Facebook's currency Libra faces financial, privacy pushback

Facebook is getting a taste of the regulatory pushback it will face as it creates a new digital currency with corporate partners.

Just hours after the social media giant unveiled early plans for the Libra cryptocurrency, French Finance Minister Bruno Le Maire insisted that only governments can issue sovereign currencies. He said Facebook must ensure that Libra won't hurt consumers or be used for illegal activities.

"We will demand guarantees that such transactions cannot be diverted, for example for financing terrorism," he said on Europe-1 radio.

FILE - This March 28, 2018, file photo shows a Facebook logo at the company's headquarters in Menlo Park, Calif. Facebook’s plan to create a digital currency used across the world is already raising concern with financial regulators and privacy experts. (AP PhotoMarcio Jose Sanchez, File)

Facebook unveiled its much-rumored currency Tuesday and said it will launch publicly early next year with such partners as Uber, Visa, Mastercard and PayPal.

Libra could open online purchasing to millions of people who do not have access to bank accounts and could reduce the cost of sending money across borders.

But it comes as Facebook already faces scrutiny over its poor record on privacy and its dominance in social media, messaging and related businesses.

Libra poses new questions for Facebook: Given that cryptocurrency is lightly regulated now, if at all, how will financial regulators oversee Facebook's plan? And just how much more personal data will this give the social media giant, anyway?

A 'RUDE AWAKENING' OVER REGULATION?

The financial industry is more heavily regulated than internet companies — especially in the U.S., where tech companies have often been given free rein.

Companies creating Libra are in for a "rude awakening" if they expect the same model of light regulation, said Karen Shaw Petrou, managing partner of Federal Financial Analytics in Washington.

She expects Libra will fall under U.S. regulations adopted in the wake of the 2008 financial crisis. Which agency will oversee the venture will depend on what the currency system does, she said.

France's Le Maire said he asked central bank chiefs from the G-7 countries to produce a report by mid-July laying out "guarantees that we must set ... to assure us that there are no risks of illicit financing or for the consumer."

In the U.S., the senior Democrat on the Senate Banking Committee said Facebook's new digital currency will give the tech giant unfair competitive advantages in collecting data on financial transactions as well as control over fees.

"Facebook is already too big and too powerful," said Sen. Sherrod Brown of Ohio.

One hurdle Facebook and its partners will face is the potential for criminals to use it for money laundering and fraud, given the pseudo-anonymous nature of Libra and other digital currencies.

Facebook said it will comply with all existing financial regulations, though it has not offered many details. The company said its wallet app for using Libra will walk people through a verification process to ensure they are who they say they are.

Still, Facebook is sure to face an onslaught of liability concerns when it comes to anti-money laundering and identity verification, said Nicholas Weaver, a senior researcher at the International Computer Science Institute at the University of California, Berkeley.

"I am shocked they have decided to go ahead," he said.

PRIVACY PUSHBACK?

Facebook has been dogged with questions about users' personal data, especially since the Cambridge Analytica scandal hit last year.

That appears to be part of the reason Facebook created a nonprofit oversight association to govern Libra. It also created a subsidiary, Calibra, to work on the technology, separately from its main social media business.

"We've heard loud and clear that you don't want social and financial data commingled," Calibra head David Marcus wrote on Twitter, addressing Facebook users. "We understand we will have to earn your trust."

In some ways, privacy is the enemy in the battle against money laundering and other crimes, Weaver said. You want to know who is making transactions to keep them secure and legal, he said.

Facebook is "going to get access to a lot of financial data," Forrester analyst Aurelie L'Hostis said. "What are they going to do with that information and what are they going to put in place to safeguard that information?"

Cryptocurrencies such as Libra store all transactions on a widely distributed, encrypted ledger known as the blockchain. Libra is designed so transaction amounts are visible, but transaction participants can be anonymous — at least until they move money into real-world accounts.

Facebook said people can keep their individual transactions from appearing on the blockchain by using Calibra's wallet app, though in that case, Calibra itself would have people's data.

Calibra said it won't use financial data to target ads on Facebook. It also said it won't share financial data with Facebook, though there are exceptions that haven't been fully spelled out, including situations where data sharing would "keep people safe."

ANTITRUST RED FLAGS?

Congress has launched an inquiry into whether Big Tech giants such as Facebook and Google have gotten too big. Regulatory bodies including the Federal Trade Commission and Justice Department are said to be considering investigations.

Adding another major business will make Facebook bigger — if Libra takes off as intended — but it may not raise major antitrust red flags, said New York University law professor Eleanor Fox.

"It is a grass-roots entry into a new field and can actually reflect an increase in innovation," she said.

Still, she said, people could be alarmed because of Facebook's use of data in the past. And Justice Department officials have hinted they may take a broader view of harm to competition to go well beyond whether a company's dominance leads to higher prices.

Sarah Miller, deputy director of Open Markets Institute, which advocates against monopolies, said it was "insanity" to trust Facebook to launch a global cryptocurrency when it is already facing regulatory scrutiny around the world over data privacy.

"The FTC needs to rein in Facebook before the corporation puts our financial information and currency systems at risk, too," she said.

Associated Press writers Mae Anderson in New York, Frank Bajak in Boston, Marcy Gordon in Washington D.C. and Angela Charlton in Paris contributed to this report.

UNITED NATIONS (AP) — Russia on Wednesday vetoed a U.N. resolution sponsored by the United States and Japan calling on all nations to prevent a dangerous nuclear arms race in outer space.

The vote in the 15-member Security Council was 13 in favor, Russia opposed and China abstaining.

The resolution calls on all countries not to develop or deploy nuclear arms or other weapons of mass destruction in space, as banned under a 1967 international treaty that included the U.S. and Russia, and to agree to the need to verify compliance.

U.S. Ambassador Linda Thomas-Greenfield said after the vote that Russian President Vladimir Putin has said Moscow has no intention of deploying nuclear weapons in space, but that the country's veto raises the question of what the government may be hiding.

THIS IS A BREAKING NEWS UPDATE. AP’s earlier story follows below.

UNITED NATIONS (AP) — The U.N. Security Council is set to vote Wednesday on a resolution sponsored by the United States and Japan calling on all nations to prevent a dangerous nuclear arms race in outer space. It is likely to be vetoed by Russia.

The resolution calls on all countries not to develop or deploy weapons of mass destruction, like nuclear arms, in space.

U.S. Ambassador Linda Thomas-Greenfield told a council meeting on March 18 where she announced the resolution that “any placement of nuclear weapons into orbit around the Earth would be unprecedented, dangerous and unacceptable.”

Russia’s deputy U.N. ambassador, Dmitry Polyansky, retorted that Moscow’s initial impression was that the resolution is “yet another propaganda stunt by Washington” and is “very politicized” and “divorced from reality.”

The announcement of the resolution followed White House confirmation in February that Russia has obtained a “troubling” anti-satellite weapon capability, although such a weapon is not operational yet.

Russian President Vladimir Putin declared later that Moscow has no intention of deploying nuclear weapons in space, claiming that the country has only developed space capabilities similar to those of the United States.

The draft resolution says “the prevention of an arms race in outer space would avert a grave danger for international peace and security.”

It urges all countries carrying out activities in exploring and using outer space to comply with international law and the U.N. Charter.

The draft “affirms” that countries that ratified the 1967 Outer Space Treaty must comply with their obligations not to put in orbit around the Earth “any objects” with weapons of mass destruction, or install them “on celestial bodies, or station such weapons in outer space.”

The treaty, ratified by some 114 countries including the United States and Russia, prohibits the deployment of “nuclear weapons or any other kinds of weapons of mass destruction” in orbit or the stationing of “weapons in outer space in any other manner.”

The draft resolution emphasizes “the necessity of further measures, including political commitments and legally binding instruments, with appropriate and effective provisions for verification, to prevent an arms race in outer space in all its aspects.”

It reiterates that the U.N. Conference on Disarmament, based in Geneva, has the primary responsibility to negotiate agreements on preventing an arms race in outer space.

The 65-nation body has achieved few results and has largely devolved into a venue for countries to voice criticism of others’ weapons programs or defend their own. The draft resolution urges the conference “to adopt and implement a balanced and comprehensive program of work.”

At the March council meeting where the U.S.-Japan initiative was launched, U.N. Secretary-General António Guterres warned that “geopolitical tensions and mistrust have escalated the risk of nuclear warfare to its highest point in decades.”

He said the movie “Oppenheimer” about Robert Oppenheimer, who directed the U.S. project during World War II that developed the atomic bomb, “brought the harsh reality of nuclear doomsday to vivid life for millions around the world.”

“Humanity cannot survive a sequel to Oppenheimer,” the U.N. chief said.

FILE - U.S. Ambassador to United Nations Linda Thomas-Greenfield speaks on Thursday, April 18, 2024, in Tokyo. The U.N. Security Council is set to vote Wednesday, April 24, 2024, on a resolution announced by Thomas-Greenfield, calling on all nations to prevent a dangerous nuclear arms race in outer space. It is likely to be vetoed by Russia. (AP Photo/Eugene Hoshiko, Pool, File)