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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 GOV- ERNING 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 Printed for the use of the Committee on Banking, Housing, and Urban Affairs ( 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) CONTENTS 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 CONSIDER- ATIONS 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 in- stitutions 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 in- formation, and Facebook’s access to and use of information on indi- viduals 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, includ- ing the Federal Reserve, U.K.’s Financial Conduct Authority, Fi- nancial 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 fi- nancial instability problems and also expressed concern over cus- tomers’ 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 (1) 2 anti– money laundering to data protection to operational resil- ience.’’ 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 con- sumers with respect to financial loss from fraud or the project’s failure; how individuals’ data will be protected, and how individ- uals’ privacy will be preserved; how the Libra ecosystem interacts with the Bank Secrecy Act and other existing anti– money-laun- dering 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 pay- ments 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 under- banked 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 com- merce on Facebook, Inc., platforms. This raises several questions. The Banking Committee has held hearings on data privacy, in- cluding as it pertains to the European Union’s General Data Pro- tection 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 compa- nies and establishing rights for individuals with respect to their data. We need to establish similar obligations for data collectors, bro- kers, 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 3 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 collec- tors and consumers and should not punish those who opt out of col- lection practices. Individuals should also have the ability