FTC’s $5 Billion Fine On Facebook Should Serve As ‘Warning’ For Companies Concerned About Data Security

While the penalty will have little effect on Facebook’s bottom line, the massive fine could be indicative of the commission’s willingness to punish companies for data security issues.

• By Haley Samsel
• Jul 16, 2019

After months of deliberation, the Federal Trade Commission has voted to levy its largest penalty ever against a technology company. Facebook will be forced to pay a $5 billion fine for mishandling its users’ personal data in the Cambridge Analytica scandal, which revealed that the social network had allowed a British political firm to harvest user information for years.

While the fine is massive by most standards, critics of the settlement say it will barely make a dent in Facebook’s bottom line and will fail to accomplish the FTC’s goal: to teach the company a lesson and disincentivize its leadership from allowing a similar failure to happen again.

That conclusion is borne out in the numbers. Facebook had $15 billion in revenue last quarter and made $22 billion in profit last year alone, according to The Verge. The company had already set aside $3 billion in anticipation of the fine. There’s also the fact that in the hours after news of the fine broke on Friday, Facebook’s stock price actually rose.

The announcement angered some lawmakers who have taken a tougher stance on regulating tech companies and compelling them to take more action to protect user privacy. Social media executives are set to testify on Capitol Hill today, and the settlement is likely to come up among questions about antitrust concerns and privacy policies.

Sen. Ron Wyden (D-Oregon) said in a statement that the fine was not nearly enough to change Facebook’s operations or send a message to other tech companies to adjust their policies. He plans to introduce a privacy bill in the near future.

“This reported fine is a mosquito bite to a corporation the size of Facebook,” Wyden said. “And I fear it will let Facebook off the hook for more recent abuses of Americans’ data that may not have been factored in to this inadequate settlement.”

While some experts were critical of the FTC’s actions, others said that Congress was ultimately at fault for the commission’s lack of enforcement power and must pass an Internet privacy law to change the dynamic, The Washington Post reported.

But to several practitioners in the cybersecurity industry, the fine was still indicative of the FTC’s growing willingness to punish companies for violating their customers’ data security or failing to protect it from a breach.

“We'll see more and more regulators ‘bring the hammer down’ and levy some of the largest fines ever seen in an effort to drive data privacy and raise awareness,” said Pravin Kothari, the CEO of CipherCloud. “This time it’s the FTC, the next could be GDPR or the upcoming California Consumer Privacy Act, followed by many other privacy regulators worldwide.”

Tim Erlin, the vice president of product management and strategy at Tripwire, said other organizations should take notice of the fine as “a warning” that the FTC will continue to issue large fines for data privacy violations. But he still wonders what impact the punishment will have on Facebook itself.

“While this is clearly a substantial fine by any measurement, the real question is whether it will ultimately change any of Facebook’s policies or practices,” Erlin said. “Unfortunately, as consumers we don’t really have the transparency to see how our data is being used, and to evaluate whether practices have changed. At best, consumers can evaluate whether Facebook’s marketing around privacy changes.”