22 July 2019
Last month, with a great fanfare and many pious platitudes, Facebook announced its proposed global cryptocurrency, Libra. We, along with many others, expressed doubt that Libra would meet the regulatory standards which are mandatory in developed countries, particularly the anti money laundering and “know your client” rules. (See http://arminiuscapital.com.au/geld-zug-commentaries/ 28 June 2019)
Since then, Facebook has managed to achieve the impossible – it has united the USA’s most powerful Republicans and Democrats. They are all hostile to Libra. President Trump tweeted that Libra “will have little standing or dependability. If Facebook and other companies want to become a bank, they must seek a new Banking Charter and be subject to all Banking Regulations, just like other Banks.” His negative sentiments were echoed by Treasury Secretary Steve Mnuchin and Federal Reserve chair Jay Powell. Democrats on the Senate banking committee and the House financial services committee also expressed their reservations about Libra. Congressional Democrats had already drafted a “Keep Big Tech out of Finance” bill which would make Libra illegal.
Libra’s co-creator, David Marcus, testified before Congress on Wednesday. He faced detailed, hostile questioning about Libra’s stability, data privacy, consumer protection safeguards, fraud prevention, anti money laundering compliance, know your client compliance, regulatory domicile, average account balances, etc. Many questioners also emphasized their distrust of Facebook and all its works. The answers which Marcus provided were not considered satisfactory, let alone reassuring. Needless to say, regulators in the world’s largest economies (including China) have also expressed their doubts about Libra.
But Facebook need not give up hope. Even if the US and other wealthy nations shun Libra, there are plenty of small, impoverished countries which would be delighted to do whatever Facebook wants. Many former tax havens possess considerable expertise in filling out legal forms, protecting client anonymity, and concealing beneficial ownership, and they have been looking for new industries ever since the Panama Papers scandals triggered global tax crackdowns.
Facebook also managed to demonstrate its blissful ignorance of the world of regulators. In his testimony to Congress, David Marcus claimed that the Swiss Federal Data Protection and Information Commissioner (FDPIC) would be Libra’s privacy regulator. FDPIC then issued a statement saying that it had noted this claim, but added, “Until today we have not been contacted by the promoters of Libra.” A Facebook spokesman confirmed that the company had not yet met with FDPIC. Off to a great start, guys!