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Facebook's Privacy Scandal, Part Deux: Company Confirms Data Partnerships With Chinese Companies

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June 6, 2018 2:26 pm
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Facebook, Inc. (NASDAQ:FB) is again the source of data privacy concerns this week, this time due to the social media giant's data-sharing partnerships with foreign companies. 

What Happened

Facebook confirmed Tuesday it has partnerships with at least four Chinese companies that are attracting the attention of American intelligence agencies due to security concerns, Reuters reported. The social media company acknowledged multiple Chinese firms — including smartphone makers Huawei, OPPO and TCL and computer maker Lenovo — were given access to user data. 

Facebook CEO and co-founder Mark Zuckerberg should have highlighted partnerships with the Chinese companies during his appearances before Congress in April, Reuters quoted U.S. Rep. Greg Walden, an Oregon Republican who chairs the House Energy and Commerce Committee, and Rep. Frank Pallone, a New Jersey Democrat, as saying in a statement.

Democratic Sen. Ed Markey suggested Zuckerberg needs to return to Congress and explain why the company granted Americans' private information to "questionable" Chinese companies.

Why It's Important

Facebook had agreements with a "generally trustworthy" group of companies, including Microsoft Corporation (NYSE:MSFT) and Amazon.com, Inc. (NASDAQ:AMZN) among others, Height Capital Markets said in a note. Yet the latest revelations imply Facebook has partnerships with companies like Huawei that are believed to be involved in Chinese state-sponsored spying.

Facebook said "more than half" of the data sharing agreements were terminated and the remaining agreements, such as the one with Huawei, will be terminated by the end of the week, the Height analysts said.

Facebook's management team appears to be doing a "much better job playing defense" as evidenced by a series of "very well developed statements" that shed light on the agreements. For example, the data shared with Chinese companies never reached the companies' servers and was only on users' devices, according to statements Facebook provided to media.

Huawei is the third-largest smartphone maker in the world, with many U.S.-based users.

What's Next

The most significant regulatory risk Facebook and other social media companies face moving forward comes from Europe, according to Height. Expectations for new e-privacy regulations will be "material to investors" and could become law in the first half of 2019, the analyst firm said.

On the domestic front, Height said American lawmakers are unlikely to fully address data privacy issues in the near-term, although politicians are left "frustrated with the company's protections of user data with untrustworthy business partners."

Related Links:

KeyBanc Stays Bullish After Facebook's Q1 Print, Sees 'Opportunities To Drive Upside To Our Estimates'

How Valuable Is Your Facebook Data? Less Than You Think

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