Hillicon Valley: FTC fines Facebook $5B in privacy settlement | Critics pan settlement as weak | Facebook also faces FTC antitrust probe | Senate panel advances ‘deepfakes’ legislation | House passes anti-robocall bill

by Harper Neidig, Maggie Miller, Olivia Beavers, Emily Birnbaum - 07/24/19 7:01 PM ET

Welcome to Hillicon Valley, The Hill’s newsletter detailing all you need to know about the tech and cyber news from Capitol Hill to Silicon Valley. If you don’t already, be sure to sign up for our newsletter with this LINK.

Welcome! Follow the cyber team, Olivia Beavers (@olivia_beavers) and Maggie Miller (@magmill95), and the tech team, Harper Neidig (@hneidig) and Emily Birnbaum (@birnbaum_e).

FTC FINES FACEBOOK $5 BILLION: Facebook will pay $5 billion as part of a record settlement with the Federal Trade Commission (FTC) over charges of extensive privacy violations in its handling of the Cambridge Analytica scandal, the agency announced Wednesday.

The allegations: The FTC found that Facebook deceived its users about their privacy protections while allowing third parties to harvest their data and that the company failed to establish a “reasonable privacy program that safeguarded the privacy, confidentiality, and integrity of user information” as required under a previous agreement with the agency.

The agency further alleged that Facebook illegally used phone numbers that users provided to protect their accounts’ security for advertising purposes without their consent. And Facebook was also charged with deceiving its users about its facial recognition technology.

“Despite repeated promises to its billions of users worldwide that they could control how their personal information is shared, Facebook undermined consumers’ choices,” FTC Chairman Joseph Simons said in a statement.

Blowback on FTC: The fine is by far the highest the U.S. government has ever imposed on a technology company for privacy violations, but the FTC’s Republican leadership was immediately put on the defensive against long-building criticism that the punishment was not severe enough for a company that has been besieged by privacy scandals.

Simons and his Republican colleagues stressed that the remedies in their order were restricted by the agency’s limited legal authority codified in a century-old law. And they also reiterated their call for Congress to grant the commission more power and resources.

“The extent to which Facebook, or any other company, should be able to collect, use, aggregate, and monetize data, is something Congress should evaluate in its consideration of federal privacy legislation,” the three GOP commissioners said in a joint statement.

What Facebook has to do: As part of the latest settlement, Facebook will have to create a privacy committee within its board of directors to review decisions within the company and provide more oversight of Chairman and CEO Mark Zuckerberg.

Facebook also agreed to pay the Securities and Exchange Commission $100 million to settle charges that it had misled investors about the material risks that its privacy practices posed.

The social media company — and its subsidiaries Instagram and WhatsApp — is also required to better oversee how third-party developers handle user data. And the settlement includes certain conditions imposed on Facebook’s own business practices, like a prohibition on using phone numbers that users provide for two-factor authentication for advertising and a requirement that it obtain affirmative consent from users before using facial recognition technology.

FTC divided: The FTC’s Republican commissioners approved the deal in a 3-2 party-line vote, with their Democratic colleagues dissenting.

One of those Democrats, Commissioner Rohit Chopra, argued in his dissent that the settlement does not go far enough to rein in what he sees as rampant privacy abuses within the company. Those abuses, Chopra said, are a feature or Facebook’s business model of monetizing information about its users for advertising.

CRITICS POUR IN: Lawmakers on both sides of the aisle on Wednesday derided the Federal Trade Commission’s (FTC) record-breaking settlement with Facebook as weak, arguing that the final agreement does not hit Facebook’s core business model and does not require extensive government oversight of the company accused of flagrantly violating Americans’ privacy.

Almost as soon as the FTC announced its settlement with Facebook, lawmakers in both chambers emerged with scathing criticism, calling the agreement a slap on the wrist for a company that recorded almost $56 billion in revenue last year.

“This fig leaf deal releases Facebook without requiring any real privacy protections–no restraints on future data use, no accountability for top executives, nothing more than chump change financial fines,” Sen. Richard Blumenthal (D-Conn.) said in a statement.

On the other side of the aisle, outspoken tech critic Sen. Josh Hawley (R-Mo.) slammed the deal for doing “nothing to change Facebook’s creepy surveillance of its own users [and] the misuse of user data. It does nothing to hold executives accountable. It utterly fails to penalize Facebook in any effective way.”

Multiple lawmakers pointed out that the penalties could have been tougher if the U.S. had a privacy law. Since the FTC’s investigation began over a year ago, lawmakers have not been able to work up significant draft privacy legislation as talks have broken down within a privacy working group under the Senate Commerce Committee.

Sen. Maria Cantwell (D-Wash.), the ranking member of the committee who recently chose to step back from the working group, said the decision “underscores the need for strong privacy legislation.”

Read more here.

AND THE FTC AIN’T DONE YET: Facebook also announced on Wednesday that the Federal Trade Commission (FTC) had opened an antitrust investigation into the company.

“The online technology industry and our company have received increased regulatory scrutiny in the past quarter. In June 2019, we were informed by the FTC that it had opened an antitrust investigation of our company,” Facebook said in an earnings release.

The revelation comes a day after the Justice Department separately announced that it was launching an investigation into whether major tech companies have stifled competition or harmed consumers.

If the agency finds that Facebook has behaved in a way that suppresses competition, it could choose to pursue legal action, which would likely lead to a costly, years-long court battle.

Read more here.

ELECTION SECURITY REBELLION: Senate Democrats attempted to force a vote on election security legislation on Wednesday night in response to earlier comments on Russia’s interference efforts from former special counsel Robert Mueller.

Sens. Mark Warner (D-Va.), Ron Wyden (D-Ore.), and Richard Blumenthal (D-Conn.) sought unanimous consent on multiple bills designed to secure elections, but were reportedly blocked by Sen. Cindy Hyde-Smith (R-Miss.).

The senators took the step following Mueller’s comments during House Judiciary and Intelligence Committee hearings earlier in the day.

During questioning by Rep. Will Hurd (R-Texas), Mueller said that Russians are attempting to interfere in elections “as we sit here,” and predicted they would interfere in the 2020 elections.

Mueller also testified that “over the course of my career, I’ve seen a number of challenges to our democracy,” while adding, “The Russian government’s effort to interfere in our election is among the most serious. As I said on May 29, this deserves the attention of every American.”

One of the bills the senators sought to secure a vote on was Warner’s Foreign Influence Reporting in Election (FIRE) Act, which would require political campaigns to report foreign contacts to the FBI and the Federal Election Commission.

“If the President and his campaign can’t be trusted to do the right thing and report foreign interference attempts to the FBI, then we need to require it by law,” Warner tweeted on Wednesday afternoon. “Today I’m heading to the Senate floor to call for a vote on my bill, the FIRE Act, which will do just that.”

Read more here.

ONE STEP CLOSER TO ROBOCALL LAW: The House on Wednesday took a major step toward cracking down on illegal robocalls by passing legislation allowing for tougher penalties against the scammers who generate billions of unwanted calls each year.

Lawmakers passed the measure, sponsored by Energy and Commerce Committee Chairman Frank Pallone Jr. (D-N.J.), in a 429-3 vote.

The bill takes aim at illegal spam calls by toughening up the Federal Communications Commission’s (FCC) ability to take action against illegal robocalling operations and requiring all carriers to implement technology to make sure calls are authentic.

“We’re proud of the strong support our bipartisan Stopping Bad Robocalls Act received this afternoon and look forward to working with our colleagues in the Senate to produce a bill that the President can sign into law,” the four leading sponsors of the House bill said in a statement.

The number of robocallers dialing up U.S. consumers is on the rise. Some estimates say there were more than 48 billion robocalls in 2018, up almost 50 percent from the previous year.

The legislation requires telephone carriers to implement technology that verifies caller identity without charging customers an extra fee, while extending the FCC’s authority to impose penalties against the entities that send spam calls.

What’s next: The Stopping Bad Robocalls Act is similar to the Senate’s Telephone Robocall Abuse Criminal Enforcement and Deterrence Act. The Senate passed its measure 97-1 earlier this year.

A spokesman for the House Energy and Commerce Committee told The Hill there likely will not be a formal conference committee to resolve discrepancies between the two bills. Instead, he said there will be “informal negotiations” during the August recess.

Read more here.

MNUCHIN’S ALL IN ON ANTITRUST PROBE: Treasury Secretary Steven Mnuchin voiced support Wednesday for a sweeping Justice Department (DOJ) antitrust investigation into the largest U.S. tech companies, taking special aim at Amazon.

Mnuchin told CNBC’s “Squawk Box” that the DOJ was “absolutely right” to investigate whether tech powerhouses like Amazon, Facebook and Google harm consumers by impeding competition.

The Justice Department announced Tuesday it would probe “whether and how market-leading online platforms have achieved market power and are engaging in practices that have reduced competition, stifled innovation, or otherwise harmed consumers.”

Mnuchin homed in on Amazon’s impact on U.S. retailers that have suffered as more consumers abandon brick-and-mortar stores for online shopping.

“If you look at Amazon, although there’s certain benefits to it, they’ve destroyed the retail industry across the United States, so there’s no question they’ve limited competition,” Mnuchin said.

“There’s areas where they’ve hurt small businesses, so I don’t think this is a one-size-fits-all and I don’t have an opinion going other than I think it’s absolutely right that the attorney general is looking into these issues.”

Amazon’s massive growth and expansion has triggered bipartisan concern among lawmakers and policymakers. Dozens of Amazon warehouse and distribution center workers have also accused the company of unfair and dangerous working conditions.

A personal link: But Mnuchin also suffered personal losses from Amazon’s dominance of U.S. commerce.

Mnuchin served on the board of directors of Sears Holding Corp. from 2005 until 2016 as the iconic retailer sunk into bankruptcy under the leadership of former chief executive Eddie Lampert, his college roommate.

Amazon pushes back: Amazon rebuffed Mnuchin’s claims in a Wednesday statement, arguing that “small and medium-sized businesses are thriving with Amazon.

“Today, independent sellers make up more than 58% of physical gross merchandise sales on Amazon, and their sales have grown twice as fast as our own, totaling $160 billion in 2018,” said a company spokesperson.

Read more on Mnuchin’s statements here.

HOTELIERS REJOICE: A bipartisan group of lawmakers in both chambers has reintroduced legislation aimed at combatting online hotel booking scams.

The Stopping Online Booking Scams Act, which accrued over 40 co-sponsors in the Senate during the last Congress before it stalled, would make it illegal for scammers to fool customers into thinking they are paying for hotel services when they are not.

The bill, introduced Wednesday, would require unaffiliated third-party booking websites to disclose that they are not affiliated with the hotel before charging customers any fees. The Federal Trade Commission (FTC) and state attorneys general would be empowered to take action against third-party online hotel reservation sellers that are not upfront with customers.

Reps. Lois Frankel (D-Fla.) and Gus Bilirakis (R-Fla.) have introduced a version in the House while lawmakers led by Sens. Amy Klobuchar (D-Minn.) and Steve Daines (R-Mont.) introduced it in the Senate.

“Travel reservations made on fraudulent websites can be costly and stressful for travelers,” Klobuchar, a 2020 presidential contender, said in a statement. “As more and more people turn to online booking websites to plan their travel, our legislation will help to crack down on bad actors and protect consumers.”