the dollar and Libra will be very, very minimal. But as far as
the Calibra wallet is concerned, we will, of course, provide
all tools to consumers so that they can report their taxes
without the hassle of having to record all transactions on
their own.
Senator Jones. Well, but that--I understand you are saying
that you will provide that to the customer, but that you would
not propose providing that to the Internal Revenue Service. Is
that how I understand, that you are just putting the burden on
the consumer and the customer to comply with Internal Revenue
Service regulations?
Mr. Marcus. Senator, my understanding of this matter is
that this is the decision that is in the hands of the IRS and
that today the IRS--it is my understanding that they require
consumers to report. But we would be happy to work with the IRS
to make it easier for consumers or to reach a de minimis
determination for Libra and other digital currencies in order
to avoid the burden for consumers.
Senator Jones. All right. Well, I think from the money-
laundering aspect, criminal activity, and the Internal Revenue
Service are the big things that you have got hurdles to
overcome. It is going to take some time, I think, to get past
all of that. But thank you. Thank you for your testimony and
for being here.
Thank you, Mr. Chairman.
Chairman Crapo. All right. Now, Senator Menendez.
Senator Menendez. Thank you, Mr. Chairman.
Facebook's CEO Mark Zuckerberg once said that his model
was, ``Move fast and break things''. Several of my colleagues
have referred to it. I only have 5 minutes, which is not nearly
enough time to list all the things that Facebook has broken. I
have highlighted some of them on the poster behind me, and the
underlying theme here, this is a company that does not think
through the consequences of its actions. And with nearly 2.4
billion active users, when Facebook breaks something, it has
serious consequences.
So I have been listening--in and out between the meetings I
have had in my office--to some of your testimony, Mr. Marcus,
and basically the theme of your response to many of my
colleagues, particularly on data privacy, is, ``Trust us.''
Well, trust is something you earn, and Facebook certainly has
not earned it.
So it is not enough to say that you will keep the Calibra
data separate. I would like to know how exactly will you keep
Libra data separate from your social media data?
Mr. Marcus. Senator, thank you for your question. I want to
also say that, in the case of Libra, we are most definitely not
moving fast, and I want to reiterate my commitment that we will
not move to launch or to offer Libra as a currency on
Facebook's platform before----
Senator Menendez. Just answer my question right now. How
specifically are you going to keep the data separate?
Mr. Marcus. So the way that we keep the Calibra data
separate from the rest of Facebook is that actually within our
infrastructure we have separated the data from the rest of
Facebook's infrastructure and data in order for it not to get
commingled with the rest of the data.
Senator Menendez. Even though in your user agreement you
say that you are going to, may very well share aggregate data
with Facebook?
Mr. Marcus. Aggregate data that we may use on the Calibra
wallet side, nonidentifiable data to understand how the----
Senator Menendez. But that is the beginning of opening up
the door. Let me ask you this: If there is a commingling of
data, purposeful or not, can you commit to this Committee and
the public that you will notify users and the proper
authorities within 48 hours?
Mr. Marcus. Senator, I commit that we will naturally notify
users that would have been affected by this, but first and
foremost, we want to make sure that it never happens.
Senator Menendez. I know, but if it happens, I am saying
whether purposeful or not--things seem to happen at Facebook--
will you commit to notify both the users and the public within
48 hours of your finding of it?
Mr. Marcus. Senator, I commit that we will inform users and
the public if such a thing happens within a reasonable
timeframe.
Senator Menendez. OK. That could mean a whole bunch of
things.
Let me ask you this: I have been the author and architect
of many of the sanctions regimes we have leveled against rogue
regimes--Iran, Venezuela, Cuba, to mention some. Many of us are
concerned about how those countries and how criminals can use
Libra to evade U.S. sanctions from money-laundering laws.
Last year, the Treasury Department for the first time
identified and published digital currency addresses associated
with two Iranian-based individuals who helped exchange bitcoin
for Iranian cybercriminals that used ransomware to extort
millions of U.S. dollars from over 200 victims.
If Libra was used for a similar transaction, would the
Libra Association, the group that validates Libra transactions,
freeze the assets of such sanctioned individuals?
Mr. Marcus. Senator, first, I really want to stress the
fact that if we do not lead, others will. And as a result, the
transactions that you highlighted and listed will happen on a
network where we will have no jurisdiction and no reach and no
ability to have any--exert any control for national security
purposes.
As far as Libra is concerned, naturally, because Libra,
despite the fact that it will be headquartered, will be
registered with FinCEN, will collaborate, will have an AML
program, and will ensure that on and off ramps are properly
regulated, and as a result, those types of activities should be
extremely hard to----
Senator Menendez. But my core question is: Having that
individual identified to you, the type I just described, would
you freeze the assets of such a sanctioned individual under
your system?
Mr. Marcus. Senator, the way that this would happen and the
way that the system is currently contemplated, it would be the
role of the big custodial wallets operating on top of the Libra
network, like the Calibra wallet and many others, to block
access for funds for those addresses, as well as all of the on
and off ramps that would prevent those addresses to convert----
Senator Menendez. Let me ask you one other question. I have
a whole bunch of them, but I will submit them for the record.
This does not assuage my concerns as it relates to the very
sanctions that we have worked on a bipartisan basis to pass.
So would the Libra Association--what would it do if U.S.
regulators wanted to enforce sanctions on certain individuals
but other global regulators did not? How would the association
determine which set of rules to comply with?
Mr. Marcus. Senator, that is a really good question and one
that we are in active discussions with a number of regulators,
including Treasury. And my understanding of this and the way
that we are currently thinking about this is that actually the
way to properly police and control the network is through, one,
the on and off ramps; and, two, to all of the wallets that will
be regulated.
Senator Menendez. Well, I am going to take you at your word
that you are not going to act before you have all these
questions resolved because, if not, what Libra could be is the
wild West of cryptocurrency where, you know, money laundering,
criminals, and countries seeking to avoid U.S. sanctions could
be their resolve. And we just cannot have it.
Mr. Marcus. I agree, Senator.
Chairman Crapo. Senator Van Hollen.
Senator Van Hollen. Thank you, Mr. Chairman. Welcome, Mr.
Marcus.
You know, one of the benefits of going last is you get to
hear your colleagues' comments, so I want to make a couple
comments I had not planned to make otherwise.
Number one, Senator Kennedy rightfully pointed out
Facebook's failings in the face of Russian interference in the
2016 elections. I know you are working hard to remedy it. I
frankly wish the U.S. Congress was working to remedy it as
well. We have a bill in this Committee, a bipartisan bill
called the ``DETER Act'' that would say to Putin or anybody
else that wants to interfere in our 2020 elections that they
will pay a certain and very high price.
So I hope, Mr. Chairman, that we will move on that. We have
to get to the bottom of 2016, but, my goodness, we should be
working on a bipartisan basis to protect our elections in 2020,
and we have a means to do that.
Second, I heard a hint of this whole idea that Facebook and
other social media companies are conspiring against right-wing
voices. In fact, 4 days ago, we had the President of the United
States have what he called a ``social media summit'' at the
White House where he summoned some of the most right-wing,
extreme social media voices and peddled this idea that the
President's own Twitter account was somehow being blocked and
limited. And yet within the last 48 hours, we have seen what a
grotesque lie that was. This is a President who just spewed
forth all sorts of racist comments over the last 48 hours. And
it does highlight the challenge social media companies have in
trying to make sure that they monitor community standards to
prevent incendiary comments that can cause harm or danger and
at the same time allow freedom of voices on the Internet.
So I hope we will get away from this nonsense that we often
hear from the President and others about this kind of biased
censorship, and I hope we will have more voices actually
exercising their First Amendment rights to speak out against
the President's racist comments.
Third, real-time payments. I am looking forward and enjoyed
this discussion here. Every time the Chairman of the Federal
Reserve, Chairman Powell, has come before this Committee and
others, I have asked him why it is the U.S. Government is so
far behind our European partners and many others in real-time
payments. The fact that we do not have a system in this country
that can clear real-time payments is today costing millions of
Americans billions of dollars, and they should accelerate their
efforts and get it done. And I personally do not think we
should hand that over to a consortium of the biggest banks in
the country.
So let us talk about the conversation here today
specifically. I understand your point saying that whether you
trust Facebook or do not trust Facebook, that is not a big
issue with respect to the Libra Association. I have questions
and concerns--and you have heard some today--about the Libra
Association itself, because what is different from things like
bitcoin--bitcoin, you know, the uncertainty around bitcoin, the
uncertainty of its value, the wild fluctuations, in my view,
mean it is not going to be put into widespread use; whereas,
the whole goal here is to have billions of people around the
world using this new coin, right? I mean, that is the goal, is
it not?
Mr. Marcus. It is really to help the very people who do not
have access to current financial----
Senator Van Hollen. But the idea is billions of people, and
because this is now going to be tied to other currencies and
supposedly be more stable, it will be in very widespread use.
So there are huge concerns because this, in my view, obviously
has lots of questions that need to be vetted. And the
organization itself, the Libra Association--you say you do not
have to trust Facebook, but you do have to trust the Libra
Association. And they are doing something very different. They
are creating a new currency that is intended to be used by
billions of people, and I think there are lots of questions
that you still need to answer regarding that structure. I think
people will conjure up the James Bond movie and that
organization, Spectre. And unless you are really clear about
how this is going to be a transparent association and be
accountable in all the ways that have been discussed today,
then it is not a question of whether people trust Facebook or
not. It is a question of whether people trust this
international--this organization run by private companies. And
my view is when you are talking about a world currency that is
going to be potentially used by billions of people, I am not
sure there is sufficient accountability that you could build
into that system that would answer all the concerns. But I look
forward to the continuing conversation.
Mr. Marcus. Thank you, Senator.
Senator Van Hollen. Thank you, Mr. Chairman.
Chairman Crapo. Thank you.
Senator Kennedy has asked for a second round, and then
Senator Brown and I will both go with another round of
questioning, and I think that will be it. We may have another
Senator or two show up.
So, with that, Senator Kennedy.
Senator Kennedy. Mr. Marcus, I want to follow up on Senator
Cotton's concerns, and I think the basis for his concern is--we
can agree on this, I think--that Facebook is not really a
company anymore. It is a country. I mean, you have got 2.2
billion people that use it. I do not see anything in the
documents that I have seen that would prevent the members of
Calibra, once Libra is prevalent throughout the world, saying,
you know, we do not believe in abortion rights, and we have the
transaction data of all these people, so we are just going to
say if you believe in abortion rights, you cannot use Libra--or
vice versa. And you could make that assessment on the basis of
any person's position on socioeconomic issues. I think you need
to address that.
Let me ask you a question about, again, there is a big
issue in trust here. In May a couple years ago, I think it was
2016, there was an article that appeared that quoted news
curators at Facebook. They were in charge of the trending news
section. You know what I am talking about?
Mr. Marcus. Yes, Senator.
Senator Kennedy. Right. I do not think you have it anymore.
But they testified that they had been instructed by the
management of Facebook to suppress news stories of interest to
conservative readers, even if they met the qualifications of
trending, and they stated that they were told to suppress news
stories about CPAC, Mitt Romney, Rand Paul, Lois Lerner, Scott
Walker, Chris Kyle, Ted Cruz, articles from Newsmax, articles
from the Washington Examiner. And one of the curators even kept
a log. Is that true?
Mr. Marcus. Senator, I was not part of that team, and I am
not aware of how it functioned, but that product does not exist
anymore.
Senator Kennedy. OK. Well, the news curators also told that
they were instructed to include in the trending news section
articles from certain publications, whether they were true or
not, and two of those publications were CNN and New York Times.
Is that true?
Mr. Marcus. Senator, again, I was not involved, and this
was not my product team, and it might have happened even prior
to my time.
I do want to say, though, that Facebook really is a
technology platform that is neutral when it comes to----
Senator Kennedy. I am familiar with Facebook. Let me ask
this one other question. The news curators said they were told
by management not to ever put in an article in the trending
news section about Facebook. Is that true?
Mr. Marcus. Again, Senator, this was not my team, and I am
not aware.
Senator Kennedy. OK. Is there any data that Facebook has on
its customers, if you will, that, on principle, Facebook would
not monetize?
Mr. Marcus. Well, Senator, the way that the data is used on
Facebook when it comes to monetization is enabling better ads,
to serve better ads to people that are personalized----
Senator Kennedy. I get that. I am sorry to interrupt you,
but I get that. But is there any data that, on principle,
Facebook would say, ``We are not going to make money on this,
this crosses the line''? Have you ever thought about that?
Mr. Marcus. Senator, it is not about making money, but as
far as Calibra is concerned, the----
Senator Kennedy. It is not about making money?
Mr. Marcus. Senator, we do not typically look at data in a
way that is to make money, it is just to improve the service,
including improving the quality of the ads that----
Senator Kennedy. Let me stop you now, Mr. Marcus. You are
telling me that money is a secondary concern at Facebook? Don't
you have shareholders?
Mr. Marcus. Senator, we do, but I believe that it is
important that we, first and foremost, serve our customers, and
the way we have done it with messaging apps, notably, without
monetizing them yet, is a testament to what we can do to lower
costs for people when we have the----
Senator Kennedy. All right. Last question. I have got 19
seconds here. I have got to ask this, if this is true. Do you
know these people: Sheryl Sandberg, Elliot Schrage, or Monica
Bickert?
Mr. Marcus. I do, Senator.
Senator Kennedy. OK. Is it true that Mr. Zuckerberg told
them to meet several times and consider shutting down then-
Candidate Trump's Facebook website in 2016 because Mr.
Zuckerberg disagreed with his views on immigration? Is that
true?
Mr. Marcus. Senator, I am not aware.
Senator Kennedy. You just do not know?
Mr. Marcus. I do not know, Senator. It would surprise me,
but I am not aware.
Senator Kennedy. OK. Last question, I promise. I have seen
this description before, and I want your thoughts on it. If you
and I interface on Facebook, there are really not just two
participants. It is you, it is me, and it is Facebook. Is that
an accurate description, that nothing is private?
Mr. Marcus. Except on messaging platforms, notably on
WhatsApp that is fully into and encrypted. In this case, it
would be just the two of us, Senator.
Senator Kennedy. OK. And this really is my last one. If
Libra catches on and let us say 200 million people are using
it, somebody is going to have the data on all of the financial
transactions that those 200 million people have consummated,
which is going to indicate what they are buying, what they are
not buying, what their likes are, where they like to shop, just
a treasure trove of information. You are telling me that nobody
in Calibra is going to attempt to monetize that?
Mr. Marcus. Senator, when it comes to the Libra
Association, they will not have any personal identifiable data,
and as a result, they will have no way to----
Senator Kennedy. Somebody will have the data. Who will have
the data?
Mr. Marcus. The wallets that will provide the services will
have the data for their own wallets, and I can speak to the----
Senator Kennedy. So you are telling me nobody is going to
monetize that data?
Mr. Marcus. As far as the Calibra wallets, we do not intend
to----
Senator Kennedy. But isn't it the case that at some point
those consumers are going to be sent an email saying, ``Do you
care if we share your data? And the details are right here.
Click on this, and it is going to refer you to a 10-page,
single-spaced disclaimer written by the lawyers in which you
could hide a dead body and nobody would ever find it''? And
they are going to start doing it. Isn't that what is going to
happen?
Mr. Marcus. No, Senator.
Senator Kennedy. OK. Thanks, Mr. Chairman.
Chairman Crapo. Thank you.
Senator Brown.
Senator Brown. Thank you, Mr. Chairman. And, Mr. Marcus,
thank you for sitting here through this.
I normally do not respond to uber-partisan comments from
colleagues, but I just wanted to just ask the Republican
Committee staff to let Senator Cotton know that every letter to
Facebook from this Committee, from any of us on this Committee,
has come--or at least from the Committee, have been jointly
signed by Senator Crapo and me. I think that is important to
know.
As you see, Mr. Marcus, as is clear from this hearing, the
distrust of Facebook is a pretty universal feeling here. You
heard Senator Kennedy say it. You heard Senator McSally. You
heard on the Democratic side Senators Smith and Van Hollen and
Schatz and me and others. So that is an issue you need to deal
with. And I want to just read back what you said to me about
trust. You said, ``Senator, you heard it directly from Mark--
and I will reiterate this--that trust is primordial.'' And I
responded, ``I did not hear it from Mark.'' And you said,
``Trust is primordial . . . we have made mistakes in the past,
and we have been working,'' and so on. So I know what the word
``trust'' means. I know what the word ``primordial'' means.
What the hell does that mean, that trust is primordial?
Apparently you said--I mean, you said, and apparently Mark
Zuckerberg said, although we found no record that he said it,
but I believe you if you said he said it. But what does it
mean?
Mr. Marcus. Senator, it means that we need to continually--
we need to continue to do better in serving the customers, the
users we are serving, and we will do what it takes to earn
their trust. And that is definitely the case as well for Libra
and the Calibra wallet.
Senator Brown. And this is the same Mark Zuckerberg that
once calls people who trust him with their data ``dumb'' and
the next word starting with an ``F'' I cannot say in this
Committee. This is the same Mark Zuckerberg who said that--I
can even read what he says: ``I have over 4,000 emails,
pictures, addresses. People just submit it. I do not know why
they trust me,'' and then he said ``dumb'' and a profanity.
And then I hear you quoting him, and then you saying it
yourself, that trust is primordial. And the definition of
primordial is ``from the beginning of time.'' And your biggest
problem is that people do not trust you. So what am I to take
from this?
Mr. Marcus. That we need to continue working very hard to
ensure that we are deserving of trust.
Senator Brown. But why would you lead with ``trust is
primordial''? It is so much in your DNA that you could always
trust us, but then just lay out one after another times that
you deceived, undermined, betrayed that trust. Again, Senator
Schatz said over and over, why, with all of your problems,
should we trust you on something as important as a worldwide
currency and the damage that can come from it?
Mr. Marcus. Senator, this is why we have set up Libra the
way we have, which is that we will not control it, and we will
be one among 100 different participants that will govern over
the network and the currency. And as a result, we will have to
earn people's trust if we want them to use our products and
services on top of the Libra network because they will have
plenty of choice with established companies that have a lot of
trust.
Senator Brown. You trust us to believe that statement when
you say 1 of 100, but you are the only one that has access to 2
billion people, and, you know, the George Orwell--some people
are created more equal than others. Why should we trust you
when you keep talking about all the competition, there are 100
players, but nobody is like you as the preeminent player?
Mr. Marcus. Senator, I do want to address this because I
believe that there might be some misunderstanding on how the
people on the Facebook wallet, the Calibra wallet, will have to
onboard. We will not have the ability to onboard all people
using our products automatically, naturally. We will not even
use Facebook log-in. People will have to onboard, create a new
account with Calibra, upload their Government-issued ID, and as
a result, there is going to be a lot of friction, and we will
have to make very strong commitments so that people trust us,
and we will have to honor those commitments for a very long
period of time to earn people's trust because, while we do
that, you will have other wallets that already have a number of
customers that they can enable Libra for immediately, and we
are not in that position. And as a result, we put ourselves in
a position where we will have to work very hard to earn
people's trust to use our products and services.
Senator Brown. Pretty hard to trust when there is so little
contrition, responding to Senator Kennedy about the 2016
election, or what you have done to the media in this country,
to journalism, and what you have done, according to the United
Nations in Myanmar. Pretty hard for us to trust you with a
worldwide currency that you are setting up in Switzerland.
Mr. Marcus. Senator, I believe that the status quo is not
working for so many people that it is time for new progress to
happen in financial services for those barriers, for so many
people that are left behind to be lower and for costs for so
many people to be also lower. And that is why we are deciding
to take the lead on this and then relinquish this lead.
Senator Brown. Mr. Chairman, I wish we could trust
Facebook. It is pretty clear there is almost nobody on this
Committee that does. Thank you.
Chairman Crapo. Thank you, Senator Brown.
I will ask my final round of questions right now.
Mr. Marcus, I have stated in a number of our previous
hearings that ensuring that individuals have real control over
their data is critical, and the United States does not have, in
my opinion, adequate assurances in its law. I talked about that
with you in my first round of questions.
I am personally convinced that we need to--if we do not--
well, we have a sectoral approach, as I indicated, and I think
we need to have a more comprehensive, broad-based approach, at
least for the basic rights. Europe in the GDPR does have such a
law, the GDPR. That guarantees individuals with the right to
information about the access to their personal data, which I
believe means they should have access--they should be notified
when their data is being collected, what data is being
collected, and given rights right at that point to opt out or
in, and there should be corresponding responsibilities.
Does Libra and its associated third-party developers like
Calibra, do they anticipate being captured under GDPR at this
point in time?
Mr. Marcus. Chairman, it will really depend on the
jurisdiction of different wallets, but as far as the Calibra
wallet is concerned, we will definitely have the highest
standards when it comes to privacy. And as soon as the privacy
policies and commitments are written, you have my commitment
that we will share those with you.
Chairman Crapo. All right. Thank you. And let me get into
that a little bit in the last part of my questions here. As I
understand it, using the blockchain technology results in a
limited amount of personal private data actually being
collected. You have indicated that a person would have to
provide their Government-issued ID, and then I assume--and
please correct me or help me understand this--from that point
Calibra would have their ID. They would know the basic set of
facts that is on their Government ID. And I assume that ID or
that information is connected to some kind of a code data or
something that is used in the blockchain. Is that correct?
Mr. Marcus. No, Senator. Actually, the blockchain will not
include personally identifiable data.
Chairman Crapo. But would Calibra have the ability to
connect a blockchain to the user of that blockchain?
Mr. Marcus. Senator, it will depend on whether the
transaction has been initiated from a Calibra customer or not.
Chairman Crapo. OK. And if it was initiated by a Calibra
customer, would Calibra then--Calibra would then know the
identity of the person using or engaging in that transaction in
that blockchain?
Mr. Marcus. Yes, Senator, because they would be using our
product.
Chairman Crapo. And what else would Calibra know in terms
of--what other data would Calibra be able to use if it wanted
to?
Mr. Marcus. Senator, the mindset in which we are
establishing the product and the privacy of the product is that
it will only collect the information that is required to offer
the service, but also to keep accounts safe, which is, of
course, really important when it comes to money, and especially
because we will have strong customer protection programs. So we
will need to protect accounts and data. Relevant data is
actually quite helpful in protecting consumers' accounts.
Chairman Crapo. So tell me what some of that relevant data
is. Let us say it was a retail purchase. Does that mean that
the item purchased is a part of that data?
Mr. Marcus. Senator, that would really depend, and I do not
believe that we need that information, for instance, either for
the purposes of securing accounts or other purposes.
Chairman Crapo. So I have been told that the blockchain
technology actually allows an enhancement of privacy
protection. Do you believe that is the case, that the use of
blockchain technology actually reduces the potential for the
abuse of collecting data on individuals?
Mr. Marcus. Senator, yes, typically it enables people to
use software that they can run on their own, and as a result,
they can be their own sovereign, if you will, of the data that
is used. And then it is a question of choice for consumers. On
one side they can have consumer protections, and on the other
they can be self-sovereign. But there are opportunities with
blockchain technology to enable people to own their own data.
Chairman Crapo. So in comparison, leaving the Libra
proposal out of the question now and just looking at the
technology issue of blockchain technology versus, security, the
current transactional technology that we use for credit card
transactions or bank account transactions, check transactions
and what have you, if we were to see a move globally into use
of blockchain technology for currency transactions, would that
be--would that represent an opportunity to enhance personal
privacy?
Mr. Marcus. Senator, it can be, if implemented the right
way, yes.
Chairman Crapo. All right. I am going to want to learn a
lot more about that. Maybe you could give me some of your
information on that.
All right. Before we gavel to a close, I want to reiterate
my belief that it is critically important that policymakers and
regulators understand the rules of the road as this project
continues to develop. To the extent that gaps within the
existing U.S. authority become apparent, it is worth examining
whether new or clarifying legislation is warranted to ensure
that U.S. regulators are not unfairly being relegated to the
sidelines in assessment and oversight of this project and
others like it.
That concludes the questioning for today's hearing. For
Senators who wish to submit questions for the record, those
questions are due to the Committee by Tuesday, July 23rd. Mr.
Marcus, we ask that you respond to those questions as promptly
as you can. And, again, thank you for being here.
Mr. Marcus. Thank you, Chairman.
Chairman Crapo. This hearing is adjourned.
[Whereupon, at 12:20 p.m., the hearing was adjourned.]
[Prepared statements, responses to written questions, and
additional material supplied for the record follow:]
PREPARED STATEMENT OF CHAIRMAN MIKE CRAPO
Today we will receive testimony from David Marcus, Head of Calibra
at Facebook.
On May 9, Senator Brown and I sent a letter to Facebook shortly
after it was reported that the company was recruiting financial
institutions and online merchants to help launch a cryptocurrency-based
payments system using its social network.
Our letter asked Facebook for more information about how the system
would work, its access to and use of consumer financial information,
and Facebook's access to and use of information on individuals or
groups of individuals in credit, insurance, employment, or housing. I
appreciate Facebook's response last week.
Shortly after the letter was sent, Facebook formally announced its
intention to launch the payments system, Libra, and issued a white
paper providing some information about the project.
Since then, U.S. and global regulators have taken notice, including
the Federal Reserve, U.K.'s Financial Conduct Authority, Financial
Stability Board, G7, and others.
Last week during the Federal Reserve's Semiannual Monetary Policy
Report to Congress, Chairman Powell raised concerns about the
cryptocurrency's potential for inciting money laundering and financial
instability problems, and also expressed concern over customers'
privacy.
Yesterday, Secretary Mnuchin stated the Treasury Department has
``very serious concerns that Libra could be misused by money launderers
and terrorist financiers.''
The Bank of England Governor Mark Carney said, ``Libra, if it
achieves its ambitions, would be systemically important. As such it
would have to meet the highest standards of prudential regulation and
consumer protection. It must address issues ranging from anti- money
laundering to data protection to operational resilience.''
Concerns include, but are in no way limited to: how the payment
system will work, how it will be managed, and how Libra, the Libra
Association, Calibra, and Facebook will all interact; what consumer
protections will apply, and potential implications for consumers with
respect to financial loss from fraud or the project's failure; how
individuals' data will be protected, and how individuals' privacy will
be preserved; how the Libra ecosystem interacts with the Bank Secrecy
Act and other existing anti- money-laundering regulations; and ways
that Libra could threaten financial stability and the steps that could
be taken preemptively to mitigate those risks.
Despite the uncertainties, Facebook's stated goals for the payments
systems are commendable.
According to the World Bank, 1.7 billion adults remain unbanked,
but two-thirds of them own a mobile phone or otherwise have access to
the internet.
If done right, Facebook's efforts to leverage existing and evolving
technology and make innovative improvements to traditional and
nontraditional payments systems could deliver material benefits, such
as expanding access to the financial system for the underbanked, and
providing cheaper and faster payments.
Still, Libra is based on a relatively new and continually evolving
technology in which it is not entirely clear how existing laws and
regulations apply.
I am particularly interested in its implications for the protection
and privacy of individuals' data.
Facebook has massive reach and influence within society with over 2
billion active monthly users and access to vast amounts of personal
information, including that which is received directly from users and
information that can be derived from their behavior, both on and off
Facebook.
Libra and Calibra will only expand this reach by increasing
commerce on the Facebook platforms.
This raises several questions.
The Banking Committee has held hearings on data privacy, including
as it pertains to the European Union's General Data Protection
Regulation, data brokers, and the Fair Credit Reporting Act.
Given the significant amount of user information already held by
the largest social media platforms and the prospect of gaining even
more financial information, Congress needs to act to give individuals
real control over their data.
Europe has already, by imposing obligations on companies and
establishing rights for individuals with respect to their data.
We need to establish similar obligations for data collectors,
brokers, and users, and implement an enforcement system to ensure the
collection process is not abused, and that data is appropriately
protected.
Individuals are the rightful owners of their data. They should be
granted a certain set of privacy rights, and the ability to protect
those rights through informed consent, including full disclosure of the
data that is being gathered and how it is being used.
Regulations should be clear and understandable for both collectors
and consumers, and should not punish those who opt out of collection
practices.
Individuals should also have the ability to review their data,
correct inaccuracies, and have ample opportunity to opt out of it being
shared or sold for marketing and other purposes.
Chairman Powell also said last week that ``The privacy rules that
we apply to banks, we have no authority to apply to Facebook or to
Libra.'' He added that we may even need to create a new regulator to
address such issues.
As we determine next steps, what is clear is the importance that
financial innovation happen here in America. In this way, the Libra
announcement has heightened the need for policymakers and regulators to
establish clear rules of the road.
During this hearing, I look forward to hearing more about
Facebook's project, steps it plans to take and has taken with
regulators to ensure compliance with all laws and regulations, and how
it intends to ensure individuals' privacy is maintained and information
is protected.
______
PREPARED STATEMENT OF SENATOR SHERROD BROWN
Facebook is dangerous.
Now, Facebook might not intend to be dangerous--but they certainly
don't respect the power of the technologies they are playing with. Like
a toddler who has gotten his hands on a book of matches, Facebook has
burned down the house over and over, and called every arson a learning
experience.
Facebook has two competing missions--make the world more open and
connected, and make a lot of money. And as Facebook attempts to serve
both of those missions, they wreak havoc on the rest of us.
Look at its version of disrupting the newspaper industry. Facebook
has made it easier to share what you're reading with friends. But at
the same time, Facebook has redirected most of the media industry's
profits away from actual journalists and into its own coffers--and they
have done it without the benefit of recreating the local news desk,
without conducting the hard-nosed journalism that keeps politicians
honest, and without meeting even the most basic journalistic standards.
This kind of ``creative disruption'' that doesn't actually create
anything is just disruption.
Or look at the impact Facebook's profit motive has had on the way
it connects people. Facebook and other tech companies will tell you
that the internet just holds up a mirror to society, and reflects what
is already there. But that's not true.
To be profitable, Facebook has juiced its algorithm to hold up a
magnifying glass to society rather than a mirror--kind of like the way
I learned in Boy Scouts to use a magnifying glass to burn a hole in a
piece of wood--concentrating our focus on the most divisive issues,
pushing the most controversial opinions to the top of our news feeds--
usually those are posts that play on people's fears and worst impulses,
but they may not be based on any sort of fact.
Facebook does all it can to manipulate its billions of users so it
can direct our eyes toward more ads and turn an even bigger profit.
This is no exaggeration: Facebook tested whether it could
manipulate our emotions. The corporation ran a psychological experiment
on more than half-a-million users to see if it could manipulate our
moods. Turns out it can.
And that emotional manipulation has led to horrifying results.
I don't have to tell you what amplifying our divisions has done to
discourse in this country--not just between political parties. I'd bet
half the people in this room have had to block an old high school
classmate or even a family member on Facebook.
Or look around the world. A U.N. report detailed how Facebook was
used to spread propaganda in Myanmar that led to genocide. In the first
month of violence, more than 600 members of the Rohingya people were
killed--and more than 700,000 refugees had to flee the country.
I don't think for a moment that Facebook created hate, but we know
that their competing missions of connecting people and turning a profit
created an algorithm and a business model that intesified it.
It's hard to remember a world without Facebook, and it's hard to
remember a time before we had to tell our kids ``be careful what you do
on the internet, because it never goes away.''
Today, we expect everyone to know that what happens online has
consequences offline. It's just common sense.
That's why it's so hard to for us to understand why Facebook--the
company that ushered in this revolution--doesn't seem to comprehend
that its actions have real world consequences. And they don't seem to
understand why their intention to run their own currency out of a Swiss
bank account, the topic of today's hearing, has been met with so much
opposition.
Facebook's CEO Mark Zuckerberg has said that Facebook might be more
like a Government than a company. But no one elected Mark Zuckerberg.
And what kind of dystopian Government wants to turn families and
friends against each other rather than bring people together? Well,
maybe I shouldn't answer that.
Facebook has demonstrated, through scandal after scandal, that it
does not deserve our trust, and that it should be treated like the
profit-seeking corporation it is, just like any other company.
He and his executives have proven over and over that they don't
understand governing or accountability.
They're not running a Government, they're running a for-profit
laboratory. No Facebook executives have been harmed by Facebook's
experiments. But look at what has happened everywhere that Facebook has
run its social experiment on us.
Their motto has been ``Move fast and break things''. And they
certainly have.
They moved fast and broke our political discourse, they broke
journalism, they helped incite a genocide, and they're undermining our
democracy. Now Facebook is asking people to trust them with their hard-
earned paychecks. It takes a breathtaking amount of arrogance to look
at that track record and think, you know what we really ought to do
next? Let's run our own bank and our own for-profit version of the
Federal Reserve for the world.
I understand that given the financial crisis and given the massive
inequality and unfairness to workers in our economy, it's tempting to
think anyone could do a better job than the Wall Street megabanks.
But the last thing we need is to concentrate even more power in
huge corporations. Look at Facebook's record. We would be crazy to give
them a chance to experiment with people's bank accounts, and to use
powerful tools they don't understand, like monetary policy, to
jeopardize hardworking Americans' ability to provide for their
families. This is a recipe for more corporate power over markets and
consumers, and fewer and fewer protections for ordinary people.
Thank you, Mr. Chairman, for holding this hearing.
______
PREPARED STATEMENT OF DAVID A. MARCUS
Head of Calibra, Facebook
July 16, 2019
Introduction
Chairman Crapo, Ranking Member Brown, and Members of the Committee,
thank you for the opportunity to appear before you today. My name is
David Marcus, and I am the Head of Calibra at Facebook. For most of my
life, I have been an entrepreneur building products aimed at improving
people's lives. Throughout my career, I have led businesses in
regulated industries such as telecommunications and financial services.
I became PayPal's President after it acquired my last startup, and I
moved to Facebook about 5 years ago to run Messenger and more recently
to lead our blockchain efforts.
I appreciate the opportunity to speak with you today about the
vision for Libra. Libra is about developing a safe, secure, and low-
cost way for people to move money efficiently around the world. We
believe that Libra can make real progress toward building a more
inclusive financial infrastructure. The journey to get there will be a
long one, and we recognize that ours has just begun.
Chairman Powell has made clear that the process for reviewing Libra
needs to be patient and thorough, rather than a sprint to
implementation. We strongly agree. That was the spirit with which we
published the white paper introducing the Libra project. The time
between now and launch is designed to be an open process and subject to
regulatory oversight and review. In fact, I expect that this will be
the broadest, most extensive, and most careful prelaunch oversight by
regulators and central banks in FinTech's history. We know we need to
take the time to get this right. And I want to be clear: Facebook will
not offer the Libra digital currency until we have fully addressed
regulatory concerns and received appropriate approvals.
Before I go any further, I want to take a moment to acknowledge the
27 other companies that have joined us on this journey--including
companies in the payments, technology, telecommunications, blockchain,
and venture capital industries, as well as nonprofits. We are pleased
to have each of these organizations as partners, and we look forward to
working with them and others to make Libra a reality.
We approach all of these efforts with humility and a commitment to
engage with experts in law, finance, economics, security, compliance,
and blockchain technology, as well as with the regulators and
policymakers who oversee the stability and security of our financial
systems. But we also know how important it is that we begin this
journey now. Since publishing our white paper on Libra, I have heard
from people all around the world, excited by the possibilities that
Libra offers. The status quo is not working for many; it is too
expensive for people around the world to use and transfer their money.
We believe Libra can offer a more efficient, low-cost, and secure
alternative.
I am excited about the potential that Libra holds, and I am proud
that Facebook has initiated this effort here in the United States. I
believe that if America does not lead innovation in the digital
currency and payments area, others will. If we fail to act, we could
soon see a digital currency controlled by others whose values are
dramatically different. I believe that Libra can drive positive change
for the many people who would benefit from it. I also believe that it
can provide an opportunity for leadership consistent with our shared
values.
The Structure and Management of Libra
I first want to discuss the vision for Libra, the Libra Reserve,
and the Libra Association, and why executing that vision, in
collaboration with Governments, multilateral organizations, and
industry, can, in time, help deliver a giant leap forward toward a
lower-cost, more accessible, and more connected global financial
system.
Libra is designed to be a digitally native currency that can be
used around the world. Libra brings together attributes of the world's
best currencies: stability, low inflation, wide usability, and
fungibility. Technology innovations have given people tools to connect
and communicate. But while people can send each other texts, videos,
and photos, in many cases they cannot easily move value between one
another. Economic empowerment is one of Facebook's core values, and the
90 million businesses communicating with their customers on the
Facebook platform can attest to that. We have done a lot to democratize
free, unlimited communications for billions of people. We want to help
do the same for digital currency and financial services, but with one
key difference: We will relinquish control over the network and
currency we have helped create.
Libra is a payment tool, not an investment. People will not buy it
to hold like they would a stock or a bond, expecting it to pay income
or increase in value. Instead, Libra is like cash. People will use it
to send money to family members in other countries, for example, or to
make purchases.
The Libra Reserve: Libra's Financial Infrastructure
Unlike existing stable coins--digital currencies designed to
minimize volatility by being ``pegged'' to a single asset--Libra will
not have a fixed value in any single real-world currency. Instead,
Libra will be fully backed on a one-to-one basis through the Libra
Reserve, which will hold a basket of currencies in safe assets such as
cash bank deposits and highly liquid, short-term Government securities.
These currencies will include the U.S. dollar, the British pound, the
euro, and the Japanese yen. This approach will minimize exposure to
fluctuations from a single region, providing further stability for
people around the world who could rely on Libra for their daily
financial needs.
The assets in the Libra Reserve will be held by a geographically
distributed network of regulated custodians with investment-grade
credit ratings to provide high auditability, as well as transparency,
security, and a decentralization of the assets. These custodians are
well-versed in safekeeping billions and even trillions of dollars worth
of assets. Because Libra will be backed by the Reserve, anyone using
Libra should have a high degree of confidence that they will be able to
sell it for local fiat currency based on an exchange rate, just like
exchanging one currency for another when traveling.
Monetary Policy
The currencies represented in the Libra Reserve will be subject to
their respective Government's monetary policies--policies those
Governments will continue to control. The Libra Association, which will
manage the Reserve, has no intention of competing with any sovereign
currencies or entering the monetary policy arena. It will work with the
Federal Reserve and other central banks to make sure Libra does not
compete with sovereign currencies or interfere with monetary policy.
Monetary policy is properly the province of central banks.
The Partners and Governance of the Libra Association
Overseeing the Libra Blockchain and the Libra Reserve will be a
significant undertaking and responsibility; no single organization can,
or should, be solely responsible for it. We believe a cooperative
approach is both warranted and necessary, and we are therefore working
to develop the Libra Association: an independent membership-based
organization.
The initial group of organizations that will work together on
finalizing the association's charter and become ``Founding Members''
upon its completion are, by industry:
Payments: Mastercard, Mercado Pago, PayPal, PayU (Naspers'
FinTech arm), Stripe, Visa
Technology and marketplaces: Booking Holdings, eBay,
Facebook/Calibra, Farfetch, Lyft, Spotify, Uber
Telecommunications: Iliad, Vodafone
Blockchain services: Anchorage, Bison Trails, Coinbase,
Xapo
Venture Capital: Andreessen Horowitz, Breakthrough
Initiatives, Ribbit Capital, Thrive Capital, Union Square
Ventures
Nonprofit and multilateral organizations, and academic
institutions: Creative Destruction Lab, Kiva, Mercy Corps,
Women's World Banking
Each of the Libra Association members--a diverse and global group
of companies, not-for-profits, NGOs, multilateral organizations, and
academic institutions--will be represented on the Libra Association
Council. Through the Council, the Association will be responsible for
the governance of the Libra Blockchain. It will oversee the evolution
of the blockchain's protocol and network and will continue to evaluate
new techniques that enhance privacy in the blockchain while taking into
account concerns of practicality, scalability, and regulatory impact.
It will also serve as the governing body through which the Libra
Reserve is managed. All decisions will be made democratically and
transparently. To ensure the Association includes a diverse membership,
the Association will work to remove as many financial barriers as
possible so that a significant number of nonprofit and multilateral
organizations, social impact partners, and universities can join.
Facebook teams have led the creation of the Libra Association and
the Libra Blockchain and will maintain a leadership role through 2019.
Once the Libra network launches, however, Facebook and its affiliates
will have the same privileges, commitments, and financial obligations
as any other founding member of the Association. We hope to have
approximately 100 such members before the Libra Blockchain launches. As
one member among many, Facebook's role in governance of the Association
will be equal to that of its peers. Facebook will have only one vote
and will not be in a position to control the wholly independent
organization.
Implications for Commerce and Libra Users and Consumers
Regulatory Oversight and Financial Stability
The Libra Association is committed to working with policymakers and
regulators to achieve a safe, transparent, and consumer-friendly
implementation of Libra. The Association recognizes that blockchain is
an emerging technology, and that policymakers must determine how this
technology will fit into the regulatory landscape.
Regulatory frameworks for digital assets are beginning to emerge
nationally and internationally. The Libra Association will continue to
work with regulators and policymakers to ensure that it complies with
all applicable legal and regulatory requirements.
Over the past year, Federal regulators have repeatedly emphasized
their commitment to fostering innovation. This is true as a general
matter, as one can see with the Treasury Department's report on FinTech
and Innovation. But it is also true in the use of novel technologies to
support compliance with anti- money-laundering (AML), combating the
financing of terrorism (CFT), and sanctions regulations. The U.S.
Treasury Department's Financial Crimes Enforcement Network (FinCEN),
the Federal Reserve, the Federal Deposit Insurance Corporation, and the
National Credit Union Association have come together to emphasize the
important role that new technologies can play in helping companies
large and small meet their AML/CFT and sanctions compliance
obligations. The Libra Association is committed to taking up this
charge, and devoting its considerable technical expertise to this task.
To be clear, the Libra Association expects that it will be
licensed, regulated, and subject to supervisory oversight. Because the
Association is headquartered in Geneva, it will be supervised by the
Swiss Financial Markets Supervisory Authority (FINMA). We have had
preliminary discussions with FINMA and expect to engage with them on an
appropriate regulatory framework for the Libra Association. The
Association also intends to register with FinCEN as a money services
business.
Anti- Money Laundering, the Bank Secrecy Act, and Other Law Enforcement
and National Security Concerns
The Libra Association is similarly committed to supporting efforts
by regulators, central banks, and lawmakers to ensure that Libra
contributes to the fight against money laundering, terrorism financing,
and more. A network that helps move more paper cash transactions--where
many illicit activities happen--to a digital network that features
regulated on- and off-ramps with proper know-your-customer (KYC)
practices, combined with the ability for law enforcement and regulators
to conduct their own analysis of on-chain activity, will present an
opportunity to increase the efficacy of financial crimes monitoring and
enforcement. The Libra Association will continue to engage proactively
and openly with all relevant stakeholders on these key issues. Libra
should improve detection and enforcement, not set them back.
The Libra Association will also maintain policies and procedures
with respect to AML and the Bank Secrecy Act, combating the financing
of terrorism, and other national security-related laws, with which its
members will be required to comply if they choose to provide financial
services on the Libra network.
Protecting the Privacy and Security of Personal Information
Protecting consumers and ensuring people's privacy is one of the
Libra Association's top priorities. The Association is committed to
working with regulators as they explore the application of relevant
laws to distributed ledger technology.
Privacy on the Libra Blockchain will be similar to existing
blockchains; transactions include only the sender and receiver's public
addresses, the transaction amount, and the timestamp. No other
information will be visible. The Association will not separately hold
any personal data on people who use the blockchain, no matter how it
otherwise could be collected, and will not run any infrastructure. As a
result, the Association cannot, and will not, monetize data on the
blockchain. For the purposes of data and privacy protections, the Swiss
Federal Data Protection and Information Commissioner (FDPIC) will be
the Libra Association's privacy regulator.
The Structure and Management of Calibra
Because the Libra Blockchain will exist as an open-source
ecosystem, businesses and developers around the world are free to build
competitive services on top of it. And Facebook intends to be one of
the many businesses that will do so. To that end, we recently announced
the formation of Calibra, a Facebook subsidiary whose goal is to
provide financial services using the Libra Blockchain. The first
product Calibra intends to introduce is a digital wallet for Libra that
will be available in Messenger, WhatsApp, and as a standalone app. The
Calibra wallet will let users send Libra to almost anyone with a
smartphone, similar to how they might send a text message, and at low-
to-no cost. We expect that the Calibra wallet will ultimately be one of
many services, and one of many digital wallets, available to consumers
on the Libra network.
We do not expect Calibra to make money at the outset, and Calibra
customers' account and financial information will not be shared with
Facebook, Inc., and as a result cannot be used for ad targeting. Our
first goal is to create utility and adoption, enabling people around
the world--especially the unbanked and underbanked--to take part in the
financial ecosystem.
But we expect that the Calibra wallet will be immediately
beneficial to Facebook more broadly because it will allow many of the
90 million small- and medium-sized businesses that use the Facebook
platform to transact more directly with Facebook's many users, which we
hope will result in consumers and businesses using Facebook more. That
increased usage is likely to yield greater advertising revenue for
Facebook.
Implications for Consumers and Users of the Calibra Wallet
Regulatory Oversight and Financial Stability
Companies offering services on the Libra Blockchain will need to be
fully compliant with the laws and regulations in the jurisdictions in
which they operate, and that includes the Calibra wallet. One of the
reasons that Calibra was established as a Facebook subsidiary was
because it will be providing financial services, and it will be
regulated accordingly. The Calibra wallet will comply with FinCEN's
rules for its AML/CFT program and the rules set by the Office of
Foreign Assets Control (OFAC) with respect to financial sanctions.
State financial regulators will regulate Calibra as a money
transmitter, and the Federal Trade Commission and the Consumer
Financial Protection Bureau will monitor for consumer protection and
data privacy and security issues. Calibra has filed for State money
transmitter licenses in the U.S. and it is also registered with FinCEN
as a money services business.
Anti- Money Laundering, the Bank Secrecy Act, and Other Law Enforcement
and National Security Concerns
Similarly, Calibra will comply with the Bank Secrecy Act and will
incorporate KYC and AML/CFT methodologies used around the world,
including those focused on customer identification and verification,
and risk-based customer due diligence, while developing and applying
technologies such as advanced machine learning to enhance transaction
monitoring, and suspicious activity reporting. Calibra's efforts will
be commensurate with its risk profile based on several factors, such as
Calibra's product features, customer profiles, geographies, and
transaction volumes.
Protecting the Privacy and Security of Personal Information
Calibra is also being designed with a strong commitment to
protecting customer privacy. Calibra believes that customers hold
rights to their data and should have simple, understandable, and
accessible data-management controls. Calibra will not share individual
customer data with the Libra Association, no matter how it might be
collected, nor will Calibra receive other personally identifiable user
data from the Libra Association. And, except in limited circumstances,
such as preventing fraud or criminal activity and complying with the
law, Calibra will not share customers' account information or financial
data with Facebook unless people agree to permit such sharing. Calibra
customer account information and financial data will not be used to
improve ad targeting on the Facebook, Inc., family of products.
Conclusion
The goal for Libra is straightforward: A digital currency built on
a secure and stable open-source blockchain, backed by a reserve of real
assets, and governed by an independent association. We want to create
more access to better, cheaper, and open financial services--no matter
who you are, where you live, what you do, or how much you have. We
recognize that the road to reaching that goal will belong, and it will
not be achieved in isolation. That is why we have begun publicizing the
vision for Libra and why we have been discussing, and will continue to
discuss, how best to achieve that goal with businesses, nonprofit and
multilateral organizations, and academic institutions from around the
world, as well as with policymakers, central banks, and regulators. We
recognize the authority of financial regulators and support their
oversight of this project.
Thank you for having me here today. I look forward to answering
your questions.
RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN CRAPO
FROM DAVID A. MARCUS
Q.1. Question on Regulatory Oversight: Your testimony states
that Calibra has registered with the U.S. Treasury Department's
Financial Crimes Enforcement Network (FinCEN) and the Libra
Association intends to as well. Please confirm which entities
will register with FinCEN.
A.1. Calibra, a Facebook subsidiary, has registered with FinCEN
as a money services business. We understand that the Libra
Association also intends to register with FinCEN as a money
services business.
Q.2. Questions on Libra Governance: Will Facebook and/or the
Libra Association directly require companies that offer
services on the Libra Blockchain to comply with the Bank
Secrecy Act and incorporate know-your-customer and anti- money-
laundering and counterterrorism financing methodologies? Please
answer for both U.S. and non-U.S. companies, as well as for
custodial wallets and noncustodial wallets.
A.2. We understand that the Libra Association intends to
register with FinCEN as a money services business and, as such,
will be subject to the Bank Secrecy Act's anti- money-
laundering (AML) requirements. In addition, we understand the
Libra Association intends to require that each member of the
Association comply with AML guidelines that the Libra
Association expects to establish, along with all applicable
legal and regulatory obligations, including those relating to
AML, to which the member is subject based upon the member's
activities and the jurisdictions in which it operates. Entities
that are not Libra Association members that provide services
for Libra users, such as digital wallet services, may be
subject to AML and other laws depending upon the jurisdictions
in which they are located and operate.
In recognition of the importance of this issue, we
understand the Libra Association intends to work with
regulators to address, before launch, any regulatory concerns
related to the Association's AML requirements.
Q.3. Kevin Weil, Calibra's Vice President of Product, recently
said that `` . . . there are no plans for the Libra Association
to take a role in actively vetting developers.'' During the
hearing, you told Senator Sinema that the Libra Association
will ``not get in the way of developers developing things'' but
that it will ``need to find the right approach to ensure that
publishing services on the Libra network has controls.''
What will these controls entail?
Will the Libra Association commit to ensuring robust audits
of developers on the Libra Blockchain to ensure they are
complying with all applicable laws and regulations?
A.3. The Libra Blockchain will be an open platform, which means
that developers and businesses can build financial services
products on top of it, creating a more thriving global
ecosystem. This will allow businesses large and small to add
value through their services, which can be accessed by anyone
in the world. The idea is to create a level playing field so
that people and small- and micro-businesses around the world
have equal access to a lower cost, global payment tool and
financial infrastructure. Because the Libra Blockchain will be
an open ecosystem, businesses will be able to create
competitive services that result in market pressures keeping
fees low. That open ecosystem will also allow curation,
recommendation, and verification services to emerge that will
help consumers sort through available options.
When Libra is first launched, we expect that developers
will be able to use a limited number of applications focused on
facilitating payments through the Libra Network. These could be
merchant apps (e.g., the ability to receive payments as a
business using Libra) or wallets (the ability to store, spend,
and send money on the Libra Blockchain). As the network evolves
and becomes mature, the Libra Blockchain will be able to
support additional use cases and applications.
We understand the Libra Association is evaluating whether
it would qualify as an ``administrator'' of a virtual currency
as described in FinCEN guidance, but in any case, it intends to
register with FinCEN as a money services business and will be
subject to regulation as such. In addition, we understand that
the Libra Association intends to require that each member of
the Association comply with policies that the Libra Association
expects to establish, along with all applicable legal and
regulatory obligations to which the member is subject based
upon the member's activities and the jurisdictions in which it
operates. Entities, including developers that are not Libra
Association members, but provide services for Libra users, may
be subject to laws and requirements depending upon the
jurisdictions in which they are located and operate.
Each wallet on the Blockchain will determine its own
policies in compliance with its local jurisdiction. Calibra
will protect consumers by, among other things, investing in
financial literacy and focusing on providing education. The
Calibra wallet will be designed with education in the product
experience itself--so along the way, consumers will understand
what they are doing and what Libra can do for them. Our
understanding is that the Libra Association will also fund
social impact programs with partners that are focused on
financial literacy around the world.
As far as the Calibra wallet is concerned, it will also
provide strong consumer protections, including fraud
protection, customer support, and password recovery. When using
the Calibra wallet, automated tools will proactively monitor
activity to detect fraudulent behavior. If fraudulent activity
is suspected, Calibra will either deny the activity in real-
time or ask for additional information before the activity can
be completed. The Calibra wallet will have additional layers of
authentication so people can trust their money will stay safe
even if they lose their phone or password. And in the rare
event of unauthorized access to a Calibra wallet, the user will
be given a refund. Calibra will also offer dedicated customer
support, ensuring that people will receive timely assistance,
whether it be answering questions related to their account, or
responding to reports of illicit activity. Like other custodial
wallets, Calibra will manage the public and private keys of its
customers. This means that people will have recourse if they
lose their password and will not have to worry about
permanently losing access to their funds if they lose their
phone.
Q.4. Will the Libra Association make public the levels of
investments of each Founding Member?
A.4. The Libra Association is still in the process of formation
and we understand that it has not yet determined whether the
investments made by Initial Members will be made public.
Regardless of a Member's investment level, we understand that
the voting powers of Initial Members will be capped to avoid
concentration of power. Additionally, the Association expects
to work with members that are nonprofits, multilaterals, social
impact partners, and universities to allocate a meaningful
percentage of capital raised toward social impact grant-making
in support of financial inclusion that would provide a
mechanism for funding the hard costs related to running a node
for such members to ensure that such organizations are also
represented in the Association.
Q.5. Once Libra has launched, will the Libra Association repay
Facebook, Inc., for its investments in the development of the
network?
A.5. To the extent that Facebook has made loans or provided
other funding to the Libra Association in the course of its
early stage efforts to develop Libra, these funds may be repaid
to Facebook. Once the Association completes its fundraising, we
expect that it will achieve financial independence.
Facebook has also devoted significant resources to Libra
over the past year. It does not expect to be repaid by the
Libra Association for all of those resources.
Q.6. Questions on Data Privacy: What data privacy and consumer
protections will apply to users of Libra within the U.S.?
A.6. Protecting and ensuring the privacy of those using the
Libra Network is a top priority, and we understand the Libra
Association is committed to working with regulators as they
explore the application of privacy and data protection laws.
Facebook anticipates that Calibra will be subject to U.S.
privacy laws, as well as global laws like GDPR.
Facebook and the Libra Association recognize that
regulators will be keen to engage with those building services
to be offered in their jurisdictions. And the Libra Association
is committed to working with authorities to shape a regulatory
environment that encourages technological innovation while
maintaining high standards of consumer protection.
People who use Calibra will benefit from strong consumer
protections, including automated fraud detection, convenient
in-app reporting of issues, and dedicated customer service. In
addition, Calibra is being designed with a strong commitment to
protecting customer privacy. We believe that customers hold
rights to their data and should have simple, understandable,
and accessible data-management controls. To that end, Calibra
will provide its customers with disclosure that describes how
customers may purchase and sell Libra coins, including through
Calibra, and market and other risks associated with holding and
using Calibra coins.
Q.7. What data privacy and consumer protections will apply to
users of Libra outside the U.S.?
A.7. Please see the response to Question 6.
Q.8. You recently told the Banking Committee that Facebook,
Inc., collects data from transactions that occur on-platform
and use it for advertising and personalization.
Please list and describe all personal data Facebook, Inc.,
currently collects from on-platform transactions.
A.8. When an individual uses a Facebook product for purchases
or other financial transactions (such as making a purchase in a
game or making a donation), we collect information about the
purchase or transaction. This includes information about the
merchant; payment information, such as the user's credit or
debit card number and other card information; other account and
authentication information; and billing, shipping, and contact
details.
Q.9. What type of personal data will Facebook, Inc., collect
for on-platform transactions that use the Calibra wallet? For
example, if a transaction occurs on Facebook using the Calibra
wallet, what personal data will Facebook (the platform)
collect?
A.9. Facebook created Calibra as a regulated subsidiary in part
to ensure separation between social and financial data and to
build and operate services on its behalf on top of the Libra
Network. And except in limited circumstances that are described
below, Calibra will not share customers' account information or
financial data with Facebook.
Those limited circumstances where data might be shared
between Calibra and Facebook include when data sharing is used
to prevent fraud or criminal activity, as well as when users
choose to share their data. As a Facebook subsidiary, Calibra
may be legally obligated to share certain data with Facebook so
the company can meet its regulatory requirements. This could
consist of aggregated payment numbers for financial and tax
reporting, or information necessary to comply with the law.
The limited user information that Calibra does collect and
store will be subject to strong security and access controls.
User payment credentials, such as a debit card number, will not
be accessible by Facebook or its affiliates. User transaction
activity will be private and will never be posted to Facebook,
unless users themselves choose to share it.
Similar to other commerce platforms, there may be times
when Facebook, acting in its capacity as a merchant or
platform, will independently have access to information about
completed transactions that take place on Facebook's commerce
platform (e.g., purchase made, merchant, transaction amount,
date, time). This may include transactions completed via
Calibra with Libra as the exchanged currency, though this would
not involve a special transfer of information from Calibra to
Facebook. In those situations, Facebook's independent access to
transaction information will be the same as for other
transactions on the Facebook platform completed using other
payment methods like credit cards.
Q.10. Outside the information necessary to complete a
transaction, what type of personal data will Calibra collect on
its users whether or not the transaction occurs on Facebook,
Inc.?
A.10. To sign up for a Calibra wallet account, users will need
to provide their phone number, first name, last name, date of
birth, address, and a form of Government-issued identification
(e.g., a license, passport, or ID card) during registration.
This information is necessary to ensure that Calibra complies
with KYC, AML, and other regulatory requirements applicable to
it under U.S. and other law. We will have strong controls in
place to ensure that data is only accessed by authorized
individuals to fulfill necessary responsibilities, including
those related to AML, CFT, and sanctions requirements, and to
protect users against fraud. The limited user information that
Calibra does collect and store will be subject to strong
security and access controls.
Q.11. Questions on Libra-Enabled Commerce: Will Facebook, Inc.,
require its advertising clients and/or company partners to use,
accept, and/or promote Libra? Please answer separately for
Facebook, Inc.'s family of services and Calibra.
A.11. No. While Facebook does plan to accept Libra for ads, we
will continue to enable businesses to pay for ads using the
payment methods we currently accept.
Q.12. How will Facebook, Inc., incentivize each of the
following to use, accept and/or promote Libra? Please answer
separately for Facebook, Inc.'s family of services and Calibra.
1. Advertising clients
2 Company partners
3. Individuals/potential users
A.12. While Facebook expects to accept Libra as payment for its
advertising services, it has not yet determined if or how it
will incentivize its advertising customers to use Libra.
We understand that the Libra Association will offer
incentives, with the goals of accelerating the utility and
adoption of Libra by encouraging businesses and people to
participate in the ecosystem and ensuring the growth and health
of the ecosystem.
First, many members of the Libra Association will be
incentivized to join as members (and, as applicable, operate
nodes on the Libra Blockchain) by the potential to profit from
their financial investment in the Libra Association if the
Libra digital currency gains widespread adoption. Other members
of the Libra Association, such as NGOs, will be incentivized to
join the Libra Association as a way to further their mission of
providing financial or other services to those most in need of
such services. Some members may be incentivized by a
combination of these motivations.
Second, Designated Dealers will be incentivized to make
markets in Libra coins by the potential to earn arbitrage
profits. Exchanges will be incentivized to list Libra coins for
trading by the potential to receive fees with respect to
transactions in those coins, in the same way that exchange
operators today receive fees for transactions in other
tradeable assets.
Third, businesses offering services in the Libra ecosystem,
such as Facebook's subsidiary Calibra, will be incentivized to
do so by the potential to earn a profit on the provision of
those services, consistent with their business models. Others
who choose to provide services in the Libra ecosystem, such as
NGOs and academic institutions, may be motivated by the
potential to leverage the Libra Network to provide accessible
and inclusive financial services to additional groups of
individuals.
Fourth, assuming that service providers on the Libra
Network offer services that are attractive to and useful for
consumers, retail users of Libra coins will be incentivized to
use Libra coins to make payments and send money to others. The
current payments system is too expensive and too slow. The
potential of a cheaper and faster payments solution is expected
to be attractive to many.
These incentives are distinct from how Facebook, Inc.'s
family of services will treat Libra payments made by
advertising customers.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN
FROM DAVID A. MARCUS
Q.1. Please provide to the Committee any chartering,
organizing, or incorporating documents related to the Libra
Association and a list of persons or organizations that have
agreed to such documents.
A.1. The initial group of 28 organizations (Initial Members)
are still working together on finalizing the Association's
charter. Before Libra is launched, we expect that the Libra
Association will grow to around 100 geographically distributed
and diverse members, serving as initial validator nodes on the
Libra Blockchain. In the meantime, the Libra website outlines
in detail the proposed specifics regarding the Libra
Association's responsibilities, roles, and governance
mechanisms. This outline will serve as a basis for discussion
among the Association's members as they develop the charter and
bylaws. For more information, please see https://libra.org/en-
US/association-council-principles/#overview.
The Libra website also contains information regarding the
membership criteria necessary for a business, social impact
partner, or academic institution to become a member. For more
information, please see https://libra.org/en-US/becoming-
founding-member/#joining-libra-association.
Q.2. Please provide to the Committee any documents detailing
the agreements related to Libra investment tokens.
A.2. We understand the Libra Association may raise money by
offering Libra Investment Tokens to various sources, including:
(1) Initial Members and (2) members who join the Libra
Association after the initial launch. Our understanding is that
purchase of Libra Investment Tokens may be a condition to
membership in the Libra Association, other than for nonprofits,
NGOs, and academic institutions. These latter institutions may
not be required to purchase or hold Libra Investment Tokens.
We understand the terms and agreements related to Libra
Investment Tokens have yet to be finalized. Our current
expectation is that the Libra Investment Token will entitle
holders to a formula return (as-yet undefined) based on the
interest income produced on assets held in the Libra Reserve.
We understand that funds paid for Libra Investment Tokens will
be used to develop the Libra ecosystem, including developments
related to the Libra coin. Holders of Libra Investment Tokens
will not benefit from any financial guarantee that their
investment will be successful and will be subject to risk of
loss of their investment if the Libra coin and the Libra
Association are not commercially successful. Indeed, the Libra
Investment Token is a speculative instrument being offered only
to sophisticated investors who understand the risks of the
investment. No financial guarantee or right of redemption will
be provided to investors in the Libra Investment Token.
Q.3. You testified to the Committee that Libra is a ``payment
tool,'' and in your July 8, 2019, response to our letter, you
stated:
The reality is that financial transactions today take
too long and cost too much. The fees associated with
moving money are high, and those that can afford it
least are being charged the most.
If Facebook's new payment tool is designed to upset the
status quo of the payments market, why did Facebook seek the
participation of two of the largest payment incumbents, Visa
and Mastercard, in setting up a competing payments platform?
A.3. The goal of Libra is to provide a faster, lower-cost
payment solution that is available to everyone, especially
those who have historically been underserved by existing
payments and other financial services solutions. Because Libra
wallets, including Calibra, will benefit from many of the
positive characteristics of blockchain technology, like low
transaction fees and instant payments, we hope that they will
enable more people and businesses to take part in the global
economy.
Building a global digital payment tool is a tremendous
undertaking that no single company could--or should--do alone.
The Libra Association is designed to not be controlled by any
single stakeholder; instead, it will involve a group of
trusted, geographically diverse companies, including Mastercard
and Visa, NGOs, academic institutions, and organizations. This
structure is meant to ensure that the network is not driven by
the interests of a single company--or subject to a single point
of failure. We believe that the participation of Visa and
Mastercard in the Libra Association will help to accelerate the
acceptance of Libra within current merchant networks--an
important part of creating more general acceptance for Libra
globally. And while we hope that companies like Visa and
Mastercard will build and offer services on the Libra Network,
the open nature of the ecosystem means that any other company
that wishes to offer a competitive service can do so as well.
Q.4. Setting aside the possibility that Facebook may have a
Libra wallet that competes with Visa or Mastercard's Libra
wallets, will the Libra ecosystem be designed to compete
directly with Visa and Mastercard payments?
A.4. The Libra Blockchain will be an open ecosystem, which will
allow businesses to create competitive services on the Libra
Network. Any company will be free to build a wallet on the
network. These wallets will provide choice and competition that
will benefit consumers. The Calibra wallet will also be
interoperable with other apps and financial service providers
that offer complementary services, such that, even if one end
of a transaction uses the Calibra wallet, the other end does
not need to do the same.
We will continue to partner with financial services
companies like Visa and Mastercard across our family of apps--
and this includes Calibra. Other service providers are also
free to build their own Libra wallets. Additionally, our
current plan is to continue to offer person-to-person payments
in Messenger for people in the U.S. WhatsApp is committed to
working with partners to offer WhatsApp payments in a number of
countries as well. This provides people with a vast array of
options to use the payments services they prefer.
Q.5. Please provide to the Committee any agreements, contracts,
affiliations or joint ventures Facebook has with Visa or
Mastercard separate from their participation in the Libra
initiative.
A.5. Facebook's policy is not to make public contracts or other
agreements between private parties. Such agreements typically
include sensitive business information that must be treated
confidentially in order to prevent competitive harm and ensure
the integrity of contractual relationships.
Q.6. Please also explain in detail whether Facebook will enter
into any agreements with Visa or Mastercard related to the
Calibra wallet or other Calibra financial services, including
any exclusivity agreements related to credit card processing.
A.6. Please see the response to Question 5.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR MORAN
FROM DAVID A. MARCUS
Q.1. What revenue streams will Facebook, through its subsidiary
Calibra or otherwise, envision earning from Libra?
A.1. The goal for Calibra is to charge very little or nothing
for person-to-person transactions, and, accordingly, we do not
expect Calibra to generate significant revenues at the outset.
Our first goal is to create utility and adoption, enabling
people around the world--especially the unbanked and
underbanked--to take part in the financial ecosystem.
We do expect that the Calibra wallet will be immediately
beneficial to Facebook because it will allow many of the 90
million small- and medium-sized businesses that use the
Facebook platform to transact more directly with Facebook's
many users, which we hope will result in consumers and
businesses using Facebook more. That increased usage is likely
to yield greater advertising revenue for Facebook.
Additionally, if we earn people's trust with the Calibra wallet
over time, we will also be in a position to start offering more
financial services, generating other revenue streams for the
company.
Moreover, Facebook introduced Libra because it aligns with
our mission. Bringing the world closer together involves giving
people tools to connect and communicate, including by easily
moving value between one another. Economic empowerment is one
of our core values, and the 90 million businesses on the
Facebook platform can attest to that. We have done a lot to
democratize free, unlimited communications for billions of
people. We want to help do the same thing for digital money and
financial services, with one key difference: we will relinquish
control over the very network and currency we have helped
create.
It bears repeating that Facebook will not control the Libra
Network, the currency, or the Reserve backing it, nor will it
have any special responsibility over the network. Facebook
expects to be only one among over a hundred members of the
Libra Association by launch. We will not have any special
rights or privileges. Even more importantly, users will not
have to use the Calibra wallet to get the benefit of Libra;
people will have many ways in which to use Libra and access the
network.
Those limited circumstances where data might be shared
between Calibra and Facebook include when data sharing is used
to prevent fraud or criminal activity, as well as when users
opt-in to share their data. As a Facebook subsidiary, Calibra
may be legally obligated to share certain data with Facebook so
the company can meet its regulatory requirements. This could
consist of aggregated payment numbers for financial and tax
reporting or information necessary to comply with the law. The
limited user information that Calibra does collect and store
will be subject to strong security and access controls. User
payment credentials, such as a debit card number, will not be
accessible by Facebook or its affiliates. User transaction
activity is private and will never be posted to Facebook,
unless users themselves choose to share it.
Similar to other commerce platforms, there may be times
when Facebook, acting in its capacity as a merchant or
platform, will independently have access to information about
completed transactions that take place on Facebook's commerce
platform (e.g., purchase made, merchant, transaction amount,
date, time). This may include transactions completed via
Calibra with Libra as the exchanged currency, though this would
not involve a special transfer of information from Calibra to
Facebook. In those situations, Facebook's independent access to
transaction information will be the same as for other
transactions on the Facebook platform completed using other
payment methods like credit cards.
Q.2. Will Facebook collect or receive preferential access to
user's financial data by owning Calibra or by being a (the
leading) member of the Libra Association?
A.2. No. Data on the Libra Blockchain, which includes
transaction information listed only by public blockchain
addresses, will be pseudonymous and will be equally visible to
everyone.
Facebook created Calibra as a regulated subsidiary in part
to ensure separation between social and financial data and to
build and operate services on its behalf on top of the Libra
Network. And except in limited circumstances that are described
below, Calibra will not share customers' account information or
financial data with Facebook.
For more information on the limited circumstances where
data might be shared between Calibra and Facebook, please see
the response to Question 1.
Q.3. Will the Libra Association's governance meetings be open
to the public? Will they take written questions or comments
from Libra users?
A.3. We understand the Libra Association is committed to
providing Libra users with the opportunity to ask questions
about and comment upon the Libra coin and the operations of the
Libra Association. We understand that the exact nature of these
processes will be agreed upon by the members of the Libra
Association.
Q.4. Will the Libra Association invite Government bodies (e.g.,
central banks of underdeveloped Nations where Libra may
displace national currencies) to join as members?
A.4. At this time, we understand that the Libra Association
intends to limit membership to certain types of organizations
and will work with its Initial Members to create a set of
sector-specific evaluation criteria for organizations that wish
to join. We do not expect central banks or other Government
bodies to become members of the Libra Association, but we
expect that membership criteria for the Libra Association will
continue to evolve, as determined by the Libra Association and
its members. More generally, oversight and feedback from
Government bodies, including those from countries with less
developed banking and monetary systems, as well as the G7
Working Group on stable coins, will be crucial to a successful
launch of Libra. The Libra Association does not intend to offer
the Libra digital currency in any jurisdiction until it has
addressed applicable regulatory concerns, including concerns
about Libra's interaction with national currencies, and
received appropriate approvals. And even if Government bodies
from underdeveloped Nations do not themselves become members of
the Libra Association, nongovernmental organizations active in
and attentive to the interests of those in underdeveloped
Nations are expected to join.
Q.5. Will the Libra Association permit individuals or entities
to ``pool'' memberships? If a consortium of NGOs, for example,
raised funds to purchase a membership, could they join the
Libra Association as a full voting member? How does the Libra
Association intend to receive and incorporate input from
communities it will influence and affect?
A.5. As discussed in the response to Question 4, we understand
the Libra Association will work with its Initial Members to
create a set of sector-specific criteria for organizations that
wish to join. A consortium of NGOs meeting those criteria
applicable to NGOs may be eligible to apply. Additionally, we
understand the Association intends to identify social impact
partners aligned with its mission of financial inclusion and
will work with them to establish a Social Impact Advisory Board
and a social impact program. The Libra Association expects that
input from member NGOs will be a valuable source of information
from the communities it will influence and affect. Individuals
are not expected to be admitted as members of the Libra
Association.
Q.6. Will the Libra Association incorporate the views of Libra
users in governance? Put another way, will the product users
(the unbanked who stand to be affected by Libra's focus on
social impact) have a voice in how Libra operates?
A.6. Please see the responses to Questions 3, 4, and 5.
Q.7. Why exclude Libra users from any financial benefit of the
system? Since they will be paying fees to exchange local fiat
into Libra and those fees are being used to purchase ``stable''
assets like T-bills and other Government securities, how can
the unbanked share in the financial upside that is now only
available to Libra Investment Token Holders? Perhaps through
some direct subsidy?
A.7. The Libra ecosystem is expected to enable users of Libra
to send and receive money in a way that is easier, less costly,
faster, and safer than the status quo. Investments made by
members of the Libra Association will fund the development of
this ecosystem, and though a portion of the return on the Libra
Reserve will accrue to the benefit of those member-investors,
the overall benefits of the Libra ecosystem in terms of easier,
less costly, faster, and safer payments will ultimately accrue
to the benefit of Libra users.
Q.8. Coindesk recently published a number of earnings estimates
for Libra Investment Token holders based on the Libra token
achieving different levels of adoption. One model estimates
that if Libra achieves adoption equal to 10 percent of the U.S.
M1 money supply, Libra would generate--after deducting the
assumed $1 billion in annual operational expenses--nearly $7
billion of interest per year, with a yearly return on
investment (ROI) for the Libra Governance token holders of
688.51 percent.
Given the wealth that will be created by a successful Libra
platform, why not use earnings from user deposits to lower
costs for users to buy into Libra?
A.8. We are not in a position to comment on Coindesk's
projections, which are speculative. We know that the current
payments system imposes high costs on everyday users, and this
problem is a key motivation for Libra. We understand that for
Libra to be useful, it will need to offer a lower-cost solution
than is available today. We expect improved technology and
competition to dramatically reduce the fees associated with
payments made through services offered on the Libra Network,
including fees paid in connection with the purchase, storage,
sale, and transfer of Libra coins.
Q.9. What are the first target markets for Libra? Is the
Association considering only economically underdeveloped
countries?
A.9. We understand the Association is considering as markets
both ``underdeveloped'' and ``developed'' countries. While we
believe that Libra can offer widespread utility, it will
provide the most immediate value to people and merchants who
regularly make or receive cross-border payments and people with
limited or no access to financial services, such as the
unbanked or the underbanked. We hope Libra will provide more
people with more options for financial services than they may
have access to today. While the Association will make the final
decision, we understand that it will not determine where Libra
are distributed and used, and will not interface with
customers. Libra will be distributed by exchanges, wallet
services, and other trading platforms. We expect that the
Association will prioritize local partnerships in markets that
are remittance corridors to further facilitate local adoption.
Q.10. What efforts has Facebook and/or the Libra Association
undertaken to engage regulators in underdeveloped Nations where
Libra may have its largest social impact? Why did Facebook not
consult with the relevant finance ministries where it expects
Libra to have its greatest and immediate impact?
A.10. Members of Libra's development team have met and continue
to meet with central banks around the world, including central
banks in those countries where Libra may have the largest
social impact. During those meetings, the development team has
explained that the currencies represented in the Libra Reserve
will be subject to their respective Governments' monetary
policies. We understand the Libra Association, which will
manage the Reserve, has no intention of competing with any
sovereign currencies or entering the monetary policy arena. We
expect it will work with the Federal Reserve and other central
banks to make sure Libra does not compete with sovereign
currencies or interfere with monetary policy. Monetary policy
is properly the province of central banks.
Q.11. Would not the unbanked be better off being banked with
regulated banks than using Libra? At least with a bank account,
users would be able to earn interest on their deposits, have
legal protections such as FDIC insurance on the value of their
deposits, and be able to withdraw funds within 24 hours. What
are the comparable guarantees or protections with Libra?
A.11. We are launching Libra in part because the unbanked lack
access to traditional, regulated banks. Our vision is to create
a simple digital currency and financial infrastructure that
empowers people around the world. By creating a decentralized
currency and an open platform for developers and businesses,
large and small, to create accessible and inclusive financial
services, this vision can become a reality. A digital currency
powered by blockchain technology offers specific advantages
over traditional financial services, and an open-source
blockchain will enable businesses and developers around the
world to build services that meet the needs of their
communities. Payment mechanisms such as the Calibra wallet will
give users an option to use Libra as a medium of exchange to
send remittances and make payments more easily and at a lower
cost than they can with existing payment systems and services.
Libra will be fully backed on a one-to-one basis through
the Libra Reserve, which will hold a fungible pool of bank
deposits and highly liquid, very short-term Government
securities. These assets are expected to be denominated in the
U.S. dollar, the British pound sterling, the euro, the Japanese
yen, and the Singapore dollar. Because Libra will be fully
backed and we expect that the Libra Association will encourage
a diverse ecosystem of exchanges, individuals holding Libra
digital coins can have a high degree of assurance that they can
sell them for local fiat currency based on an exchange rate at
a narrow spread below the value of the Reserve, similar to
exchanging one currency for another when traveling. The assets
in the Libra Reserve will be held by a geographically
distributed network of bank custodians with investment-grade
credit rating to provide both security and decentralization of
the assets.
Calibra will be a regulated money services business. It
will be required at all times to hold Libra coin equal to or
greater than 100 percent of the coins owned by customers.
Further, Calibra will provide stronger protections than many
other cryptocurrency wallets today, including know-your-
customer compliance, consumer and fraud protection, customer
support, and password recovery. When using Calibra, automated
tools will proactively monitor activity to detect fraudulent
behavior. If fraudulent activity is suspected, Calibra will
either deny the activity in real-time or ask for additional
information before the activity can be completed. The Calibra
wallet will include additional layers of authentication so that
users can trust their money will stay safe even if they lose
their phone or password. And in the rare event of unauthorized
transactions in a user's Calibra wallet, that user will be
given a refund. Calibra will also offer dedicated customer
support, ensuring that people will receive timely assistance,
whether it be answering questions related to their account, or
responding to reports of illicit activity. Like other custodial
wallets, Calibra will manage the public and private keys of its
customers. This means that people will have recourse if they
lose their password and will not have to worry about
permanently losing access to their funds.
In terms of security, we are utilizing systems that have
been certified for PCI compliance and are implementing security
measures that are compliant with data protection regulations.
Moving forward, we will continue to take active steps to ensure
we are meeting expectations to secure traditional financial
instruments and will continuously evolve our security posture
to meet an ever-changing threat landscape.
Of course, using Libra is a choice, and individuals with
access to traditional banks will always have the option of
keeping their funds in a bank if they do not believe that Libra
is best for them.
Q.12. Libra's white paper describes the Libra reserve as
``[Libra] buyer of last resort'' should Libra's ``authorized
resellers'' want to sell back Libra for its underlying assets.
Based on this description, does Facebook intend the Libra
Association to operate akin to the Federal Reserve, even though
the Association does not set monetary policy?
A.12. The Libra Association is not designed to operate akin to
the Federal Reserve or any other central bank. We understand
the Libra Association will be the ``buyer of last resort'' for
Libra coins because it will be the only entity capable of
repurchasing Libra coins in return for their value in U.S.
dollars or some other currency (i.e., ``burning'' them, meaning
repurchasing them for cash and permanently taking them out of
circulation). Only Designated Dealers, not retail users of
Libra coins, will have the contractual right to return Libra
coins to the Libra Association for repurchase in exchange for
U.S. dollars or some other currency equal to the then-current
value of the assets (established by third-party price
providers) held in the Libra Reserve corresponding to those
Libra coins. Retail users of Libra coins will buy and sell
Libra coins for their own account on third-party trading
platforms or from intermediaries acting as dealers and market
makers. If and when a Designated Dealer places an order to sell
Libra coins, we understand the Association will fulfill this
order by selling assets or transferring cash from the Reserve,
not by lending or borrowing funds from third parties.
Q.13. To use Libra, will users be required to use the Calibra
wallet? Or does the Libra Association anticipate making grants
to startups looking to build improved wallets for Libra, or
incorporate Libra as a token for existing wallets?
A.13. No. Users will not be required to use the Calibra wallet
to take advantage of all that Libra has to offer. The Libra
Blockchain will be an open ecosystem, which will allow
businesses to create competitive services on the Libra Network.
Any company will be free to build a wallet on the network.
These wallets will provide choice and competition, which will
benefit consumers. The Calibra wallet will also be
interoperable with other apps and financial service providers
that offer complementary services. And the Calibra wallet will
support data portability, so that users who wish to move from
the Calibra wallet to another service provider will be able to
transfer their data with ease.
Q.14. Why is Libra its own unit of account? Would this not
erode local purchasing power and harm the financially
vulnerable who take on exchange rate risk between Libra and the
local currency in which goods, services and wages are priced
in?
A.14. The Libra Association was established with the mission of
creating a lower cost, more accessible payment tool built on
the Libra Blockchain that will facilitate a more connected
global payments system. For many, the current payments system
is too expensive, too slow, or in some cases, completely
inaccessible. If successful, Libra would help address some of
these issues, costs, and barriers.
Libra's comparative advantage will be in cross-border
transactions that already involve multiple currencies and
exposure to foreign exchange risk. Moreover, Libra is designed
to exist alongside existing currencies. A key objective is to
provide people around the world with access to a low-volatility
cryptocurrency that can serve as a low-friction medium of
exchange on an international basis from day one and can support
new digitally native use cases such as micropayments. The Libra
Reserve will play a vital role in supporting value
preservation, building trust, and protecting the resources
users, merchants, and developers bring to the network.
For countries that have capital controls in place, we
expect regulators in those countries will apply them to wallets
that enable Libra as they see fit, since on- and off-ramps will
be regulated. And we understand that the Association plans to
work with central banks to identify issues that may relate to
those central banks' ability to perform monetary policy. Libra
is meant to exist alongside local currencies, and therefore we
would expect that Libra would not be a replacement for local
currencies as a unit of account. Instead, Libra is meant to
serve primarily as a means of payment. Moreover, Libra coins,
digital wallets, and other mechanisms designed to make
remittances or payments over the Libra Network will need to
reduce the overall cost of such transactions, including any
exchange rate costs, in order to be successful. We expect that
any costs of using Libra, such as exchange rate fees, will be
offset by lower transaction fees and other benefits relative to
existing payment options.
Q.15. Will the Libra Association provide quarterly (or real
time) audits of the available reserves?
A.15. We expect the Libra Reserve to be subject to rigorous
supervisory oversight, internal and external audit, and public
reporting requirements. First, we anticipate that the Libra
Association will be subject to an appropriate regulatory
framework, which we expect will involve supervision by FINMA,
and that its regulators will subject the Libra Reserve to
rigorous supervisory oversight. Second, we expect that the
Libra Association will regularly publish unaudited information
on the composition of the Libra Reserve. Third, we understand
that the Libra Association will establish and maintain an
appropriate risk management framework for the Libra Reserve,
which will include periodic internal audits or reviews, and
external audits. Finally, the Libra Association is expected to
publish information from these audits and reviews on a regular
basis, subject to applicable law, in order to demonstrate that
all Libra coins in circulation are fully matched by cash and
cash equivalents in the Libra Reserve.
Q.16. Please walk us through the steps for how the Libra
Association will be ``decentralized'' and how Libra which will
always run on a permissioned network ever be a decentralized,
permissionless currency?
A.16. We understand the Libra Association's governing council
will be responsible for developing and adopting a technical
plan for the Libra Network node operation to become
permissionless. We expect that the Libra Blockchain will
transition to a permissionless structure only if applicable
regulatory requirements will be met and any transition plans
are expected to be reviewed by governing regulatory
authorities. We understand that the Libra Association does not
expect this step to take place within the next 5 years, and in
any case will seek to transition to a permissionless blockchain
only if and when it is confident that it has systems in place
to address applicable AML and sanctions requirements as well as
other applicable law.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED
FROM DAVID A. MARCUS
Q.1. If Libra gains mass adoption, it could pose a threat to
United States sovereignty because it could harm the integrity
of its monetary system and the ability to maintain a primary
currency. In your testimony, you state that the Libra
Association has ``no intention of competing with any sovereign
currencies or entering the monetary policy arena.''
Have you considered all the implications that Libra would
have for national sovereignty?
A.1. Our goal is for Libra to exist alongside existing
currencies, and we do not believe that the existence of Libra
coins will pose any threat to U.S. sovereignty--similar to how
payments technology and networks have not posed a threat in the
past.
The Federal Reserve will maintain control over the U.S.
monetary system, including U.S. interest rates, the supply of
U.S. dollars, and the other aspects of U.S. monetary policy. We
expect that U.S. dollars withdrawn from the U.S. banking system
in order to invest in Libra coins will be redeposited in the
U.S. banking system in the form of the U.S. Treasuries in the
Libra Reserve.
Libra is not designed to replace the U.S. dollar or any
other currency, but to extend their functionality by allowing
for cheaper and faster payments. It is designed to be a
complement to local fiat currencies, not a substitute. It
complements them by allowing for cross-border payments at a low
cost.
Q.2. What is to prevent the Libra Association from unilaterally
altering its stated intention not to interfere with monetary
policy and national Government control of the money supply?
A.2. The currencies represented in the Libra Reserve will
continue to be subject to their respective Governments'
monetary policies. We expect that certain changes to the Libra
Reserve could also be subject to regulatory requirements that
are being considered by a G7 Working Group and other
regulators. We understand the Libra Association, which will
manage the Reserve, has no intention of competing with any
sovereign currencies or entering the monetary policy arena. It
will work with the Federal Reserve and other central banks
responsible for monetary policy to make sure Libra does not
compete with sovereign currencies or interfere with monetary
policy. Monetary policy is properly the province of central
banks. And we expect FINMA and the G7 central banks to insist
on a regulatory framework for the Libra Association that will
ensure that the Association cannot interfere with monetary
policy.
Q.3. We have seen how Kremlin and Kremlin-linked actors are
exploiting cryptocurrencies to carry out malign influence
operations. For instance, the Special Counsel charged Russian
military intelligence agents who hacked into the Democratic
National Committee and weaponized the stolen information with
conspiracy to launder money. The indictment specifically cited
how the Russian agents used bitcoin in the furtherance of their
scheme, stating that ``the use of bitcoin allowed the
Conspirators to avoid direct relationships with traditional
financial institutions, allowing them to evade greater scrutiny
of their identities and sources of funds.'' It has also been
reported in the media that cryptocurrencies are utilized for
other illicit purposes such as money laundering, sanctions
evasion, and support for terrorism.
What safeguards will you put in place to ensure that Libra
does not provide similar anonymity to those that seek to use
your cryptocurrency to finance their malign influence
operations against the United States, our allies, and our
partners?
How will you ensure that Libra will not be utilized to
interfere in our elections, launder money, or evade sanctions?
How will you facilitate cooperation with law enforcement to
counter illicit activity?
A.3. Facebook and the Libra Association are committed to
working with policymakers and regulators to achieve a safe,
transparent, and consumer-friendly implementation of Libra. We
recognize that blockchain is an emerging technology, and that
policymakers must determine how this technology will fit into
the regulatory landscape. We understand that the Association
also intends to register with FinCEN as a money services
business.
Facebook and the Libra Association are similarly committed
to supporting efforts by regulators, central banks, and
lawmakers to ensure that Libra contributes to the fight against
money-laundering, terrorism financing, and more. A network that
helps move more paper cash transactions--where many illicit
activities happen--to a digital network that includes, for
relevant parties, on- and off-ramps with proper know-your-
customer practices, combined with the ability for law
enforcement and regulators to conduct their own analysis of on-
chain activity, will present an opportunity to increase the
efficacy of financial crimes monitoring and enforcement. We
understand the Libra Association plans to continue to engage
proactively and openly with all relevant stakeholders on these
key issues. Libra should improve detection and enforcement
capabilities, not set them back.
Our understanding is that the Libra Association will
consult with vendors who have expertise in identifying illicit
activity on public blockchains. It will also maintain
guidelines with respect to anti- money-laundering, combating
the financing of terrorism, and other applicable national
security-related laws, with which we understand its members
will be required to comply. These service providers will
include payment services and marketplaces that are already
trusted today by millions of people to complete their
transactions safely, and that have major investments in people
and technology to fight fraud and prevent illicit activity.
The Libra Association and Calibra are committed to working
with law enforcement. In the event that illicit activity does
take place on the Libra Blockchain or by Calibra's customers,
law enforcement can subpoena details on accounts and
transactions from specific wallet operators or other relevant
service providers and, in appropriate circumstances, may be
able to obtain court orders or administrative orders requiring
a wallet operator to freeze or move Libra coins. Law
enforcement agencies will also be able to access the Libra
Blockchain ledger directly and conduct their own analysis.
Q.4. In a July 3 note you posted to Facebook, you stated the
following:
Facebook created a subsidiary--Calibra--that will
operate a wallet service on top of the Libra Network,
and while Facebook, Inc., owns and controls Calibra, it
won't see financial data from Calibra.
In the same post, you also wrote:
If Libra is successful, Facebook will first benefit
from it by enabling more commerce across its family of
apps. More commerce means ads will be more effective,
and advertisers will buy more of them to grow their
businesses. Additionally, if we earn people's trust
with the Calibra wallet over time, we will also be in a
position to start offering more financial services, and
generate other revenue streams for the company.
If Libra facilitates more commerce across Facebook's family
of apps, how is it that Facebook won't see financial data from
Calibra and other entities providing Libra digital wallet
services?
Facebook already wields considerable commercial power by
leveraging our social media data through the sale of ads. With
Calibra, Facebook could have access to even more of our
financial data, which would make Facebook's ads more effective
and permit Facebook to offer more financial services. Why
should Facebook be permitted to wield even more power than it
already possesses?
A.4. The benefit that Facebook derives from Calibra is not
based on access to Calibra financial data. Calibra will enable
the 90 million small- and medium-sized businesses on the
Facebook platform to engage in more commerce with Facebook's
users. If they engage in more commerce, there will be more
advertising spend from those businesses. That would be a first
indirect effect of having Calibra and the Libra Network be
successful. Over time, we hope that through the Calibra wallet
we can offer more services and partnerships with existing banks
and financial services companies to drive new revenue streams
for the company.
Indeed, Calibra is being designed with a strong commitment
to protecting customer privacy. Calibra believes that customers
hold rights to their data and should have simple,
understandable, and accessible data-management controls.
Facebook created Calibra as a regulated subsidiary in part
to ensure separation between social and financial data and to
build and operate services on its behalf on top of the Libra
Network. And, except in limited circumstances that are
described below, Calibra will not share customers' account
information or financial data with Facebook.
Those limited circumstances where data might be shared
between Calibra and Facebook include when data sharing is used
to prevent fraud or criminal activity, as well as when users
choose to share their data. As a Facebook subsidiary, Calibra
may be legally obligated to share certain data with Facebook so
the company can meet its regulatory requirements. This could
consist of aggregated payment numbers for financial and tax
reporting or information necessary to comply with the law.
The limited user information that Calibra does collect and
store will be subject to strong security and access controls.
User payment credentials, such as a debit card number, will not
be accessible by Facebook or its affiliates. And user
transaction activity is private and will never be posted to
Facebook, unless users themselves choose to share it.
Similar to other commerce platforms, there may be times
when Facebook, acting in its capacity as a merchant or
platform, will independently have access to information about
completed transactions that take place on Facebook's commerce
platform (e.g., purchase made, merchant, transaction amount,
date, time). This may include transactions completed via
Calibra with Libra as the exchanged currency, though this would
not involve a special transfer of information from Calibra to
Facebook. In those situations, Facebook's independent access to
transaction information will be the same as for other
transactions on the Facebook platform completed using other
payment methods like credit cards.
Q.5. In a July 3 note you posted to Facebook, you wrote the
following about Libra:
[I]f this is not done right, it could definitely
present systemic risks no one wants.
Please describe with specificity the two worst systemic
risks?
If despite your best efforts, these systemic risks are
realized, how will you or any other senior executive at
Facebook or Calibra take personal responsibility for these
failures?
A.5. First, it is important to reiterate our commitment to
taking the time to get this right. We understand the Libra
Association will not offer the Libra digital currency in any
jurisdiction until we have fully addressed applicable
regulatory concerns--including concerns about potential
systemic risks--and have received appropriate approvals in that
jurisdiction.
Two of the most significant systemic risks that a payment
token could pose, if not structured properly, would be those
stemming from (i) a fractional reserve, wherein the payment
tokens in circulation are not fully backed by corresponding
assets in the reserve, and (ii) a liquidity mismatch, wherein
the assets in the reserve are not limited to cash and cash
equivalents, but instead include illiquid or other risky
assets.
The Libra digital currency will be structured to address
these systemic risks by requiring all the Libra coins in
circulation to be fully backed by corresponding assets in the
Libra Reserve, and to limit the assets in the Libra Reserve to
cash and cash equivalents in the form of very short-term
Government securities. And we expect FINMA and the G7 central
banks to insist on a regulatory framework for the Libra
Association that will impose controls on the investments in the
Libra Reserve to prevent the Libra Reserve from being invested
in risky assets.
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR MENENDEZ FROM DAVID A. MARCUS
Q.1. Mr. Marcus, as I raised with you in the hearing, it is my
understanding that if the Libra Association was made aware of a
sanctioned individual and that individual's digital currency
address, it would have the technical ability to stop
transactions to or from that address, regardless of the wallet
and ``on- or off-ramp'' that individual used.
Is it true that the Libra Association would have the
technical ability to stop such transactions?
A.1. The Libra Association is committed to ensuring that the
Libra Network complies with applicable laws and regulations,
including applicable anti- money-laundering (AML) requirements
and sanctions laws and regulations. To this end, we expect that
the Libra Association and its members will explore what
technical and contractual options are available and may be
appropriate to ensure that appropriate measures are taken to
comply with sanctions and AML requirements, including blocking
or restricting transactions to a blockchain address of a
sanctioned individual.
Speaking for Calibra, Calibra will take steps at multiple
levels to prevent and detect possible sanctions-related
activity by scanning users of the Calibra wallet against issued
sanctions lists and country and regional sanctions programs--
including those administered by the U.S. Department of the
Treasury's Office of Foreign Assets Control (OFAC)--and
blocking prospective and current users when appropriate.
Calibra will also implement automated geo-blocking controls to
prevent users from accessing the Calibra wallet or transacting
from specified locations.
Similarly, Calibra has registered with FinCEN as a money
services business, and as such will comply with relevant FinCEN
regulations and guidance. Additionally, Calibra will
incorporate know-your-customer and anti- money-laundering/
combating-the-financing-of-terrorism methodologies used around
the world, including those focused on customer identification
and verification, as well as risk-based customer due diligence.
Calibra will achieve this, in part, by developing and applying
technologies such as advanced machine learning to enhance
transaction monitoring and suspicious activity reporting.
Calibra's efforts will be commensurate with the risks posed by
several factors such as Calibra's product features, customer
profiles, geographies, and transaction volumes.
Q.2. Will you, as a founding member of the Libra Association,
commit to stopping such transactions to provide an added layer
of security in the event that a sanctioned actor attempts to
use a wallet or ``on- or off-ramp'' based in a jurisdiction
that does not comply with U.S. sanctions law?
A.2. Please see the response to Question 1.
Q.3. As Libra transitions to a permissionless blockchain, how
are you going to ensure that Libra isn't used by illicit actors
in the same way they've tried to use Bitcoin and other
cryptocurrencies?
A.3. The Libra Association is committed to complying with
applicable laws and is evaluating appropriate steps to
safeguard the Libra Network from abuse by criminal actors. We
understand the Libra Association's governing council will be
responsible for developing and adopting a technical plan for
the Libra Network to become permissionless. The Libra
Blockchain will transition to a permissionless structure only
if applicable regulatory requirements will be met. Any
transition plans are expected to be discussed with governing
regulatory authorities. We understand that the Libra
Association does not expect this step to take place within the
next 5 years.
Q.4. In your testimony, you stated that Calibra would develop
and apply technologies such as advanced machine learning to
``enhance transaction monitoring and suspicious activity
reporting''. Will you commit to testing these systems before
Libra launches to ensure that they are at least as capable as
our current banking system of stopping illicit financing and
share those results with this Committee, FinCEN, and other
regulators?
A.4. We understand that the Libra Association will not offer
the Libra digital currency in any jurisdiction until it has
fully addressed regulatory concerns and received appropriate
approvals in that jurisdiction. Calibra is registered as a
money services business (MSB) with FinCEN and, per FinCEN
guidance, MSBs must develop an anti- money-laundering program
that is ``reasonably designed to prevent the money services
business from being used to facilitate money laundering and the
financing of terrorist activities.'' 31 CFR 1022.210(a). To
meet this requirement, MSBs must ``[p]rovide education and/or
training of appropriate personnel concerning their
responsibilities under the program, including training in the
detection of suspicious transactions to the extent that the
money services business is required to report such transactions
under'' the BSA. Id. 1022.210(d)(3). As a registered MSB,
Calibra will ensure that its AML program meets these
requirements.
Q.5. In your testimony you stated that Libra will help build a
more ``inclusive financial infrastructure.'' The Libra white
paper also points to Libra as a potential solution for the
underbanked and the unbanked. In the U.S., 16.9 percent of
black households and 14 percent of Hispanic households were
unbanked in 2017. Furthermore, 30.4 percent of black households
and 28.9 percent of Hispanic households were underbanked in
2017.
Does Facebook or Calibra intend to help consumers obtain
proper Government identification and any other documentation
they might need to comply with Know Your Customer rules so
underbanked people can access Libra?
If not, how will Calibra verify that the consumer is who
they say they are?
A.5. We recognize that a lack of traditional means of
identification is sometimes a key barrier to serving the
underbanked, and we understand that other organizations
building for Libra are exploring ways in which services could
be provided to these individuals in compliance with applicable
law. This may include, for example, the Libra Association
providing grant funding to organizations that assist people in
underrepresented communities in obtaining Government
identification as a path to access to financial services,
whether through the Libra Network or otherwise.
Q.6. Facebook is not just a social network anymore. It is also
one of the largest venues for online advertising, shopping,
gaming, and more. And that means Facebook holds tremendous
power to dictate how people pay for those services. Facebook
could offer users discounted rates if they pay in Libra, and
thereby stimulate adoption of the currency, fuel its ad
services, harvest more user data, and increase reliance on the
platform as a whole.
Given Facebook's troubled history with manipulative ads and
abuse of consumer data, will Facebook commit to not incentivize
the use of Libra by offering customers discounted rates for
advertising or other services if they pay in Libra?
A.6. Facebook has not yet determined if or how it will
incentivize its advertising customers to use Libra. We are
building Calibra with strong privacy safeguards in place and
will be responsive to our community's feedback to ensure we are
continuing to be respectful of their preferences. Calibra is
committed to protecting privacy, and it is being designed
accordingly.
Q.7. According to a July 22, 2019, article in the Washington
Post ``A wave of fakes purporting to sell or represent
Facebook's not-yet-available Libra currency have swept onto the
social-media giant's platforms''.
What proactive steps is Facebook taking to ensure that
these accounts are promptly removed without relying on user
reporting?
If an individual falls prey to a fraudulent account, what
remedies will Facebook offer to the user?
A.7. Before they are published on Facebook, ads go through an
ad review process. Additionally, Facebook removes ads and Pages
that violate our policies when we become aware of them, and we
are constantly working to improve detection of scams on our
platforms.
Two of our core advertising principles stem from our belief
that ads should be safe, and that we build for people first.
Misleading or deceptive ads have no place on Facebook. We want
people to continue to discover and learn about new products and
services through Facebook ads without fear of scams or
deception. We are committed to preventing misleading
advertising on our platforms, especially in the area of
financial products and services. That is why ads may not
promote cryptocurrency trading or related products and services
without prior written permission. This policy is part of an
ongoing effort to improve the integrity and security of our
ads, and to make it harder for scammers to profit from a
presence on Facebook.
Authenticity matters, for Pages as well as ads, because
people need to trust that the content they are seeing is valid
and they need to trust the connections they make. Our
technology helps us take action against millions of attempts to
create fake accounts every day, and detect and remove millions
more, often within minutes of creation. When it comes to
abusive fake accounts, our goal is simple: find and remove as
many as we can while removing as few authentic accounts as
possible. We do this in three distinct ways and include data in
the Community Standards Enforcement Report to provide as full a
picture as possible of our efforts:
1. Blocking accounts from being created: The best way to
fight fake accounts is to stop them from getting onto
Facebook in the first place. We have built technology
that can detect and block accounts before they are
created. Our systems look for a number of different
signals that indicate if accounts are created in mass
from one location. A simple example is blocking certain
IP addresses altogether so that they cannot access our
systems and thus cannot create accounts.
2. Removing accounts when they sign-up: Our advanced
detection systems also look for potential fake accounts
as soon as they sign-up, by spotting signs of malicious
behavior. These systems use a combination of signals
such as patterns of using suspicious email addresses,
suspicious actions, or signals previously associated
with other fake accounts we have removed. Most of the
accounts we currently remove are blocked within minutes
of their creation before they can do any harm.
3. Removing accounts already on Facebook: For accounts that
make it onto the platform, we give these accounts the
benefit of the doubt until they exhibit signs of
malicious activity. We find these accounts when our
detection systems identify such behavior or if people
using Facebook report them to us. We use a number of
signals about how the account was created and how the
account is being used to determine whether it has a
high probability of being fake and disable those that
are.
With respect to the Calibra digital wallet, Calibra will
offer strong consumer protections and intends to comply with
applicable consumer protection regulations, including
responsibilities arising out of its State money transmission
licenses. Calibra's consumer protection efforts will include
automated fraud detection, in-app reporting, and dedicated
customer service. In the rare event of unauthorized
transactions of Libra coins stored in the Calibra wallet,
Calibra will offer full refunds.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNER
FROM DAVID A. MARCUS
Q.1. In both the Senate Banking Committee hearing on July 16th
and the House Financial Services Committee hearing on July 17th
you repeatedly stated that Facebook would not launch Libra
unless and until the concerns of regulators were addressed.
Subsequently, it has been reported that Facebook would consider
launching Libra outside the U.S., even if the concerns of
regulators had not been addressed. This appears to contradict
your testimony in multiple instances:
Senator Brown: My question is this: Is there anything,
Mr. Marcus, that elected leaders and economic experts
can say that will convince you and Facebook that it
should not launch this currency?
Mr. Marcus: Senator, we agree with all of the concerns,
very legitimate concerns that were raised by Chairman
Powell, Secretary Mnuchin, and many others. And . . .
getting this right means addressing these concerns in
full and ensuring that there is proper regulatory
oversight for this project. And we are fully committed
to doing what it takes to get there.
Senator Brown: But, Mr. Marcus, with all due respect,
if all of us who have seen the collective amnesia of
this Congress in terms of what happened 10 years ago,
if all of us find this to be a bad idea, think you
should not do this launch, are you still going to do
it?
Mr. Marcus: . . . I will commit again to do what it
takes to address these concerns; and if those concerns
are not addressed and if the regulatory oversight is
not appropriate, then, you know, we will not launch
until it is.
------
Senator Jones: Mr. Marcus, I want to talk about quickly
some of the money-laundering issues that I have got
real concerns about, and I understand that Calibra is
committed to verify users and those kinds of things.
But for money-laundering purposes, if you have got a
worldwide issue and you have got partners all over the
world, how are you going to get your partners to verify
these third-party products? And how are we going to
prevent this money laundering? I think that is a major
concern. How are you going to deal with your partners?
Mr. Marcus. Senator, first I want to commit that we
will not launch until we have satisfied those concerns
with Treasury and other regulators around the world and
how the network is configured and it operates.
------
Representative Maloney: And I take it that it's a no to
the chairwoman's question about requesting a moratorium
on Libra until policymakers can figure out how to
handle it? Was that a yes or a not to her question when
she called for a moratorium?
Mr. Marcus: Congresswoman, the commitment is that we
will not launch until we have addressed all concerns
fully and have the proper [approval].
------
Representative Velazquez: Would you commit yourself to
not launch Libra before all the concerns from the
Federal Reserve and all of the regulators are
addressed? Yes or no?
Mr. Marcus: Absolutely, Congresswoman, and I want to
reiterate this commitment that this was the spirit in
which we announced early and we will do what's right to
. . .
------
Chairwoman Waters: Thank you. A point of clarification.
Mr. Marcus did you commit to the moratorium to Ms.
Velazquez?
Mr. Marcus: Chairwoman, I committed to waiting . . . .
Chairwoman Waters: Excuse me, I just need a yes or no.
Mr. Marcus: Chairwoman, I just want to be precise. I
committed to waiting for us to have all the appropriate
regulatory approvals and address all concerns before we
move forward.
------
Representative Davidson: last I would say do you plan
to launch this outside the of the United States if you
can't get regulatory certainty in the United States?
Mr. Marcus: Congressman, I'm glad you asked the
question and we will not actually proceed until we get
all of the concerns address and the proper regulatory
oversight here.
In light of your testimony, how should we interpret
statements by a Facebook spokesperson that Facebook would
potentially launch Libra outside the U.S. even if regulators in
the U.S. still have concerns?
A.1. As David Marcus stated recently before members of
Congress, we are fully committed to working with regulators
here and around the world. Facebook will comply with the
regulatory requirements of all U.S. regulators. And we
understand that the Libra Association will not offer the Libra
digital currency in any jurisdiction until it has fully
addressed regulatory concerns and received appropriate
approvals in that jurisdiction.
Q.2. The security and integrity of our financial system rests
on an important interplay between Federal law, State law, and
State tort law that ensures not only the soundness of the
entire system, but also protects everyday American consumers.
In testimony before the House Financial Services Committee, you
acknowledged that Section 230 of the Communications Decency Act
does not apply to financial services products like Libra and
Calibra.
Will Facebook commit to not invoking Section 230 in any
civil or criminal suit brought by a State Attorney General,
State agency, or private plaintiff in connection with any
alleged civil or criminal violation by Facebook relating to
Libra or Calibra?
A.2. Section 230 of the Communications Decency Act provides
that ``no provider or user of an interactive computer service
shall be treated as the publisher or speaker of any information
provided by another information content provider.'' Outside of
certain specific exceptions, this means that online platforms
that host content posted by others are generally not liable for
the speech of their users, and indeed, Section 230 explicitly
provides that a platform that chooses to moderate content on
its service based on its own standards does not incur liability
on the basis of that decision. Specifically, 47 U.S.C.
230(c)(2) provides, in relevant part, that ``[n]o provider or
user of an interactive computer service shall be held liable on
account of . . . any action voluntarily taken in good faith to
restrict access to or availability of material that the
provider or user considers to be obscene, lewd, lascivious,
filthy, excessively violent, harassing, or otherwise
objectionable, whether or not such material is constitutionally
protected.''
Through the Calibra wallet, users will have the ability to
transfer funds to other Calibra users or others on the Libra
Network, including people using other wallets. Because Section
230 does not apply to payments, we do not expect Section 230 to
apply to such transfers of funds.
Q.3. Facebook's global dominance of the mobile messaging market
will enable Facebook to quickly gain market share in the mobile
payments space, particularly with Facebook integrating Calibra
into WhatsApp and Facebook Messenger (and barring the
integration of 3rd party wallets into those dominant apps).
Facebook's success across the developing world has in large
part been propelled by agreements it has reached with
telecommunications carriers worldwide to exempt and otherwise
prioritize Facebook traffic from the otherwise stringent data
caps users typically face. Given Facebook's expressed desire to
expand into the payments and financial services markets in
developing countries--potentially deploying Libra abroad even
if it is barred from doing so in the United States--it is
critically important to understand which markets hold the
greatest prospect of rapid adoption of Facebook financial
products. Zero-rating arrangements have the intent, and effect,
of driving widespread consumer adoption of products subject to
zero-rating or paid prioritization. Given that Libra will be
backed by both the dollar and dollar-denominated securities--
and will therefore pose financial instability risks to the U.S.
market even if it is not launched here--it is vital for
Congress to understand which countries are poised to adopt
Libra (and Calibra).
Please list each country in which Facebook maintains, or
plans to employ, a zero-rating or paid prioritization
relationship with at least one telecommunications provider.
A.3. Facebook is a popular service, but it is by no means
dominant. In fact, Facebook faces intense competition for all
of the products and services that we provide. To name a few
examples, Twitter, Snapchat, Apple iMessage, Pinterest, Skype,
Telegram, Viber, and YouTube offer photo and video sharing,
messaging, advertising, and other services that compete with
Facebook. Moreover, data is not exclusive or finite. Companies
in every industry can and do collect data and use it to develop
and improve their services. There is nothing to stop our
competitors from collecting similar (if not identical) data, or
collecting substitutable data and using it in innovative ways.
For most people who are not online, the biggest challenges
to connecting are affordability of the internet, and awareness
of how internet services are valuable to them. Through
Facebook's Free Basics offering, users are offered access to
basic online services without data charges. In collaboration
with mobile operators, Free Basics allows people to experience
the relevance and benefits of being online for free, and acts
as an on-ramp to the broader internet, with services such as
news, health information, local jobs, communications tools,
education resources, and local Government information. Any
mobile operator can participate, and Free Basics is open to any
service that meets the program's technical criteria, which are
openly published.
More broadly, it should not be assumed simply because
Facebook has a large user base for its Facebook platform that
any specific percentage of that user base will decide to use
the Calibra wallet. People will have to create new accounts
with Calibra to use Calibra's services; they will not be able
to use their Facebook accounts. And before potential Calibra
users will be able to use Calibra's services, they will need to
provide Government-issued identification so they can be
identified and verified based on Calibra's know-your-customer
program. In comparison, other potential wallets, including
other existing payment providers, already have large user bases
that have completed the know-your-customer process and
therefore can immediately offer services to their users.
Additionally, the Calibra wallet will support data portability,
so that users who wish to move from the Calibra wallet to
another service provider will be able to transfer their data
with ease.
Q.4. FinCEN advisories make very clear that a ``financial
institution's leadership is responsible for performance in all
areas of the institution including compliance with the BSA
[Bank Secrecy Act].'' FinCEN stipulates that an institution's
leaders should also receive ``periodic BSA/AML training.''
Given the global dependence on Facebook communications
products, any financial products offered by Facebook will be
used extensively--including by criminal actors. Indeed, the use
of WhatsApp by transnational criminal organizations, including
Mexican drug cartels, has been widely reported.
Has your company's most senior leadership received anti-
money laundering (AML) and know-your-customer (KYC) training
consistent with FinCEN regulations and guidance?
A.4. Calibra has registered with FinCEN as a money services
business, and as such, intends to comply with all FinCEN
regulations and guidance, including with respect to AML
training.
Q.5. Facebook speaks very eloquently about the goals of Libra
in expanding access to banking services but Libra--and
Calibra--have enormous value to Facebook. Indeed, Facebook has
announced that its largest apps--Facebook Messenger and
WhatsApp--will have Calibra Wallet integrations from the start.
Messenger and WhatsApp are the two most dominant messaging apps
globally--one or the other is the most dominant messenger app
in every country in the world except China, Japan and a handful
of others. Facebook has announced a closer integration of these
messaging apps in an effort to strengthen its competitive
position.
Please explain in detail how the integration will proceed.
For example, will it be implemented in stages? What is the
timeline for each stage? What level of interoperability will
exist among the Facebook messaging platforms when each stage is
complete?
A.5. As discussed in the response to Question 3, Facebook is by
no means dominant.
We are still early in the process of developing the Calibra
wallet, and along the way we will consult with a wide range of
external experts to ensure that we can deliver a product that
is safe, private, and easy to use for everyone. Our goal is to
make it easy for people to use Calibra to send money, whether
they are using a Calibra wallet or another Libra wallet.
Indeed, interoperability is a bedrock principle of the Libra
Network, and as a result, though Calibra will be integrated
into Messenger and WhatsApp, Calibra users will be able to send
and receive payments to other Libra holders, even if those
Libra holders use other wallets.
Calibra will also be available as a standalone app, such
that Calibra users do not have to have Facebook, Messenger, or
WhatsApp accounts to use Calibra. Anyone--including existing
Messenger, WhatsApp and Facebook users--who wishes to use the
Calibra wallet will have to create an account with Calibra and
provide additional information, such as Government-issued
identification.
Q.6. Post-integration, what new abilities will Facebook have to
push products such as Libra to users across its various
messaging platforms? Will the integration also give Facebook
the power to engage in other cross-platform marketing, outside
its messaging layer?
A.6. Calibra is opt-in, and people who use the Facebook family
of apps will be able to choose whether to use Calibra in the
same way that they can choose whether to use other payments
products. While people using WhatsApp and Messenger will be
free to use the Calibra wallet to store and make payments with
Libra, they are also free to use Libra through other wallets
built on the Libra Blockchain. And the Calibra wallet will
support data portability, so that users who wish to move from
the Calibra wallet to another service provider will be able to
transfer their data with ease.
Q.7. Facebook has made repeated attempts to enter the Chinese
market, with direct engagement between Facebook's CEO and Xi
Jinping a matter of public record. On the other side of the
ledger, China has aggressively pushed foreign Governments to
include the renminbi in their foreign reserve holdings--
something the Chinese are pursuing to promote greater foreign
reliance on, and domestic stability for, the renminbi. A core
feature of Libra is that the company will maintain a basket of
foreign currencies.
Facebook claims it has no ``current'' plans to enter China;
will Facebook commit to not adding--and to oppose any efforts
by other Libra members to add--the renminbi to the foreign
currency?
A.7. The Libra Association, not Facebook, will determine which
currencies will be reflected in the Libra Reserve from time to
time. The initial currency basket is expected to be composed of
the U.S. dollar, euro, Japanese yen, British pound sterling,
and Singapore dollar. We expect the Libra Association to be
subject to an appropriate regulatory framework, including
direct oversight by FINMA and indirect oversight by various
other regulatory bodies, including the Federal Reserve and the
other G7 central banks. Any decision whether to add a new
currency to the Libra Reserve would be made based on all the
facts and circumstances at the time, including any direct or
indirect regulatory restrictions.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN
FROM DAVID A. MARCUS
Q.1. Facebook has a record of making assurances during splashy
announcements and then subsequently quietly reneging on those
commitments deep in the fine print of user agreements. The
press release announcing Libra and Calibra includes a
disclaimer that ``these forward-looking statements may differ
materially from actual results due to a variety of factors and
uncertainties, many of which are beyond our control,''
seemingly foreshadowing a similar future reversal of course.
Please provide a copy of your written testimony and
transcript of your testimony today indicating which
representations you made to the Senate Banking Committee ``may
differ materially from actual results'' and which Senators can
rely upon.
A.1. Consistent with applicable law and common practice when
making forward-looking statements, Facebook provided standard
cautionary language in our press release intended to notify
investors that the statements being made were based on
information and expectations at the time made and that certain
risks and uncertainties could cause actual results to be
different in the future. That we have done so in no way
indicates any intention or desire to back away from or
otherwise alter the commitments that we have made to Congress
and applicable regulators with respect to Libra. This is true
both as a general matter and specifically with respect to
statements made in the course of Mr. Marcus' appearance before
the Senate Banking Committee, during which he testified
truthfully, based on the information known to him at the time.
Q.2. The white paper that Facebook released along with its
announcement made certain representations about how Libra would
be governed, including that the Libra Association would be
``independent,'' but said that ``the initial group of
organizations will work together on finalizing the
association's charter'' suggesting that no agreement
operationalizing those commitments has yet been reached. Does
Facebook see the final association charters as ``factor or
uncertaint[y] . . . beyond its control,'' which would let you
renege on the commitments you made to Congress?
A.2. We expect that the Libra Association will be governed by
the Libra Association Council, which will be comprised of a
representative from each member of the Association. The Initial
Members, including Calibra, are collaborating to develop and
adopt a comprehensive set of governing documents for the
Association. We expect that the Libra Association will make
decisions democratically and transparently. Regarding our
commitments to Congress, Facebook will not offer services for
the Libra digital currency in any jurisdiction until we have
fully addressed applicable regulatory concerns and received
appropriate approvals in that jurisdiction.
Q.3. The Federal Trade Commission recently announced a $5
billion settlement with Facebook over privacy violations
stemming from a 2011 Consent Order. Facebook has also faced a
series of public privacy mishaps in recent years, establishing
a long record of failures in protecting user data. Facebook
claims that it will protect financial data that it obtains
through Calibra, and that this data will not be shared with
Facebook or any third party without consumer consent.
Facebook's press release states that ``aside from limited
cases,'' Calibra will not share information with Facebook.
Please describe the ``limited cases'' in which the company will
or may share data with others.
A.3. Facebook created Calibra as a regulated subsidiary in part
to ensure separation between social and financial data and to
build and operate services on its behalf on top of the Libra
Network. And, except in limited circumstances that are
described below, Calibra will not share customers' account
information or financial data with Facebook.
Those limited circumstances where data might be shared
between Calibra and Facebook include when data sharing is used
to prevent fraud or criminal activity, as well as when users
choose to share their data. As a Facebook subsidiary, Calibra
may be legally obligated to share certain data with Facebook so
the company can meet its regulatory requirements. This could
consist of aggregated payment numbers for financial and tax
reporting or information necessary to comply with the law.
The limited user information that Calibra does collect and
store will be subject to strong security and access controls.
User payment credentials, such as a debit card number, will not
be accessible by Facebook or its affiliates. And user
transaction activity is private and will never be posted to
Facebook, unless users themselves choose to share it.
Similar to other commerce platforms, there may be times
when Facebook, acting in its capacity as a merchant or
platform, will independently have access to information about
completed transactions that take place on Facebook's commerce
platform (e.g., purchase made, merchant, transaction amount,
date, time). This may include transactions completed via
Calibra with Libra as the exchanged currency, though this would
not involve a special transfer of information from Calibra to
Facebook. In those situations, Facebook's independent access to
transaction information will be the same as for other
transactions on the Facebook platform completed using other
payment methods like credit cards.
Q.4. In those cases, will the company alert users to this
sharing?
A.4. Calibra will describe its data sharing practices in its
data policy, and where appropriate, in customer notices.
Q.5. The press release also states that no data will be shared
``without customer consent.''
Will this consent be opt-in? If so, please describe the
process for obtaining customer consent to share personal
financial information with Facebook and other third parties.
A.5. As we have explained, the limited circumstances where data
might be shared between Calibra and Facebook include when data
sharing is used to prevent fraud or criminal activity, or when
users choose to share their data. Calibra has not designed or
built these experiences yet. As a Facebook subsidiary, Calibra
may be legally obligated to share certain data with Facebook so
the company can meet its regulatory requirements. This could
consist of aggregated payment numbers for financial and tax
reporting or information necessary to comply with the law.
Q.6. The release states that data ``will not be used to improve
ad targeting on the Facebook family of products.'' Will the
data be used for ad targeting on the Calibra wallet?
A.6. The Calibra wallet has no plans to show ads, including in
its standalone app, and Calibra will not make money to begin
with. Our first goal is to create utility and adoption, and
enable people around the world--especially the unbanked and
underbanked--to take part in the financial ecosystem. This will
be the first in a suite of financial products we hope to create
on the Libra Blockchain. Once we drive adoption and scale, we
will explore ways to monetize.
Q.7. Please describe all cybersecurity measures your company
plans to take to protect sensitive financial and other data of
Calibra users.
A.7. Calibra will take a combination of technical steps to keep
user information secure, including data partitioning,
encryption, and strong access controls. User transaction
activity is private and will never be posted to Facebook,
unless users themselves choose to share it. For example, some
people who send cross-border payments may decide to screenshot
their transactions and share them with a friend or family
member. User payment credentials, such as a debit card number,
will not be accessible by Facebook or its affiliates.
We are utilizing systems that have been certified for PCI
compliance and are implementing security measures that are
compliant with data protection regulations. Moving forward, we
will continue to take active steps to ensure we are meeting
expectations to secure traditional financial instruments and
will continuously evolve our security posture to meet an ever-
changing threat landscape. For Calibra itself, we are also
going to be subject to cybersecurity regulations that apply to
other financial services companies, such as Section 200.16 and
Part 500 of the New York Department of Financial Services'
Codes, Rules, and Regulations, and will aim for additional
certifications.
We will also take significant measures to keep people's
Libra safe, including using cold-storage, which is air-gapped
and offline, as well as a small percentage of coin in hot
wallets for daily transactions. We will have physical security
controls (including cameras, vaults, and biometrics) as well as
cryptographic controls (such as multisignatures requiring a
quorum of approvers, and the use of hardware security modules
(HSMs)) to prevent any malicious activity.
Q.8. A patchwork of Federal and State data privacy and
cybersecurity laws, standards, and best practices apply to
different products and industries. Please describe all relevant
privacy and security frameworks that will govern Libra and
Calibra.
A.8. Protecting consumers and ensuring people's privacy is a
top priority for both the Libra Association and for Calibra.
Facebook anticipates that Calibra will be subject to U.S.
privacy laws, as well as global laws like GDPR.
From the inception of the Libra Blockchain design and
continuing through the ongoing development process, ensuring
user privacy has been, and will continue to be, a core
principle at the center of the Libra Blockchain network. We
understand that the Libra Blockchain development process
incorporates, and will continue to incorporate, a ``privacy-by-
design'' approach, such that privacy considerations are taken
into account and integrated during the development process.
Indeed, one of the reasons the design principles underpinning
the Libra Blockchain effort were disclosed far in advance of
launch was to incorporate feedback and comments from privacy
regulators and other relevant stakeholders. We understand the
Association takes its responsibility in this regard very
seriously, and already has an internal privacy working group
focused on these issues.
We recognize that regulators charged with consumer
protection and privacy will be keen to engage with those
building services to be offered in their jurisdictions. We
understand the Libra Association is committed to working with
authorities to shape a regulatory environment that encourages
technological innovation while maintaining the highest
standards of consumer protection and privacy.
Calibra is also being designed with a strong commitment to
protecting customer privacy.
In terms of security, please see the response to Question 7
for details on the cybersecurity measures Calibra intends to
take.
Q.9. The House Subcommittee on Antitrust, Commercial, and
Administrative Law launched an antitrust investigation into
online platforms, including Facebook. Facebook amassed power in
part by collecting data on its users and leveraging that data
to corner the market on online advertising. Through its
dominance in the digital advertising market, Facebook is able
to exercise power over vendors and digital advertisers.
How does Facebook plan to either incentivize or require
vendors to accept Libra?
A.9. Facebook is a popular service, but it is by no means
dominant. In fact, Facebook faces intense competition for all
of the products and services that we provide. To name a few
examples, Twitter, Snapchat, Apple iMessage, Pinterest, Skype,
Telegram, Viber, and YouTube offer photo and video sharing,
messaging, advertising, and other services that compete with
Facebook. Moreover, data is not exclusive or finite. Companies
in every industry can and do collect data and use it to develop
and improve their services. There is nothing to stop our
competitors from collecting similar (if not identical) data, or
collecting substitutable data and using it in innovative ways.
Facebook does not plan to require vendors to use Libra.
Facebook has not yet determined if or how it will incentivize
vendors to use Libra.
Q.10. If Libra becomes more widespread, does Facebook have
plans to leverage its position on as a Member of the Board to
extract concessions or increase prices on vendors? Does the
company have safeguards in place to ensure this does not
happen?
A.10. The Libra Blockchain will be an open blockchain;
developers, businesses, and nonprofits of all sizes and from
all around the globe will be free to build on the blockchain.
That level playing field provides people and small- and micro-
businesses around the world equal access to a simple global
currency and financial infrastructure. And as a result, Calibra
will have to compete with many other providers. If Calibra were
to try to somehow leverage its position to raise prices--which
it will not--other service providers could undercut Calibra by
offering cheaper services on the same Libra Blockchain.
While Facebook does plan to accept Libra for ads (and hopes
we will be able to pass benefits on to advertisers), we will
continue to enable businesses to pay for ads using the payment
methods we currently accept. Facebook, through its subsidiary
Calibra, will have equal voting rights to other members of the
Association, and will not have a guaranteed position on the
Board of the Association.
Q.11. The Board of Libra, the member association that will
manage the new cryptocurrency, is made up of massive companies
that already hold substantial market power, including Uber,
PayPal, and Vodafone.
If the currency becomes more widespread, will Libra allow
member associations to provide special discounts and services
to consumers, not available to be offered by nonmember
associations, which will allow these companies to leverage
their paid membership in Libra to increase their respective
market dominance?
A.11. While the Association will make the final decision, we
understand that the Libra Association will offer incentives,
with the goals of accelerating the utility and adoption of
Libra by encouraging businesses and people to participate in
the ecosystem and ensuring the growth and health of the
ecosystem.
We understand that Libra Association members may be
eligible to receive incentives in exchange for onboarding new
users of Libra coins and for facilitating the use of Libra
coins in transactions. These incentives may include:
New User (Onboarding). The Libra Association may
distribute incentives to eligible wallets for each
person who onboards and completes the wallet's
regulated know-your-customer screening process.
New User (Retention). Additionally, if a person
meets activity criteria set by the Association for a
certain period 1 year after onboarding, the wallet may
be able to claim another reward.
Transaction Volume. For every transaction processed
using Libra, merchants may receive a percentage of the
transaction back.
We believe that Libra will be a positive force for
competition. Since the Libra Blockchain will be an open
ecosystem, businesses will be able to create competitive
services that will lead to market pressure to keep fees low
(both within Libra and in competing payment methods) and to
continue to create new and innovative services.
Q.12. Facebook has stated that the Calibra Wallet app will link
to companies that provide certain services, such as digital
currency exchanges. Coinbase, a digital currency exchange based
in San Francisco, is a member of the Board of Libra. Will
Calibra favor or promote Coinbase when presenting users with
exchange options on the wallet app?
A.12. We are working to make Calibra interoperable with other
apps and financial service providers that offer complementary
services. While Calibra is still exploring different
partnerships, including with exchanges and other market
participants that offer Libra services with exchanges, we will
look to partner with companies that offer the best services for
Calibra users while prioritizing reliability and security. We
will not favor service providers merely because they are also
Libra Association members.
Q.13. Will Libra, Facebook, or Calibra promote any other
services through the wallet app or other means, and if so, what
are those services?
A.13. Please see the response to Question 12.
Q.14. In a press release announcing the launch of Libra,
Facebook wrote, ``[f]or many people around the world, even
basic financial services are still out of reach: almost half of
the adults in the world don't have an active bank account and
those numbers are worse in developing countries and even worse
for women, the cost of that exclusion is high--approximately 70
percent of small businesses in developing countries lack access
to credit . . . .'' It presented Libra as an answer to that
challenge.
Nineteen percent of Americans and 55 percent of people in
emerging economies don't have smartphones and the numbers are
worse for older, poorer, and less well-educated consumer. How
will Libra reach these consumers?
A.14. The Libra Association was established with the mission of
creating a lower cost, more accessible payment tool built on
the Libra Blockchain that will facilitate a more connected
global payments system. For many, the current payments system
is too expensive, too slow, or, in some cases, completely
inaccessible. If successful, Libra would help address some of
these issues, costs, and barriers. And, because the Libra
Blockchain will exist as an open-source ecosystem, businesses
and developers will be free to build competitive services using
it. Ongoing competition among Libra service providers is
expected to keep fees low, reduce frictions and expand
accessibility for those seeking access to payment systems, and
deliver new payment solutions to users across the globe.
Additionally, while Calibra will not have an immediate
solution for individuals who do not own a smartphone, we expect
that developers may build Libra wallets that work over SMS, or
use technologies that work on nonsmartphones in emerging
markets. We expect that developers will be able to build
desktop-based apps for those with access to an internet cafe.
In the meantime, we will continue to evaluate additional ways
to offer Calibra's services to reach those individuals. For the
large percentage of people without bank accounts who do have
smartphones, we plan to start by supporting the Messenger and
WhatsApp communities, i.e., people with smartphones who are
already using those apps to communicate with their friends and
family, as well as people who choose to download the standalone
Calibra app.
Q.15. Will Libra encourage or allow members of the Libra
Association to offer special discounts to consumers who pay
with the new cryptocurrency?
A.15. Please see the response to Question 11.
Q.16. Many of the initial members of the Libra Association are
large businesses with significant market shares in their
industries. What guardrails will be created so that policies of
Libra Association do not disadvantage small businesses?
A.16. We think Libra will be advantageous to small businesses--
the businesses that are typically most affected by the high
fees exacted by the current system--for several reasons. First,
a global digital currency powered by blockchain technology
offers specific advantages over traditional financial services,
and an open-source blockchain will enable small businesses and
developers around the world to build services that meet the
needs of their communities. Approximately 70 percent of small
businesses in developing countries lack access to credit.
Second, being able to use a global currency and blockchain
will also allow these businesses to expand their reach by
accepting payments from around the world, including from
tourists.
Third, Libra digital coins will be backed by a reserve of
stable assets so people can trust that their Libra coins will
retain their value, and because blockchain technology reduces
the number of intermediaries involved in a transaction, the
hope is that this will help keep fees to a minimum. Several of
the expected initial members of the Libra Association,
including but not limited to PayPal, Stripe, Mercado Pago, and
PayU, have become large businesses through a core business
strategy of providing merchant services to small- and medium-
sized merchants. As such, we expect that at least some of the
incentives offered by the Association will be passed on to
these small businesses. Our vision is to create a level playing
field so that people and small businesses around the world have
equal access to a simple global currency and financial
infrastructure.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCHATZ
FROM DAVID A. MARCUS
Q.1. In creating Libra, does Facebook intend to create a global
currency? If yes, what attributes would enable Libra to be used
like currency?
A.1. We understand the Libra Association intends to create a
new digital currency that can be transferred efficiently over
the Libra Network and that is fully backed by a Reserve
consisting of a basket of leading national currencies. We
believe that Libra coins will function primarily as a medium of
exchange, and that the various digital wallets and other
payment mechanisms that will be built on top of the Libra
Network will sharply reduce the cost of cross-border
remittances and payments for local commercial transactions.
Q.2. What provision of U.S. law authorizes Facebook to create a
new currency?
A.2. While we are not aware of any U.S. law that would prohibit
the Libra Association from issuing the Libra digital currency
or allowing U.S. persons to buy and sell it, we understand the
Libra Association will not offer the Libra digital currency in
any particular jurisdiction until it has fully addressed
applicable regulatory concerns and received appropriate
approvals in that jurisdiction. The time between now and launch
is designed to be an open process and subject to regulatory
oversight and review. In fact, we expect that this will be the
broadest, most extensive, and most careful prelaunch oversight
by regulators and central banks in FinTech's history.
Q.3. You have stated that Libra would not compete with
sovereign currencies. Please explain how. How would you ensure
that Libra does not destabilize sovereign currencies around the
world?
A.3. Libra coins are not meant to be a replacement for existing
currencies and, indeed, will be fully backed by the Libra
Reserve, which will likely include the U.S. dollar and four of
the most liquid other sovereign currencies (euro, Japanese yen,
British pounds sterling, and Singapore dollar) and very short-
term Government securities denominated in those same types and
percentages of currencies.
The currencies represented in the Libra Reserve will
continue to be subject to their respective Governments'
monetary policies. We expect that certain changes to the Libra
Reserve could also be subject to regulatory requirements that
are being considered by a G7 Working Group and other
regulators. We understand the Libra Association, which will
manage the Reserve, has no intention of competing with any
sovereign currencies or entering the monetary policy arena. It
will work with the Federal Reserve and other central banks
responsible for monetary policy to make sure Libra does not
compete with sovereign currencies or interfere with monetary
policy. Monetary policy is properly the province of central
banks. And we expect FINMA and the G7 central banks to insist
on a regulatory framework for the Libra Association that will
ensure that the Association cannot interfere with monetary
policy.
Q.4. Is the expectation that consumers who sign up for the
Calibra digital wallet will exchange local currency for Libra
and keep a balance of Libra in the wallet to use within the
Facebook marketplace?
A.4. We expect Libra coins to be used primarily as a medium of
exchange rather than as a store of value, at least by users in
countries with stable national currencies, such as the U.S.
dollar or euro. Thus, we expect most Calibra users to continue
to hold the majority of their funds in the form of local
currency deposited in their bank accounts or, in the case of
the unbanked, in the form of paper money. Calibra users wishing
to make a payment would be expected to withdraw or otherwise
use local currency to purchase Libra coins that would be used
to make the remittance or payment. While it is possible that
some Calibra users located in countries with volatile national
currencies might consider Libra coins to be a more reliable
store of value than their local currencies, we expect that most
users from such countries would be more likely to hold U.S.
dollars, euros, or some other stable currency through their
bank accounts or in the form of paper money than to hold Libra
coins in their Calibra wallet. Nevertheless, it is possible
that some people might choose to hold Libra coins as a store of
value if that is the best option for them.
Calibra is a mobile wallet that you can use to send, spend,
and save money--built for anyone, throughout the world. Among
other benefits, Calibra customers can save their Libra coins
and use them for every day transactions like paying rent,
sending money home, or reimbursing a friend for dinner. Calibra
customers can convert their local currency into Libra coins to
add money to their wallets, or vice versa, when they want to
withdraw. Users will be able to choose whether to keep their
money in their Calibra wallet or cash out, and we expect that
many people will choose to cash out and use their local
currencies for purchases and other transactions. When
converting local currency to or from Libra, the app will show
the customer the exchange rate so they know what they are
getting.
Q.5. How will the Libra held in Calibra be protected? Will
balances be protected by FDIC insurance?
A.5. We will take significant measures to keep people's Libra
safe, including using cold-storage, which is air-gapped and
offline, as well as a small percentage of coin in hot wallets
for daily transactions. We will have physical security controls
(including cameras, vaults, and biometrics) as well as
cryptographic controls (such as multisignatures requiring a
quorum of approvers, and the use of hardware security modules
(HSMs)) to prevent any malicious activity.
Libra coins held in the Calibra digital wallet will not be
protected by FDIC insurance, as FDIC insurance only covers
deposits in U.S. banks and savings associations, and Calibra is
not a bank or a savings association. However, Calibra will be
regulated as a money transmitter, and registered with FinCEN as
a Money Services Business. This regulatory framework will
require Calibra to always hold Libra coins equal to or greater
than 100 percent of the coins owned by customers. Further,
Calibra will offer strong consumer protections, including
automated fraud detection, in-app reporting, and dedicated
customer service. In the rare event of unauthorized use of the
Libra coin stored in the Calibra wallet, Calibra will offer
full refunds.
Q.6. One of Libra's potential consortium members, Visa,
conducted $8.2 trillion in payments in 2018. If $8.2 trillion
in transactions were conducted with Libra, does that mean the
Libra reserve would hold $8.2 trillion of sovereign currencies
in reserve? Or could the Libra consortium invest in other
assets?
A.6. Because the Libra Reserve will be backed on a one-to-one
basis, a consumer's unit of Libra will always be backed by the
same value in the Reserve at all times. Those assets will
consist of a basket of currencies in safe assets such as cash
in banks and very short-term Government securities. The amount
of the Reserve will be determined by Libra coins in
circulation, not by total payment volume, and we expect that
many coins will change hands rapidly and also be sold by the
users for fiat currency.
Q.7. What legal or regulatory body would oversee the decisions
by the Libra consortium about which assets to hold in reserve?
Would there be any limit enforceable by law on the types of
assets the Libra consortium could hold in reserve or the amount
of interest Libra members could make from the reserve?
A.7. We expect that the Libra Association will be subject to
regulatory and supervisory oversight by FINMA, and that FINMA
will oversee the decisions by the Libra Association about which
assets to hold in the Libra Reserve, potentially in
consultation with other regulators, including the Federal
Reserve and the other G7 central banks. Similarly, we expect
that certain changes to the Libra Reserve could also be subject
to regulatory requirements that are being considered by a G7
Working Group and other regulators.
We expect that the Libra Association's future commitments
in its charter and bylaws as to the type of assets it could
hold in the Reserve, and the policy to make investments for
capital preservation and liquidity, not for yield, would be
enforceable by regulation.
Regarding the Reserve itself, we understand that each Libra
coin will be backed one-to-one by a pro rata share or unit of a
fungible pool of cash and very short-term Government securities
that are expected to be denominated in U.S. dollars (50
percent), euros (18 percent), Japanese yen (14 percent),
British pounds sterling (11 percent) and Singapore dollars (7
percent) (each such pro rata share corresponding to a Libra
coin, a ``Currency Basket'') and held by a global network of
well-capitalized bank custodians or other similarly secure
custodial arrangements as agreed upon with applicable
regulators. We understand the Libra Association is continuing
to evaluate the specific percentages of assets in the Libra
Reserve denominated in each currency, so these percentages are
subject to change as agreed among the members of the Libra
Association.
Q.8. What would the potential impact be on sovereign
currencies--both those held in reserve and those that are not
part of the Libra basket of currencies--if trillions worth of
those currencies are converted into Libra?
A.8. We believe that consumers in countries whose currencies
are represented in the Libra Reserve are likely to use Libra
coins primarily as a medium of exchange and will continue to
hold their local currencies as their preferred stores of value.
Moreover, we believe consumers looking for a better store of
value than their local currencies will continue to prefer the
U.S. dollar or other sovereign currencies.
Moreover, for countries that have capital controls in
place, we expect regulators in those countries will apply them
to wallets that enable Libra as they see fit, since on- and
off-ramps will be regulated. We understand the Libra
Association, which will manage the Reserve, has no intention of
competing with any sovereign currencies or entering the
monetary policy arena. It will work with the Federal Reserve
and other central banks responsible for monetary policy to make
sure Libra does not compete with sovereign currencies or
interfere with monetary policy. And we expect FINMA and the G7
central banks to insist on a regulatory framework for the Libra
Association that will ensure that the Association cannot
interfere with monetary policy.
Q.9. You emphasized that Calibra would have strong anti- money-
laundering (AML) and know-your-customer (KYC) systems in place.
But, how will the Libra consortium ensure that any entity that
serves as an on- or off-ramp for Libra will have strong AML and
KYC systems in place?
A.9. The Libra Association is committed to complying with
applicable laws and evaluating steps to safeguard the Libra
Network from abuse by criminal actors. Entities that are not
Libra Association members that provide services, including on-
and off-ramps, for Libra users may be subject to AML and other
laws depending upon the jurisdictions in which they are located
and operate.
We understand that the Libra Association expects to
establish KYC/AML standards pertaining to the on-boarding of
Libra Association members and authorized resellers.
Additionally, the Reserve's liquidity will be controlled by the
Association, as the only party able to mint coins (unlike in
other blockchains), and we understand the Association will
engage only with regulated resellers to provide liquidity.
Those resellers will be subject to the same KYC process as
members.
The Libra Association expects that its Articles of
Association, or other appropriate document(s) binding on the
Libra Association members under Swiss law (such as the member
agreement or bylaws) will include a commitment to compliance
with applicable AML/CFT obligations. We understand the Libra
Association also expects to establish AML/CFT guidelines that
govern its activities and those of Libra Association members,
each with respect to their involvement with the Libra
Blockchain. The Libra Association expects to evaluate what
technical and/or contractual mechanisms to employ to ensure
that custodial wallet providers operating on the Libra Network
comply with such requirements. And we understand the Libra
Association expects financial service providers operating on
the Libra Network (such as custodial wallet providers) will
comply with applicable AML/CFT obligations, including, for
example, by collecting and retaining information on
transactions involving their customers, as required under
applicable local law. Information stored in the Libra
Blockchain will be publicly available, such that anyone,
including Government authorities, will be able to conduct an
analysis of Libra Blockchain activity, including monitoring
transaction activity on the Libra Network (although that
information will be available only based upon public blockchain
addresses).
Q.10. How will you ensure that Libra is not used to facilitate
election interference, the destabilization of democracies, or
the spread of disinformation?
A.10. The Libra Blockchain will be used for payment
transactions and therefore will not provide a ready vehicle for
content distribution, nor will it function readily as a file
storage system or a means to disseminate information.
Q.11. What responsibility would the Libra consortium have to
proactively ensure that Libra is not being used to subvert
economic sanctions or finance criminal enterprises?
A.11. We understand that the Libra Association intends to
register with FinCEN as a money services business and, as such,
will be subject to the Bank Secrecy Act's AML requirements. In
addition, we understand the Libra Association intends to
require that each member of the Association comply with AML
guidelines that the Libra Association expects to establish
along with all applicable legal and regulatory obligations--
including those relating to AML--to which the member is subject
based upon the member's activities and the jurisdictions in
which it operates. Entities that are not Libra Association
members that provide services for Libra users, such as digital
wallet services, may be subject to AML and other laws depending
upon the jurisdictions in which they are located and operate.
Our understanding is that, in recognition of the importance
of this issue, the Libra Association intends to work with
regulators to address, before launch, any regulatory concerns
related to the Association's AML obligations.
Q.12. As described, Libra sounds like an asset-backed security.
Would Libra be considered a security and subject to regulation
by the Securities and Exchange Commission? Why or why not?
A.12. The Supreme Court has explained that a key consideration
in determining whether a nontraditional asset is a security is
whether holders of that asset have a reasonable expectation of
profits based on the entrepreneurial or managerial efforts of
others. See, e.g., SEC v. W.J. Howey Co., 328 U.S. 293 (1946).
The SEC has repeatedly reiterated this view with respect to
digital assets, including through recent staff-level guidance
and no-action letters. See, e.g., SEC, Strategic Hub for
Innovation and Financial Technology, ``Framework for
`Investment Contract' Analysis of Digital Assets'' (Apr. 3,
2019), https://www.sec.gov/corpfin/framework-investment-
contract-analysis-digital-assets; SEC Division of Corporation
Finance, No-Action Letter, TurnKey Jet, Inc. (Apr. 3, 2019),
https://www.sec.gov/divisions/corpfin/cf-noaction/2019/turnkey-
jet-040219-2a1.htm; SEC Division of Corporation Finance, No-
Action Letter, Pocketful of Quarters, Inc. (July 25, 2019),
https://www.sec.gov/corpfin/pocketful-quarters-inc-072519-2a1.
Fundamentally, a Libra digital coin is not an investment
and not a security. It is a payments tool. Libra does not
provide any prospect of an investment return for the holder of
a Libra digital coin based on the activities of others. People
will not buy a Libra coin to hold it as if it were a stock or a
bond, expecting the Libra coin to pay income or otherwise
increase in value. We are continuing to discuss these issues
with the SEC and its staff, but for these and related reasons,
we believe that a Libra digital coin should not be considered a
security under U.S. law.
Q.13. You stated that consumer's Calibra transaction data would
not be shared with Facebook. What specific information or types
of information would be shared between Calibra and Facebook?
A.13. Facebook created Calibra as a regulated subsidiary in
part to ensure separation between social and financial data and
to build and operate services on its behalf on top of the Libra
Network. And, except in limited circumstances that are
described below, Calibra will not share customers' account
information or financial data with Facebook.
Those limited circumstances where data might be shared
between Calibra and Facebook include when data sharing is used
to prevent fraud or criminal activity, as well as when users
choose to share their data. As a Facebook subsidiary, Calibra
may be legally obligated to share certain data with Facebook so
the company can meet its regulatory requirements. This could
consist of aggregated payment numbers for financial and tax
reporting or information necessary to comply with the law.
The limited user information that Calibra does collect and
store will be subject to strong security and access controls.
User payment credentials, such as a debit card number, will not
be accessible by Facebook or its affiliates. User transaction
activity is private and will never be posted to Facebook,
unless users themselves choose to share it.
Similar to other commerce platforms, there may be times
when Facebook, acting in its capacity as a merchant or
platform, will independently have access to information about
completed transactions that take place on Facebook's commerce
platform (e.g., purchase made, merchant, transaction amount,
date, time). This may include transactions completed via
Calibra with Libra as the exchanged currency, though this would
not involve a special transfer of information from Calibra to
Facebook. In those situations, Facebook's independent access to
transaction information will be the same as for other
transactions on the Facebook platform completed using other
payment methods like credit cards.
Q.14. On July 22, the Washington Post reported that ``[a] wave
of fakes purporting to sell or represent Facebook's not-yet-
available Libra currency [has] swept onto'' Facebook and
Instagram, and that Facebook removed these pages ``after the
Washington Post alerted Facebook to their spread.'' \1\
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\1\ https://www.washingtonpost.com/technology/2019/07/22/
facebooks-libra-currency-spawns-wave-fakes-including-facebook-itself/
?utm-term=.11a7729b2c3c
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Before being alerted to the fake activity, what steps had
Facebook taken to prevent fake accounts, pages, and groups
purporting to sell or represent Libra? Why did those steps fail
to prevent these fake activity on Facebook and Instagram? Why
did Facebook not detect these fake activity? What steps will
Facebook take going forward to address this problem? What
protection will Facebook provide to consumers who may fall prey
to fake activity and fraud?
A.14. Before they are published on Facebook, ads go through an
ad review process. Additionally, Facebook removes ads and Pages
that violate our policies when we become aware of them, and we
are constantly working to improve detection of scams on our
platforms.
Misleading or deceptive ads have no place on Facebook. We
want people to continue to discover and learn about new
products and services through Facebook ads without fear of
scams or deception. We are committed to preventing misleading
advertising on our platforms, especially in the area of
financial products and services. That is why ads may not
promote cryptocurrency trading or related products and services
without prior written permission. This policy is part of an
ongoing effort to improve the integrity and security of our
ads, and to make it harder for scammers to profit from a
presence on Facebook.
Authenticity matters, for Pages as well as ads, because
people need to trust that the content they are seeing is valid
and they need to trust the connections they make. We are now
blocking millions of attempts to register false accounts each
and every day. When it comes to abusive fake accounts, our goal
is simple: find and remove as many as we can while removing as
few authentic accounts as possible. We do this in three
distinct ways and include data in the Community Standards
Enforcement Report to provide as full a picture as possible of
our efforts:
1. Blocking accounts from being created: The best way to
fight fake accounts is to stop them from getting onto
Facebook in the first place. We have built technology
that can detect and block accounts before they are
created. Our systems look for a number of different
signals that indicate if accounts are created in mass
from one location. A simple example is blocking certain
IP addresses altogether so that they cannot access our
systems and thus cannot create accounts.
2. Removing accounts when they sign-up: Our advanced
detection systems also look for potential fake accounts
as soon as they sign-up, by spotting signs of malicious
behavior. These systems use a combination of signals
such as patterns of using suspicious email addresses,
suspicious actions, or signals previously associated
with other fake accounts we have removed. Most of the
accounts we currently remove are blocked within minutes
of their creation before they can do any harm.
3. Removing accounts already on Facebook: For accounts that
make it onto the platform, we give these accounts the
benefit of the doubt until they exhibit signs of
malicious activity. We find these accounts when our
detection systems identify such behavior or if people
using Facebook report them to us. We use a number of
signals about how the account was created and how the
account is being used to determine whether it has a
high probability of being fake and disable those that
are.
With respect to the Calibra digital wallet, Calibra will
offer strong consumer protections and intends to comply with
applicable consumer protection regulations, including
responsibilities arising out of its State money transmission
licenses. Calibra's consumer protection efforts will include
automated fraud detection, in-app reporting, and dedicated
customer service. In the rare event of unauthorized
transactions of Libra coins stored in the Calibra wallet,
Calibra will offer full refunds.
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR CORTEZ MASTO FROM DAVID A. MARCUS
Q.1. Money Laundering--During the hearing I asked about how the
Libra Association itself will be involved in enforcing AML
rules and obligations. You responded that the association
itself ``is not running anything, it's just coordinating
governance.'' However, in your letter to Chairman Crapo and
Ranking Member Brown, you state that the Association will be
``operating the Libra Blockchain.'' This raises questions of
what obligations the Association will have to prevent
laundering.
Please specify how AML obligations, as they exist in the
United States, will work with the varying entities that make up
the Libra system.
A.1. We understand that the Libra Association intends to
register with FinCEN as a money services business and, as such,
will be subject to the Bank Secrecy Act's anti- money-
laundering (AML) requirements. In addition, we understand the
Libra Association intends to require that each member of the
Association comply with AML guidelines that the Libra
Association expects to establish along with all applicable
legal and regulatory obligations, including those relating to
AML, to which the member is subject based upon the member's
activities and the jurisdictions in which it operates. Entities
that are not Libra Association members that provide services
for Libra users, such as digital wallet services, may be
subject to AML and other laws depending upon the jurisdictions
in which they are located and operate.
In recognition of the importance of this issue, we
understand that the Libra Association intends to work with
regulators to address, before launch, any regulatory concerns
related to the Association's AML requirements.
Q.2. Under FinCEN guidance, do you believe the Libra
Association would qualify as an ``administrator,'' placing AML
obligations on the Association itself?
A.2. The Libra Association is committed to ensuring that the
Libra Network is compliant with applicable laws and
regulations. We understand that the Libra Association is
evaluating whether it would qualify as an ``administrator'' of
a virtual currency as described in FinCEN guidance, but that,
in any case, it intends to register with FinCEN as a money
services business and, as such, will be subject to the Bank
Secrecy Act's AML requirements.
Q.3. Have you thought about any concerns related to synthetic
identity fraud?
A.3. The Libra Association is committed to preventing
malicious, fraudulent, or other illegal conduct using the Libra
Blockchain, including synthetic identity fraud. We expect that
the Libra Association will explore a range of appropriate
technical and contractual options to mitigate this concern.
With respect to Facebook's operation of the Calibra wallet,
we have established a multitiered, risk-based customer due
diligence program that requires different levels of information
collection, user identification, and due diligence based on the
risk associated with a specific user. We expect that our
procedures and processes for user identification, due
diligence, and enhanced due diligence will play a critical part
in Calibra's overall compliance program. Among other things,
Calibra will subject all users, irrespective of assessed risk
value, to customer identification and verification processes
before a user can utilize the Calibra wallet and related
services, including purchasing or sending Libra.
Q.4. Tax Issues--Libra's value is pegged to a basket of global
currencies. This seems to mean that as global exchange rates
change, the domestic value of a person's holdings will change
as well. This can create capital gains, which are taxed in many
countries. A spokesperson has said that ``People will be
responsible for filing their taxes in accordance with local
laws in the jurisdictions in which they operate. We expect that
many wallets and financial services built on the Libra
Blockchain will provide people with tools to help manage
this.''
Is there going to be any sort of oversight over potential
tax evasion issues?
Will Governments have any means to police this on the
platform?
A.4. Facebook's Calibra product (i.e., digital wallet) will
include functionality to assist both Facebook and users in
complying with the required reporting obligations for
transactions that occur on the platform.
Q.5. International Monetary Policy Impacts--The director of the
People's Bank of China research bureau stated if Libra is
established, other countries may look to compete by developing
central bank digital currencies that are more closely linked to
their own national currencies. China is already exploring this
option.
What are the implications for global monetary policy, such
as the status of the dollar as the world's reserve currency?
A.5. The Libra Blockchain is meant to complement the existing
global payments system. We do not believe that the existence of
Libra coins will have a destabilizing impact on global monetary
policy or affect the U.S. dollar's status as the world's
reserve currency. Each Libra coin will be backed one-to-one by
a basket of assets held in the Libra Reserve. The current plan
is for the assets in the Libra Reserve to be limited to cash
and very short-term Government securities that are expected to
be denominated in U.S. dollars, euros, Japanese yen, British
pounds sterling, and Singapore dollars that will be held by a
global network of well-capitalized bank custodians.
Libra is not meant to be a replacement for Government-
issued currencies and is not meant to--and we would not expect
it to--affect the ability of countries whose currencies are
included in the Reserve to carry out their independent monetary
policy. The currencies represented in the Libra Reserve will
continue to be subject to their respective Governments'
monetary policies. We expect that certain changes to the Libra
Reserve could also be subject to regulatory requirements that
are being considered by a G7 Working Group and other
regulators. We understand the Libra Association, which will
manage the Reserve, has no intention of competing with any
sovereign currencies or entering the monetary policy arena. It
will work with the Federal Reserve and other central banks
responsible for monetary policy to make sure Libra does not
compete with sovereign currencies or interfere with monetary
policy. Monetary policy is properly the province of central
banks. And we expect FINMA and the G7 central banks to insist
on a regulatory framework for the Libra Association that will
ensure that the Association cannot interfere with monetary
policy.
Q.6. Can you explain more about how the basket of reference
currencies will impact the value of real, existing currencies?
A.6. We understand that each Libra coin will be backed one-to-
one by a pro rata share or unit of a fungible pool of cash and
very short-term Government securities that are expected to be
denominated in U.S. dollars (50 percent), euros (18 percent),
Japanese yen (14 percent), British pounds sterling (11
percent), and Singapore dollars (7 percent) (each such pro
rata share corresponding to a Libra coin, a ``Currency
Basket'') and held by a global network of well-capitalized bank
custodians or other similarly secure custodial arrangements as
agreed upon with applicable regulators. We understand the Libra
Association is continuing to evaluate the specific percentages
of assets in the Libra Reserve denominated in each currency, so
these percentages are subject to change as agreed among the
members of the Libra Association.
We do not believe that Libra will materially affect the
value of the basket of currencies in the Libra Reserve. Though
Libra may increase demand for one or more of the individual
currencies, we do not expect that any such increase in demand
would be sufficient to affect the market values of those
currencies. Again, we understand the Libra Association, which
will manage the Reserve, has no intention of competing with any
sovereign currencies or entering the monetary policy arena. It
will work with the Federal Reserve and other central banks
responsible for monetary policy to make sure Libra does not
compete with sovereign currencies or interfere with monetary
policy. And we expect FINMA and the G7 central banks to insist
on a regulatory framework for the Libra Association that will
ensure that the Association cannot interfere with monetary
policy.
Q.7. Governance and the Libra Association--According to the
white paper, you say ``The Libra Association is an independent,
not-for-profit membership organization headquartered in Geneva,
Switzerland. The association's purpose is to coordinate and
provide a framework for governance for the network and
reserve.''
What transparency standards will apply to this new
association that Facebook proposes should govern Libra?
A.7. While Facebook currently has a leadership role in the
Libra Association, once the Libra Network launches, Facebook
and its affiliates will have the same privileges, commitments,
and financial obligations as any other Initial Member of the
Association. Moreover, the Association is a separate
organization from Facebook with its own executives, and it is
still in formation. We can speak only to our current
understanding of the Association and its plans.
We expect that the Libra Association will make decisions
democratically and transparently in a manner to be agreed among
the members of the Libra Association. We understand the
Association will be governed by the Libra Association Council,
which will be comprised of a representative from each member of
the Association. Together, they will make decisions on the
governance of the Libra Blockchain and Reserve. Operating and
policy decisions of the Council will require various voting
thresholds depending on the importance of the decision; major
policy or technical decisions will require the supermajority
consent of two-thirds of the votes. We understand that the
voting process will be transparent: most votes will be
conducted on the Libra Blockchain, especially when the decision
affects the Blockchain, such as votes to add new members.
Ultimately, the governance of the Association will be
determined by the members, and it is our expectation that the
charter and bylaws of the Association will be public once
finalized, and will continue to be public as they evolve.
Q.8. Are there any sort of public feedback mechanisms to
decisions made by Libra?
A.8. We understand the Association welcomes input from the
general public and is committed to providing Libra users the
opportunity to ask questions about and comment upon the Libra
coin and the operations of the Libra Association. We expect the
exact nature of these processes will be agreed among the
members of the Libra Association. When it comes to decisions
made by wallet providers, users will be able to choose among
wallets offered by various companies, which will create
competitive pressures to provide useful features and rigorous
protections. The consensus mechanisms and other programming
underpinning the Libra Blockchain have also been made open-
source, and we welcome developers to provide feedback and
contribute code to help build the Libra ecosystem.
Q.9. Will Libra's decisions take into account national
interests, such as the value and control of currencies?
A.9. We understand the Libra Association has no intention of
entering the monetary policy arena. The currencies represented
in the Libra Reserve will be subject to their respective
Governments' monetary policies. We understand the Libra
Association will only mint or burn Libra Coins in response to
buy or sell orders from authorized resellers, and the
Association will not have targets for the number of coins that
``should'' be in circulation. We expect the Libra Association
will work with the Federal Reserve and other central banks to
make sure Libra does not compete with sovereign currencies or
interfere with monetary policy.
Q.10. Isn't there risk of collusion amongst the participants
that could vote to change behavior to their benefit?
A.10. As noted in the response to Question 7 above, the
Association is a separate organization from Facebook and is
still in formation. That said, while the Libra Association will
make final decisions about governance, we understand that the
Council will be structured to minimize the risk of collusion.
For example, we understand most decisions will be made by votes
of the full Council, requiring an absolute majority, if not a
two-thirds supermajority, which will make swaying the results
of a vote difficult--especially given the geographic diversity
and the requirements and profile of Initial Members. We expect
that the voting powers in the Council will be capped for each
member to avoid concentration of power. Additionally, we expect
that the Libra Association will develop a policy that will
forbid a degradation of the assets in the Reserve to the
advantage of Association members or investors.
Q.11. Capital Controls--In response to the Great Recession a
number of countries like Brazil, Uruguay, and China imposed
capital controls. These are measures taken by a Government or
central bank that aim to limit the flow of capital in and out
of the domestic economy. Many Nations resort to these policies
to prevent capital flight from their Nations during financial
crises.
Have you thought about how Libra will impact the ability of
Nations to respond to crises with tools like capital controls?
A.11. For countries that have capital controls in place, we
expect regulators in those countries will apply them to wallets
that enable Libra as they see fit, since on- and off-ramps will
be regulated. And we understand that the Association plans to
work with central banks to identify issues that may relate to
those central banks' ability to perform monetary policy.
For more information on how the Libra Blockchain is meant
to complement the existing global payments system, please see
the response to Question 5.
Q.12. Smart Contracts--According to the white paper put out by
the Libra Association, the system will rely on so-called
``smart contracts.'' As far as I understand, these are
computer-coded sets of instructions that ``self-perform''
contracts without a middleman by automatically transferring the
good or services to the buyer when the monetary and other
conditions are agreed upon.
Would you agree with is an accurate characterization?
A.12. The automated purchase of goods or services is one
possible use case for ``smart contracts.'' More generally,
smart contracts describe the rules for changing the ``state''
of the blockchain. A rule that encodes an exchange is one way
of changing that state.
Q.13. Certain factors in contract law such as frustration,
duress, undue influence, or misrepresentation need subjective
human interpretation of judgement on a case-by-case basis, how
is this possible under automated contract execution?
A.13. Whether contracts governing Libra or the Libra Network
are traditional contracts or take the form of smart contracts
embodied in computer code, these contracts would be subject to
the same laws that apply to other types of contracts. We
understand the Libra Association expects to carefully consider
the implications of contract law and other law in the
jurisdictions in which it will operate. Developers building on
the Libra Blockchain will also be responsible for ensuring that
what they build complies with applicable law.
Q.14. Broadly, how have you thought about how contract law in
the various Nations you will be operating in will impact Libra?
A.14. Please see the response to Question 13.
Q.15. Libra and ``Right to Deletion''--The European Union's
GDPR as well as my bill includes a right for consumers to
delete information that is stored about them. Because of their
decentralized nature, blockchains and the information stored on
them is not designed to be removed, it is immutable.
Can you explain the tension between these consumer rights
and how Libra will work?
A.15. The Libra Blockchain is pseudonymous and allows users to
hold one or more addresses that are not linked to their real-
world identity. This approach is familiar to many users,
developers, and regulators. Companies that write onto the Libra
Blockchain, such as wallets, exchanges, merchants, and similar
services, will be the entities that store consumers' personal
information and therefore, they will have the legal obligations
to comply with applicable data protection laws and
regulations--including any rights of deletion.
Q.16. Have you thought through how Libra may have to work
differently in the EU?
A.16. The Libra Association is committed to supporting the
global dialogue on how blockchain and cryptoassets should be
regulated, including in the EU. We understand that the
Association fully plans to engage with privacy regulators in a
clear and transparent fashion to understand regulatory
requirements and discuss technological and governance solutions
for compliance.
Q.17. Investments--The way the Libra Association will make
profit is by earning interest and investing the reserves it
holds. As you know, by a two-thirds vote of Libra members,
policy can be changed without any input from Libra users or
regulators.
Isn't it possible that by a simple vote, the Libra
Association can simply change the investment strategy and
invest the reserves in risky assets? What protections exist for
users in this case?
A.17. We expect FINMA and the G7 central banks to insist on a
regulatory framework for the Libra Association that will impose
controls on the investments in the Libra Reserve to prevent the
Libra Reserve from being invested in risky assets. Subject to
these regulatory controls, we understand the Libra Association
may change the Reserve composition to ensure it preserves value
and to respond to significant changes in market conditions
(e.g., an economic crisis in one of the represented regions).
Additionally, we expect that the Libra Association will develop
a policy that will forbid a degradation of the assets in the
Reserve to the advantage of Association members or investors.
Q.18. Consumer Profiling--In the last few years we have seen
financial data being using to create secret consumer scores
that can become proxies for credit scores. This has led to
highly concerning practices like digital redlining and
discrimination.
Will there be protections in place to ensure data collected
from Libra is not used for this purpose?
A.18. Discrimination has no place in the Libra Association. To
the contrary, the goal of Libra is to foster inclusion in the
financial system by lowering transaction costs and removing
barriers to access. Libra was established to be a digitally
native currency that can be used around the world and enable
economic empowerment.
We also know that consumers of financial services and
products can be vulnerable. That is why there is a commitment
to strong consumer protection in the Libra ecosystem. We
understand the Libra Association is committed to working with
authorities to shape a regulatory environment that encourages
technological innovation while maintaining the highest
standards of consumer protection. When it comes to data
privacy, we are committed to complying with global privacy
regulations and working with regulators and policymakers to
ensure protection of user data.
Q.19. Cambridge Analytica Similarities--Calibra will partner
with third party developers to build digital wallets. Such
vendors get to decide what personal information they require
from consumers and what they get to do with it. It goes without
saying that Facebook does not have a good track record
overseeing partners when personal data of millions of users is
involved.
What does Facebook plan to do to ensure that Libra doesn't
become the next Cambridge Analytica?
A.19. At this time, Calibra does not plan on partnering with
third-party developers to build digital wallets. And Calibra is
being designed with a strong commitment to ensuring customers'
privacy rights in relation to their data. We believe that
customers hold rights to their data and should have simple,
understandable, and accessible data-management controls and
clear information about how we may work with vendors and
service providers to support our services. Facebook will be
leveraging its third-party compliance program to ensure that
any vendor or service provider with access to personal data is
appropriately vetted and monitored.
It is also important to note that the Libra Blockchain is
the platform upon which Calibra will be built. There are no
plans for a platform operated on top of Calibra.
Additional Material Supplied for the Record
LETTER TO MARK ZUCKERBERG SUBMITTED BY CHAIRMAN CRAPO AND SENATOR BROWN
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
FACEBOOK RESPONSE SUBMITTED BY DAVID MARCUS
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
LETTER SUBMITTED BY THE ELECTRONIC PRIVACY INFORMATION CENTER
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
LETTER SUBMITTED BY THE INDEPENDENT COMMUNITY BANKERS OF AMERICA
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
LETTER SUBMITTED BY THE NATIONAL ASSOCIATION OF FEDERALLY-INSURED
CREDIT UNIONS
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
STATEMENT SUBMITTED BY CAITLIN LONG
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]