Russia-linked ads mean greater costs, more regulation for Facebook: David Garrity on BNN

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Facebook Has Come Full Circle On Enabling Russian Disinformation Campaign During 2016 U.S. Presidential Election, Full-scale Regulation Looms:

September 2017 has been a month of accelerating disclosures around Russian hacking during the 2016 presidential election. The month started with Facebook in closed door Congressional testimony on Wed 9/6/17 admitting to facilitating the activities of the Kremlin-linked Internet Research Agency, a known “troll” operation (see: https://www.nytimes.com/2015/06/07/magazine/the-agency.html?mcubz=1) and accepting over $100k in payment for advertising related to such activities. This admission flew directly in the face of Facebook CEO Mark Zuckerberg’s November 2016 statements that Facebook had not furthered efforts by Russia to influence the outcome of the 2016 U.S. Presidential election, at the time calling the suggested possibility “a pretty crazy idea”. With Facebook just last week offering up 3,000 paid ads linked to the Russian disinformation efforts in response to inquiries from Special Counsel Robert Mueller along with U.S. Congressional committees, it appears that crazy is now the new normal.

The testimony places Facebook and other social media companies (e.g. Twitter) in a difficult position as “under federal law and Federal Election Commission regulations, both foreign nationals and foreign governments are prohibited from making contributions or spending money to influence a federal, state or local election in the United States. The ban includes independent expenditures made in connection with an election. Those banned from such spending include foreign citizens, foreign governments, foreign political parties, foreign corporations, foreign associations and foreign partnerships, according to the FEC. (Permanent residents who hold green cards, however, are not considered foreign nationals.) Violators face civil penalties, as well as criminal prosecution, if they are found to have knowingly broken the law.” Clearly, Facebook and social media peers will have much more explaining to do.

The fault for Facebook’s failure to intercept and otherwise meaningfully curate the information flow across its network can be attributed directly to its business model, namely “ad-targeting through deep surveillance, emaciated work force, automation and the use of algorithms to find and highlight content that entice people to stay on the site or click on ads or share pay-for-play messages”. With Facebook’s business model premised on the basis of selling users’ “attention and eyeballs to the highest bidders, whatever they may be peddling”, the company represents a communications conduit of national security interest when it comes to preserving liberal representative democracy as we know it. What happened during the 2016 U.S. presidential election represents a clear and present danger to the political integrity of any society within which Facebook operates. At a minimum, Facebook must now be regulated as other communications companies are in the handling of political advertising and the exclusion of external parties from influencing political elections. From an investment perspective, this is likely to pressure Facebook’s profit margins as compliance costs increase and may have a limiting influence on the company’s ability to charge premium pricing. How this unfolds will be of great interest, but meanwhile Facebook shares are likely to underperform as a result of the negative newsflow around both the Special Counsel and U.S. Congressional investigations into the 2016 U.S. presidential election.

Meanwhile, Brad Parscale, digital director for the Trump campaign who already testified before Congress in July 2017, may be one of a team of U.S. citizens who offered direction to focus Internet Research Agency acitivities. Also of interest is Cambridge Analytica, a UK-based data analytics firm backed by U.S. citizens Robert Mercer and Steve Bannon, which played a key role in directing the 2016 Trump campaign’s online activities. Note that Trump senior adviser Jared Kushner who was tasked with overseeing the entire Trump campaign digital effort, estimated to represent a $400mm investment (see: https://www.vanityfair.com/news/2017/09/jared-kushner-data-operation-russia-facebook), is also a person of significant interest along with the already notorious Paul Manafort.

We have written previously on the 2016 U.S. presidential campaign’s digital aspects, starting in November 2016 (see: http://gvaresearch.com/facebooks-fake-news-problem-is-not-just-a-u-s-issue-its-a-global-one/).