Senators tell Facebook CEO the days of self-regulation may end

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(Bloomberg) -- Senators grilling Facebook Inc.’s co-founder Mark Zuckerberg over a data leak signaled they may move to rein in the social media giant, which has thrived as part of an online industry that’s largely escaped regulation.

"Your user agreement sucks,” Senator John Kennedy, a Louisiana Republican, told the 33-year-old CEO on Tuesday. “I don’t want to vote to have to regulate Facebook, but by God I will. A lot of that depends on you."

Zuckerberg spent hours as the sole witness before a joint hearing of two committees mustering almost half of the U.S. Senate members. The appearance followed the revelation that data from as many as 87 million users was siphoned to Cambridge Analytica, a British firm with ties to the 2016 campaign of President Donald Trump.

Facebook shares jumped to their highest level in more than two weeks, and closed up 4.5 percent Tuesday. The stock was down 0.40 percent Wednesday premarket.

Zuckerberg is to testify Wednesday before the House Energy and Commerce Committee, rounding out a Capitol Hill tour that’s part apology and part defense of the company that’s grown to encompass 2 billion users worldwide since being founded in a Harvard University dorm room in 2004. On Tuesday, Zuckerberg said he was willing to consider new restrictions, and agreed to send suggestions to Congress.

“My position is not that there should be no regulation,” Zuckerberg said. “The real question, as the internet becomes more important in people’s lives, is what is the right regulation.”

Facebook, fending off the Cambridge Analytica furor, has promised steps to improve transparency, saying, for instance, that it would create a searchable archive for federal election ads. Some lawmakers said they didn’t view Facebook’s recent steps as enough. Senators said there will be more hearings. Some greeted Zuckerberg with thinly disguised belligerence.

‘Dark Side’

Senator Lindsey Graham, in a statement after questioning Zuckerberg, said there is ”a dark side to Facebook."

“Facebook is a virtual monopoly and monopolies need to be regulated,” said Graham, a South Carolina Republican.

“The status quo no longer works,” said Senator Chuck Grassley of Iowa, the chairman of the Judiciary Committee. “Congress must determine if and how we need to strengthen privacy standards.”

Republicans hold majorities in both houses of Congress, and the party has historically been averse to regulating industry, so their statements envisioning regulation carry significance. At Tuesday’s hearing GOP senators including Roger Wicker, of Mississippi, and Orrin Hatch, of Utah, cautioned against regulation.

Democrats are ready to lean in, casting the Cambridge Analytica scandal as a watershed.

“Oh sure, I think we’re going to have to do privacy legislation now,” Senator Amy Klobuchar, a Minnesota Democrat, said in an interview during the hearing.

‘Day of Reckoning’

“The day of reckoning for American privacy has arrived,” said Senator Ed Markey, of Massachusetts. “Facebook now has to deal with how much people understand about how vulnerable all their information is and how few protections are on the books. So I do think this is a legislating moment.”

Markey said he introduced a privacy bill Tuesday, co-sponsored with Connecticut’s Richard Blumenthal, a fellow Democrat, that offers a suite of new protections for consumers.

The leading legislative vehicle, the Honest Ads Act, introduced last year, would put online companies under disclosure rules like those in place for political ads on TV, where information is disclosed about who paid for the ad.

The bill picked up Zuckerberg’s endorsement last week as the Facebook leader began his contrition tour. The measure, sponsored by Democrats and one Republican -- Senator John McCain, of Arizona -- picked up more industry backing on Tuesday, as Twitter Inc. said the bill "provides an appropriate framework." The company said it would work to "refine and advance" the proposal.

Silent Google

Klobuchar, a co-sponsor of the act, welcomed Twitter’s stance and called for Alphabet Inc.’s Google to support the bill. Google declined to comment.

“Whether it’s on Facebook, Twitter, Google, or another site, Americans have a right to know who is paying to influence public discourse regardless of where ads are sold -- and a standard across platforms is crucial,” Klobuchar said in a statement.

Zuckerberg under questioning refused to offer a blanket endorsement of legislation to ensure that users’ information is shared only after they give specific permission -- a regime known as "opt-in." Now, Facebook users may have little knowledge of what applications are seeking their data. Zuckerberg said he would support requiring opt-in "as a principle" but when it comes to laws, "the details matter a lot."

Senator Dan Sullivan, an Alaska Republican, observed that legislation could end up cementing a dominant power. “Do you think that’s a risk,” he asked Zuckerberg, who replied, “That certainly wouldn’t be our approach.”

Honest Ads

The Honest Ads proposal, centered on disclosure, is an important step but more needs to be done, said Fred Wertheimer, president of Democracy21, a Washington-based group that seeks to eliminate what it calls "the undue influence of big money in American politics."

Congress should strengthen prohibitions against foreign spending on political ads, Wertheimer said. Current law didn’t anticipate circumstances like Russian groups pushing campaign-related ads online, he said.

Facebook has disclosed that posts from a Russian company known for pushing Kremlin propaganda had reached the news feeds of 126 million users.

Whether Washington acts or not, Facebook needs to step forward and “fix the problems,” Wertheimer said.

“They can’t humble their way out of this,” he added. “Apologies are fine but they don’t solve the problem.”

The Honest Ads Act “is dealing with the tip of an iceberg," said Meredith McGehee, executive director at Issue One, a policy group that promotes transparency and disclosure. “There’s a lot of things that are on social media, that are on these platforms, that would not be captured by the Honest Ads Act."

There’s a galaxy of manipulators that U.S. regulation doesn’t touch -- “the fake personas, the bots,” that sow disinformation, McGehee said. She said hearings are needed to illuminate the issue.

In response to the Cambridge Analytica leak, the Federal Trade Commission has opened a probe that could result in millions of dollars of fines for Facebook. Separately, the Federal Election Commission is moving toward requiring online political ads to show details of sponsorship -- a proposal that even commission members characterize as a narrow reform.

--With assistance from Bill Allison and Arit John

Bloomberg News