The Trump administration came out strongly Monday against Facebook’s ambitious plan to create a new digital currency, as the Treasury chief warned it could be used for illicit activity such as money laundering, human trafficking and financing terrorism.
Treasury Secretary Steven Mnuchin expressed “very serious concerns” about the currency proposed by the social network giant, to be called Libra. “This is indeed a national security issue,” Mnuchin told reporters at the White House.
His comments came a few days after President Donald Trump tweeted that Libra “will have little standing or dependability.”
Trump, fresh off a “social media summit” he led at the White House that gathered conservative critics of Big Tech, tweeted last week: “I am not a fan of Bitcoin and other Cryptocurrencies, which are not money, and whose value is highly volatile and based on thin air. Unregulated Crypto Assets can facilitate unlawful behavior, including drug trade and other illegal activity.”
If they want to get into the financial business, Facebook and its dozens of partner companies in the venture will have to accept the kind of tight regulation that banks are under, the president said.
The Treasury chief’s comments went further, though, tying Libra directly to concerns over potential use for money laundering, drug and human trafficking, tax evasion and other crimes.
Facebook has “a lot of work to do before we get to the point where we’re comfortable with it,“ Mnuchin said.
On Tuesday, Congress begins two days of hearings on Facebook’s Libra plan. The head of the Federal Reserve also raised an alarm about the plan last week.
Facebook’s plan “raises a lot of serious concerns, and those would include around privacy, money laundering, consumer protection, financial stability,” Fed Chairman Jerome Powell said in congressional testimony. “Those are going to need to be thoroughly and publicly assessed and evaluated before this proceeds.”
Unlike Mnuchin, Powell — as head of the central bank — is an independent regulator who is separate from the administration and political influence.
Already under intense scrutiny from regulators and Congress over privacy and market dominance, Facebook stirred anger on Capitol Hill last month with the unveiling of its plan to create a new financial ecosystem based on a digital currency. Senate and House hearings went on the calendar, and the Democratic head of the House Financial Services Committee called on Facebook to suspend the plan until Congress and regulators can review it.
Rep. Maxine Waters, D-Calif., said that Facebook, with some 2 billion users around the world, “is continuing its unchecked expansion and extending its reach into the lives of its users.” She called Libra “a new Swiss-based financial system” that potentially is too big to fail and could require a taxpayer bailout.
David Marcus, the Facebook executive leading the project, says in his testimony prepared for Tuesday’s hearing by the Financial Services panel that 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.”
Facebook agrees with Powell’s view that the government’s review of Libra must be “patient and thorough, rather than a sprint to implementation,” Marcus’ statement says. “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 pre-launch oversight by regulators and central banks in FinTech’s history. We know we need to take the time to get this right.”
The planned digital currency is billed as a “stablecoin” backed by deposits in sovereign currencies such as the dollar, euro and Japanese yen — unlike bitcoin, ether or other digital currencies. Promising low fees, it could open online commerce to millions of people around the world who lack access to bank accounts and make it cheaper to send money across borders. But it also raises concerns over the privacy of users’ data and the potential for criminals to use it for money laundering and fraud.
To address privacy concerns, Facebook created a nonprofit oversight association, with dozens of partners including PayPal, Uber, Spotify, Visa and MasterCard to govern Libra. As one among many in the association, Facebook says it won’t have any special rights or privileges. It also created a “digital wallet” subsidiary, Calibra, to work on the technology, separately from its main social media business. While Facebook owns and controls Calibra, it won’t see financial data from Calibra, the company says.