Hillicon Valley: FTC reportedly settles with Facebook for $5B fine | Trump calls to regulate Facebook’s crypto project | Court rules Pentagon can award $10B ‘war cloud’ contract | Study shows automation will hit rural areas hardest
Welcome to Hillicon Valley, The Hill’s newsletter detailing all you need to know about the tech and cyber news from Capitol Hill to Silicon Valley. If you don’t already, be sure to sign up for our newsletter with this LINK.
Welcome! Follow the cyber team, Olivia Beavers (@olivia_beavers) and Maggie Miller (@magmill95), and the tech team, Harper Neidig (@hneidig) and Emily Birnbaum (@birnbaum_e).
DEVELOPING: The Federal Trade Commission (FTC) has reportedly approved a roughly $5 billion settlement with Facebook following its investigation into the company’s handling of the Cambridge Analytica scandal.
The Wall Street Journal, citing a person familiar with the matter, reported Friday that the FTC voted along party lines this week to approve the settlement, closing the investigation into the Cambridge Analytica incident.
The vote was 3-2, with Republicans in the majority approving the deal, according to the Journal.
The investigation was launched in March 2018 after reports that data from tens of millions of Facebook users was shared with the outside firm Cambridge Analytica. The agency had focused on whether Facebook violated a 2011 consent agreement with the FTC requiring greater privacy protections and transparency for users.{mosads}
The FTC and Facebook both declined to comment. According to the Journal, the settlement now heads to the Department of Justice for review.
Why the settlement could bring more controversy: Facebook told investors earlier this year that it expected to pay between $3 billion and $5 billion to settle the investigation.
That admission worried the company’s biggest critics, including members of Congress, who argued that any sum in that range would hardly make a dent in Facebook’s bottom line and that the agency needed to impose severe penalties in order to change its behavior.
Though the fine would be the largest the FTC has ever imposed for privacy violations, it amounts to a fraction of the $55 billion in revenue Facebook generated last year.
In May, Sens. Richard Blumenthal (D-Conn.) and Josh Hawley (R-Mo.) wrote to the FTC saying that the sum Facebook expected to pay would be a “bargain” for the nearly $600 billion company and that the agency should consider holding individual executives responsible.
“Even a fine in the billions is simply a write-down for the company, and large penalties have done little to deter large tech firms,” the bipartisan duo wrote. “If the FTC is seen as traffic police handing out speeding tickets companies profiting off breaking the law, then Facebook and other will continue to push the boundaries.”
The Journal reported that the settlement will include “government restrictions on how Facebook treats user privacy” but it’s unclear what that would entail.
Facebook was also fined £500,000 last year by the UK Information Commissioner’s Office over the scandal, the largest penalty the office was authorized to levy.
TRUMP’S NO BITCOIN BRO: President Trump denounced various cryptocurrencies, including Facebook’s newly announced Libra, on Thursday as lawmakers and regulators express deep concern about the social media giant’s financial services ambitions.
In a series of tweets, Trump said he was “not a fan” of digital ledger-based currencies such as bitcoin, insisting they could be used easily to conduct criminal transactions.
“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,” Trump tweeted Thursday night.
Special criticism for Facebook’s Libra: Trump also ripped Facebook for its plan to launch a payments system next year, in which users exchange money through a proprietary cryptocurrency called Libra.
The Swiss nonprofit set up to control Libra is not a chartered bank, but Trump insisted that Facebook must seek a formal federal approval to become one if it seeks to enter the financial services industry.
“Similarly, Facebook Libra’s ‘virtual currency’ will have little standing or dependability. If Facebook and other companies want to become a bank, they must seek a new Banking Charter and become subject to all Banking Regulations, just like other Banks, both National and International,” he tweeted.
“We have only one real currency in the USA, and it is stronger than ever, both dependable and reliable,” Trump continued. “It is by far the most dominant currency anywhere in the World, and it will always stay that way. It is called the United States Dollar!”
Congress agrees: Trump’s skepticism of cryptocurrencies and Libra specifically reflects concerns of many lawmakers and regulators across the ideological spectrum.
Lawmakers insist that Facebook’s massive reach and history of privacy breaches could make its foray into financial services a dangerous gambit. The Democratic-controlled House Financial Services Committee and GOP-controlled Senate Banking Committee are set to grill Libra chief David Marcus in hearings next week.
And the Fed: And Federal Reserve Chairman Jerome Powell warned in congressional testimony Wednesday and Thursday that Libra poses “serious concerns” for the global economy.
“It cannot go forward without there being broad satisfaction with the way the company has addressed” privacy, money laundering, consumer protection and financial stability, Powell said Wednesday.
“All of those things will need to be addressed very thoroughly and carefully.”
Powell added that regulators may label Libra as a systemically important financial institution. That designation would subject Libra to strict capital and liquidity standards the Fed applies to megabanks.
There is also wide bipartisan concern in Washington that cryptocurrencies are not adequately policed for illicit financing. Regulators have homed in on the surge of financial schemes based on cryptocurrencies, though many consumers exchange legitimate digital coins without incident.
Read more on Trump’s crypto views here.
RETURN OF THE JEDI: A federal judge ruled on Friday that the Department of Defense (DOD) can move forward with its plan to award a $10 billion “war cloud” contract later this summer, which will be likely given to either Amazon or Microsoft, knocking down a legal challenge by cloud-computing competitor Oracle.
The U.S. Court of Federal Claims opinion, written by Senior Judge Eric Bruggink, denied Oracle’s claims that the Pentagon created the contract specifically with Amazon in mind or that there were conflicts of interest between Amazon’s cloud-computing service, Amazon Web Services (AWS), and the DOD.
Bruggink said Oracle “cannot demonstrate prejudice” against itself in the Joint Enterprise Defense Infrastructure (JEDI) contract process.
“We conclude as well that the contracting officer’s findings that an organizational conflict of interest does not exist and that individual conflicts of interest did not impact the procurement were not arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law,” the opinion states.
The highly anticipated decision paves the way to allow the Pentagon to award JEDI to either AWS or Microsoft’s cloud-computing service, Azure, likely by August.
Amazon and Microsoft are now the top contenders for the contract, which requires a high-level security clearance and enormous technical capabilities that most other cloud-computing services cannot offer.
Reaction: “AWS, along with our partner community, stands ready to support and serve what’s most important — the DoD’s mission of protecting the security of our country,” an AWS spokesperson said in a statement on Friday. “The DoD deserves access to the best technology in the world and we are unwavering in our support to their mission.”
Oracle has claimed that the contract process was biased against them from the outset, saying the security specifications opened the door for only AWS. AWS and the DOD have aggressively beat back those claims, saying Oracle’s cloud-computing service simply didn’t meet the necessary security criteria.
“Oracle’s cloud infrastructure 2.0 provides significant performance and security capabilities over legacy cloud providers,” an Oracle spokeswoman said in a statement after the DOD v. Oracle decision emerged on Friday. “We look forward to working with the Department of Defense, the Intelligence Community, and other public sector agencies to deploy modern, secure hyperscale cloud solutions that meet their needs.”
RUBIO WANTS TO SLOW DOWN CONTRACT: Sen. Marco Rubio (R-Fla.) sent a letter to President Trump’s national security adviser, John Bolton, on Thursday asking the White House to delay awarding a $10 billion Pentagon cloud computing contract over concerns the procurement process has been unfair and potentially biased toward Amazon.
In the letter obtained by The Hill, Rubio said that the criteria for the lucrative Joint Enterprise Defense Infrastructure (JEDI) contract has suffered from a “lack of competition” and that moving ahead at this point could “result in wasted taxpayer dollars and fail to provide our warfighters with the best technology solutions.”
Rubio said the contract should be held until the Defense Department’s inspector general can review “potential conflicts of interest related to the JEDI procurement,” and he raised questions about whether the entire process was rigged through “arbitrary criteria” meant to whittle the finalists for the contract down to Amazon and Microsoft.
“I respectfully request that you direct the delay of an award until all efforts are concluded in addition to evaluating all bids in a fair and open process in order to provide the competition necessary to obtain the best cost and best technology for its cloud computing needs,” Rubio wrote.
Rubio is the latest Republican to pressure the White House to abandon its negotiations for the contract and to begin the process from the start.
In a letter to the White House last month, four conservative groups warned that the Pentagon contract was set up in a way that “predetermines” that Amazon would be the winner.
Read more on GOP pushback here.
YANG GANG WARNED US: Advancing technology and automation are likely to hit rural areas and the middle class hardest, according to a new report by McKinsey.
The report, entitled The Future of Work in America, looked at over 3,000 counties and 315 cities, and found that some 83 percent of the counties expected to see the highest levels of job displacement were rural areas. Those vulnerable areas house 20.3 million people.
Large urban centers and their peripheries would see a lower rate of displacement, and also benefit more from the creation of new jobs that likely require more skills and education.
“Urban areas with more diversified economies and workers with higher educational attainment, such as Washington, DC, and Durham, NC, might feel somewhat less severe effects from automation,” the report said.
The trend will only exacerbate an uneven recovery from the Great Recession, where much of the job growth has been concentrated in cities and hubs, while distressed rural areas still have a net loss of jobs.
Another trend the report said was “worrisome” was the hollowing out of middle-income jobs.
“Our analysis suggests that by 2030, they could decline as a share of national employment by 3.4 percentage points,” the report found.
“Forging career pathways to help people move up and finding sources of future middle-wage jobs will be essential to sustaining the US middle class,” it continued.
Much of that has to do with what kinds of jobs are created and lost as automation increases.
Office support and food service jobs could decline, but jobs in health, STEM fields, business services and more creative fields would see growth.
The changing face of the American economy is a central issue in many of the political campaigns.
2020 Democratic contender Andrew Yang’s central campaign promise is introducing a universal basic income to combat automation, which would provide every family with $1,000 a month.
Sens. Elizabeth Warren (D-Mass.) and Bernie Sanders (I-Vt.) are campaigning on restructuring the economy to help those at the bottom.
ALRIGHT CHIEF: Carla Provost, the chief of Customs and Border Protection (CBP), was previously a member of a controversial Facebook group featuring extensive sexist and racist posts from agents, investigative outlet The Intercept reported Friday.
Provost posted in the group, which has brought new scrutiny upon the agency, as recently as three months after her August appointment, according to The Intercept.
When an agent posted a photo of a Jeopardy question about Provost, she replied with a friendly comment, according to screenshots.
Though Provost herself was not linked to any offensive material, the revelation emphasizes the ties between the highest ranks of CBP and the controversial Facebook group, which has sparked condemnations and questions from top lawmakers.
House Homeland Security Committee Chairman Bennie Thompson (D-Miss.) sent a letter last week demanding information on whether Provost or acting Homeland Security Secretary Kevin McAleenan knew about the Facebook group, called “I’m 10-15.”
“This is why I have requested a full investigation into this matter,” Thompson said in a statement to The Intercept. “We need to know who in CBP leadership knew about these deplorable groups, when did they find out, and what action they took, if anything.
Sen. Ron Wyden (D-Ore.) responded to The Intercept’s report by calling for Provost and other CBP leadership officials to resign “immediately.”
“This Facebook group is a disturbing look into the toxic culture of abuse, racism, and extremism among border patrol agents and leadership, and the border patrol chief Carla Provost was a member,” Wyden tweeted. “Provost along with the rest of border patrol leadership must resign immediately.”
ProPublica published the first report about the Facebook group for current and former Border Patrol agents, which is filled with derogatory posts targeting migrants and lawmakers.
Shortly after the news broke, Provost responded with a statement calling the posts “completely inappropriate.”
“Any employees found to have violated our standards of conduct will be held accountable,” Provost said.
The agency said this month that it had informed its watchdog of the posts and initiated a probe into the situation.
Read more on the Facebook group here.
AN OP-ED TO CHEW ON: The canceled Apollo missions to the moon would have been epic.
A LIGHTER CLICK: @ this week.
NOTABLE LINKS FROM AROUND THE WEB:
300 Californian cities secretly have access to Palantir. (Motherboard)
TikTok stars are preparing to take over the Internet. (The Atlantic)
‘No tech for ICE’: Protesters demand Amazon cut ties with federal immigration enforcement. (The Washington Post)
How the biggest decentralized social network is dealing with its Nazi problem. (The Verge)
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