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After 7 years FTC finally imposes funny $5 billion penalty on Facebook

Christian Fernsby |
Facebook will pay a record-breaking $5 billion penalty to settle Federal Trade Commission charges that the company violated a 2012 FTC order by deceiving users about their ability to control the privacy of their personal information.

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Facebook earned $16.9bn in just one quarter
The $5 billion penalty against Facebook is the largest ever imposed on any company for violating consumers’ privacy and almost 20 times greater than the largest privacy or data security penalty ever imposed worldwide. It is one of the largest penalties ever assessed by the U.S. government for any violation.

The FTC fine is a mere drop in the bucket for Facebook, which reported better-than-expected quarterly revenues of $16.9bn on Wednesday, up from $13.2bn for the same period in 2018.

The settlement order announced also imposes unprecedented new restrictions on Facebook’s business operations and creates multiple channels of compliance.

The order requires Facebook to restructure its approach to privacy from the corporate board-level down, and establishes strong new mechanisms to ensure that Facebook executives are accountable for the decisions they make about privacy, and that those decisions are subject to meaningful oversight.

More than 185 million people in the United States and Canada use Facebook on a daily basis.

Facebook monetizes user information through targeted advertising, which generated most of the company’s $55.8 billion in revenues in 2018.

To encourage users to share information on its platform, Facebook promises users they can control the privacy of their information through Facebook’s privacy settings.

Following a yearlong investigation by the FTC, the Department of Justice will file a complaint on behalf of the Commission alleging that Facebook repeatedly used deceptive disclosures and settings to undermine users’ privacy preferences in violation of its 2012 FTC order.

These tactics allowed the company to share users’ personal information with third-party apps that were downloaded by the user’s Facebook “friends.” The FTC alleges that many users were unaware that Facebook was sharing such information, and therefore did not take the steps needed to opt-out of sharing.

In addition, the FTC alleges that Facebook took inadequate steps to deal with apps that it knew were violating its platform policies.

In a related, but separate development, the FTC also announced today separate law enforcement actions against data analytics company Cambridge Analytica, its former Chief Executive Officer Alexander Nix, and Aleksandr Kogan, an app developer who worked with the company, alleging they used false and deceptive tactics to harvest personal information from millions of Facebook users.

Kogan and Nix have agreed to a settlement with the FTC that will restrict how they conduct any business in the future.

To prevent Facebook from deceiving its users about privacy in the future, the FTC’s new 20-year settlement order overhauls the way the company makes privacy decisions by boosting the transparency of decision making and holding Facebook accountable via overlapping channels of compliance.

The order creates greater accountability at the board of directors level.

It establishes an independent privacy committee of Facebook’s board of directors, removing unfettered control by Facebook’s CEO Mark Zuckerberg over decisions affecting user privacy.

Members of the privacy committee must be independent and will be appointed by an independent nominating committee.

Members can only be fired by a supermajority of the Facebook board of directors.

The order also improves accountability at the individual level.

Facebook will be required to designate compliance officers who will be responsible for Facebook’s privacy program.

These compliance officers will be subject to the approval of the new board privacy committee and can be removed only by that committee—not by Facebook’s CEO or Facebook employees.

Facebook CEO Mark Zuckerberg and designated compliance officers must independently submit to the FTC quarterly certifications that the company is in compliance with the privacy program mandated by the order, as well as an annual certification that the company is in overall compliance with the order.

Any false certification will subject them to individual civil and criminal penalties.

The order also strengthens external oversight of Facebook.

The order enhances the independent third-party assessor’s ability to evaluate the effectiveness of Facebook’s privacy program and identify any gaps.

The assessor’s biennial assessments of Facebook’s privacy program must be based on the assessor’s independent fact-gathering, sampling, and testing, and must not rely primarily on assertions or attestations by Facebook management.

The order prohibits the company from making any misrepresentations to the assessor, who can be approved or removed by the FTC.

Importantly, the independent assessor will be required to report directly to the new privacy board committee on a quarterly basis.

The order also authorizes the FTC to use the discovery tools provided by the Federal Rules of Civil Procedure to monitor Facebook’s compliance with the order.

As part of Facebook’s order-mandated privacy program, which covers WhatsApp and Instagram, Facebook must conduct a privacy review of every new or modified product, service, or practice before it is implemented, and document its decisions about user privacy.

The designated compliance officers must generate a quarterly privacy review report, which they must share with the CEO and the independent assessor, as well as with the FTC upon request by the agency.

The order also requires Facebook to document incidents when data of 500 or more users has been compromised and its efforts to address such an incident, and deliver this documentation to the Commission and the assessor within 30 days of the company’s discovery of the incident.

Additionally, the order imposes significant new privacy requirements, including the following:

Facebook must exercise greater oversight over third-party apps, including by terminating app developers that fail to certify that they are in compliance with Facebook’s platform policies or fail to justify their need for specific user data;

Facebook is prohibited from using telephone numbers obtained to enable a security feature (e.g., two-factor authentication) for advertising;

Facebook must provide clear and conspicuous notice of its use of facial recognition technology, and obtain affirmative express user consent prior to any use that materially exceeds its prior disclosures to users;

Facebook must establish, implement, and maintain a comprehensive data security program;

Facebook must encrypt user passwords and regularly scan to detect whether any passwords are stored in plaintext; and

Facebook is prohibited from asking for email passwords to other services when consumers sign up for its services.


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