If one were to take a time machine back even just five years, the very idea that a Silicon Valley ‘social media’ company would start its own currency would have been considered an interesting and unexpected turn of events. And yet, in 2019, Facebook proudly announced it was going the way of Bitcoin and Ethereum in forging its own digital money, in the form of its currency, ‘Libra’. There is little doubt that digital currencies have profound political, environmental, social, technological, and financial implications. However, they also have profound legal connotations. We foresee challenges in the context of privacy, transparency, and disclosure, not to mention fraud and money laundering, all of which businesses will need to be aware of as such currencies become commonplace over the next decade.
What is Libra?
In June 2019, Facebook revealed its bold ambitions for a new global digital currency called ‘Libra’ which is expected to come to fruition in the first half of 2020. The plan is for currency holders to be able to hold, sell, buy, send, and receive Libra coins using their Facebook Messenger and Whatsapp (and other rival apps). This means that money can be instantly transferred between individuals regardless of their jurisdiction – for a small fee.
It is expected that the currency will be more stable than Bitcoin as it will be underpinned by a wide selection of currencies, and new coins will only be created when people buy them with real money.
Controversy over Libra
Given the traditional symbol for the Libra astrological sign is a set of balancing scales, it is fair to assume that Facebook is keen to convey the message that their new cryptocurrency is fair and balanced. But is that going to be the case? Facebook has certainly made moves to allay fears of financial market domination. Technology providers of digital ‘wallets’ for Libra will be required to conform with national money laundering and other financial regulations. It has also stated that control over Libra will be handed to an association of at least 100 external member organisations, including not for profit groups and other financial firms. All of this sounds constructive, but what are the real concerns of those in the know, and how may legal disputes arise as a result of the growth of Libra in the coming years?
Some of the concerns over Libra go deep into the very structure of the financial system we know today. Chris Hughes, a co-founder of Facebook, and now co-chair of the Economic Security Project, has himself sounded the alarm that global regulation is needed to ensure that too much control is not ceded to increasingly powerful private interests. He states “if even modestly successful, Libra would hand over much of the control of monetary policy from central banks to these private companies. If global regulators don’t act now, it could very soon be too late.”
Privacy implications of Libra
Some are concerned that Libra will compromise privacy; given Facebook’s record for breaches of personal data, this is an understandable worry. The vast repository of personal data coupled with Libra would give Facebook a concerning amount of reach and influence. The suggestion is that Facebook may enable the careful and deliberate targeting of its users with advertisements for financial products. In response, Facebook has stated it will maintain separation between personal data it holds and the Libra platform, therefore preventing active advertisement targeting. Unfortunately, there are concerns this may not be upheld in the years to come, especially given the use of consent bundling or “forced consent” methods, perhaps allowing Facebook to collect user data for the specific purpose of targeted advertising.
Lack of transparency concerns
Diminished financial transparency may also lead to greater problems when it comes to legal disputes whereby full financial disclosure is essential, for example, during regulatory investigations by bodies such as the HMRC, FCA, or HSE. Indeed, cryptocurrencies are notoriously hard to trace and value, especially when moved ‘offline’ onto a USB memory stick – making it essential to involve the services of digital forensic specialists, adding cost and time when handling complex financial disputes.
A boost for financial criminals
There are also fears that Libra will further facilitate crimes such as fraud, money laundering, and tax evasion, as has already been seen with existing cryptocurrencies. In the view of US treasury chief, Steven Mnuchin, cryptocurrencies “have been exploited to support billions of dollars of illicit activity like cybercrime, tax evasion, extortion, ransomware, illicit drugs and human trafficking…Monetary policy is properly the province of central banks…Facebook will not offer the Libra digital currency until we have fully addressed regulatory concerns and received appropriate approvals.”
Furthermore, would Facebook or other crypto-currency controllers realistically be able (or even willing) to freeze or seize digital assets of terrorist organizations who might use the e-currency to fund terror campaigns? This must remain, at least for now, a distinct possibility and concern for governments and security authorities.
It is all too easy to fear the unknown. We are right on the cusp of considerable changes, from Artificial Intelligence (AI), the Internet of Things (IoT), and now wide-scale adoption of digital crypto-currencies. One of the main benefits of Libra, as highlighted by Facebook, is that it will enable millions of people worldwide who have no bank account to become part of the modern economy. But quite whether Libra comes with a series of less positive implications for individuals, companies, institutions, governments, and countries, remains to be seen.
As we have seen from past experience, there is a tendency for some high-growth companies to delay focusing on legal and regulatory issues until they have achieved growth or market position. Indeed, it has been suggested that the extreme success achieved by global giants, like Uber and Airbnb, might be in part as a result of their ability to skirt certain laws and regulations. Arguably, this possibility should be heeded by law makers and regulators when it comes to new and highly influential players such as Libra.
Indeed, it could be said that Facebook’s inaction (or, at best, slow reaction) towards handling violent hate speech and other extremist views in the past, demonstrates that the pertinent questions raised in this article must be addressed now, before serious problems emerge.
Please note – this article does not constitute legal advice.