Facebook’s Libra and other cryptocurrencies “could be misused by money launderers and terrorist financiers,” Treasury Secretary Steven Mnuchin said on Monday, one day before Congress begins a series of hearings probing the social media giant’s first foray into next-generation financial technology.
“The U.S. welcomes responsible innovation including new tech that improve the efficiency of the financial system,” Mnunchin said during a White House press briefing.
But in the case of Libra and other cryptocurrencies, he said the government’s main goal is to “maintain the integrity of our financial system and protect it from abuse.”
The Financial Stability Oversight Council, which comprises the heads of all U.S. financial regulators, has met multiple times with Facebook representatives to discuss Libra, Mnuchin said.
But despite the meetings, Facebook has yet to satisfy the concerns of regulators.
“To the extent Facebook can do this correctly with proper [anti-money laundering], that’s fine,” Mnuchin said. “They have a lot of work to do to convince us.”
Mnuchin did not announce any new policies regarding the overall regulation of cryptocurrencies.
Facebook executive David Marcus, who is serving as head of Calibra, the Facebook subsidiary overseeing Libra, will testify before the Senate Banking Committee on Tuesday and the House Financial Service Committee on Wednesday.
“Libra is about developing a safe, secure, and low-cost way for people to move money efficiently around the world,” Marcus will tell the Senate panel, according to prepared testimony posted on its website. “We believe that Libra can make real progress toward building a more inclusive financial infrastructure. The journey to get there will be a long one, and we recognize that ours has just begun.”
Muchin said that any cryptocurrency, including Libra, acting as a money service business would have to comply with the anti-money laundering and know-your-customer rules that currency exchanges and money order transmitters must follow today.
In his written testimony to the Senate Banking Committee, Marcus made a similar comparison in describing how Libra would operate, writing “anyone using Libra should have a high degree of confidence that they will be able to sell it” for a local currency based on an exchange rate, just like exchanging one currency for another when traveling.
Libra has drawn scrutiny from multiple regulators. In addition to working groups at the Fed and FSOC, the SEC is looking into possibly regulating Libra as an exchange traded fund.
Administration officials and lawmakers alike have expressed concern that Libra, which will be anonymous and based in Switzerland, may face the same privacy issues that have plagued Facebook in recent years and help traffickers, terrorists and other bad actors.
Federal Reserve Chairman Jerome Powell, testifying before a House panel last week, said Libra poses a “systemic threat” and said it would have to address concerns over money laundering, data privacy, consumer protection and monetary policy “in a deliberate process that won’t be a sprint to implementation.”
At the same time Powell was testifying, Sen. Sherrod Brown, D-Ohio, the ranking member on the Banking Committee, released a statement urging him and other regulators to “protect [the] economy and consumers from Facebook’s monopoly money.”
Mnuchin’s comments came days after tweets by President Donald Trump criticizing Libra. Trump trashed Facebook at a social media summit last week, accusing it and other large technology firms of political bias, but Mnuchin said the administration’s stance on cryptocurrency is not aimed at Facebook.
“We’re not going to target any one entity,” Mnuchin said, adding that the timing of the press conference was based on interest in cryptocurrency sparked by the announcement of Libra, rather than Libra itself.
Cryptocurrency advocates are nervously anticipating this week’s hearings, aware that Facebook’s entry into digital banking means a windfall of attention, but also scrutiny, for the nascent technology.
Since the announcement of Libra last month, more lawmakers are seeking information on cryptocurrency, said Kristin Smith, director of external affairs at the Blockchain Association.
But Facebook’s privacy scandals and poor public reputation mean that lawmakers also see an opportunity in publicly chastising the social media giant, meaning this week’s hearings could go off the rails.
“Congress thinks Facebook has lost the trust of some of the public,” Smith said. “It’s probably pretty good politics to beat up on them right now.”
Jim Saksa contributed to this report.