CEO DailyCFO DailyBroadsheetData SheetTerm Sheet

Meta’s European warning wasn’t a threat—but if it does have to withdraw, U.S. surveillance laws will be to blame

February 9, 2022, 12:04 PM UTC

Good morning. David Meyer here in Berlin, filling in for Alan.

Meta/Facebook has strongly denied reports that it is “threatening to leave Europe” owing to legal uncertainty around data protection compliance. “This is not true,” wrote Europe public policy chief Markus Reinisch in a blog post. “We have absolutely no desire to withdraw from Europe.”

I don’t often sympathize with Meta, but on this occasion I can understand its frustration. As my colleagues Christiaan Hetzner and Jeremy Kahn reported a couple days ago, Meta’s latest 10-K annual filing noted that—if it can’t find a solid legal footing for exports of Europeans’ personal data to the U.S.—it might be forced to stop offering its core services in the EU. This would be a huge deal, and it’s Meta’s responsibility to keep its investors apprised of the threat.

But this does not mean that Meta was making a threat—not that you’d know it from the many, many articles and pundits that framed it in that way, with some even trying to egg the firm on.

Here’s Loup’s Gene Munster on CNBC’s Squawk Box yesterday: “[Mark Zuckerberg] is a shrewd operator, and I wouldn’t put it past him to pause the service for a week. The reason is I think it would really punctuate that this is not a one-sided conversation, it’s not just that tech is reaping benefits from these other countries. The small businesses, I think they actually do get a benefit from it, and if they did pause the service I think that lawmakers would hear about it…I don’t think it’s out of the realm [of possibility] that they flex that muscle in Europe.”

With all due respect, this analysis spectacularly misses the point. So, without delving into the complex specifics, let’s break Meta’s plight (at least, this particular plight) down into the simplest possible terms:

1) The U.S.’s surveillance laws empower its intelligence agencies to collect and access foreigners’ personal data that is held on the servers of U.S. Big Tech firms, and those companies cannot stop this. The U.S. also has no federal data protection law outside the health care sphere.

2) European law treats data protection and privacy as fundamental rights, meaning people there must generally have online privacy, and if their data is collected by intelligence or law enforcement then there must be an exceptional reason, along with strict controls that include mechanisms through which people can complain and stop their data being accessed.

3) Because the two systems are completely mismatched, the EU can’t give American companies a free pass for importing Europeans’ personal data. Its political leaders in the European Commission keep trying to create workarounds, but they keep getting shot down by the EU’s top court. That’s because—no matter how much Big Tech insists it will respect and protect Europeans’ privacy—U.S. firms still can’t say no to U.S. intelligence agencies, and Europeans still have no meaningful way to stop their data being collected in this way.

This is the legal reality, and there’s no way Meta could change it by “flexing that muscle” in Europe. There’s no point trying to sway members of the European Parliament because there’s no data protection law being made right now—the GDPR is already in force and won’t be revised for many years—and even if there was, Meta’s name is mud and throwing its weight around would lead to certain disaster. The European Commission would love to make the problem go away, but it can’t credibly keep pumping out workarounds that the courts then strike down. And the EU data protection authorities that enforce the law certainly wouldn’t take kindly to threats.

Meta wasn’t making a threat here. But if there’s any lobbying to be done, it’s back home. If the U.S. doesn’t reform its surveillance and privacy laws, yes, there is a strong likelihood that its Big Tech companies will end up having to shutter their European operations. Investors need to know this—and wake up to the implications. More news below.

David Meyer
@superglaze

david.meyer@fortune.com

TOP NEWS

Peloton CEO

Peloton CEO John Foley will hand over the reins to former Spotify and Netflix CFO Barry McCarthy, and investors are so thrilled that the exercise-bike company’s share price rose by a third. Here’s Fortune’s Phil Wahba: “The Peloton case makes clear that the entrepreneurial skills needed to launch and transform a startup into a corporate behemoth are not necessarily the same as those needed to run and scale a large company that faces unique challenges and growing pains.” Fortune

European chips

The EU has a big plan to create a serious chipmaking industry, so it’s not so reliant on Asia. As part of this effort, the EU would relax its state-aid rules so countries can offer handouts to the likes of Intel and TSMC, to entice them to set up European plants. Fortune

Apple payments

Apple is turning iPhones into point-of-sale terminals. A new tap-to-pay feature will let merchants accept payments from customers’ iPhones or from contactless credit cards, without the need for hardware peripherals. It’s U.S.-only at first, and Stripe will be the first payment operator to be involved. CNBC

Crypto laundering

A New York couple have been charged with conspiring to launder around $4.5 billion worth of cryptocurrency that was stolen in the hacking of crypto exchange Bitfinex, around six years ago. Ilya Lichtenstein and Heather Morgan (a rapper and former Forbes columnist) have however not been charged in relation to the hack itself. Fortune

AROUND THE WATERCOOLER

Fauci optimism

Anthony Fauci reckons the U.S. will be out of the pandemic soon, at which point rules such as mask mandates should be dropped and local health authorities rather than federal authorities should take the lead on COVID response. (Bonus read: Why China should stick by its zero-COVID policy, if global supply chains are to remain intact.) Financial Times

Activision Blizzard

Here’s a terrific and unsettling Fortune piece from Courtney Rubin about the direly discriminatory workplace culture at Activision Blizzard, the gaming giant that Microsoft is trying to buy for $68 billion. More than two dozen women say demeaning and bullying behavior was common, as was daytime drinking. Activision insists this is all in the past. Fortune

Axel Springer

The FT has a deep dive into the sexual-misconduct scandal surrounding Julian Reichelt when he was editor of Bild, the flagship tabloid of Insider and Politico parent Axel Springer. The piece details how Springer top brass “rallied to protect” Reichelt when allegations surfaced, “advising him to deny everything” and exposing “some of the very people the [internal] probe was meant to protect.” Financial Times

Diversity data

Companies should disclose their workforce diversity data in granular detail, JUST Capital’s Ashley Marchand Orme writes in an interesting piece for Fortune. “It wouldn’t require any significant additional effort from companies,” Orme notes. “Employers with more than 100 employees are legally obligated to report to the U.S. Equal Employment Opportunity Commission on gender, race, and ethnicity by job categories.” Fortune

This edition of CEO Daily was edited by David Meyer.

This is the web version of CEO Daily, a newsletter of must-read insights from Fortune CEO Alan Murray. Sign up to get it delivered free to your inbox.