(Bloomberg) — The world’s biggest tech companies could face billions of dollars in fines for flouting new European Union legislation after lawmakers reached a deal on its scope early Saturday.
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The landmark Digital Services Law is the EU’s response to what it sees as a failure by tech giants to combat illegal content on their platforms. Failure to comply could cost companies up to 6% of global annual sales when the rules take effect, in 2023 or 2024, depending on their size.
Failures can be extremely costly. Based on its reported annual sales for 2021, Amazon.com Inc, for example, could face a notional fine of up to €26 billion ($28 billion) for future DSA breaches. Repeat offenders could be banned from operating in the EU.
Facebook whistleblower Frances Haugen said the DSA could represent a “global gold standard” for regulating social media companies. After more than a year of internal wrangling, the key rules will include:
Prohibition of using sensitive data such as race or religion to target ads.
Prohibition of directing advertisements to minors.
A ban on so-called “dark patterns,” specifically tactics to push people into consenting to online tracking.
All websites will be held accountable to the DSA, but platforms with more than 45 million users in the EU will have to comply with stricter rules, such as paying Brussels a monitoring fee of up to 0.05% of their global annual revenue. to enforce the law. – the figure was lowered in final negotiations – and provide regulators with annual reports on illegal and harmful content on their sites.
Will Europe’s ‘gold standard’ clean up social media?: QuickTake
“With the DSA, we help create a safe and responsible online environment,” Margrethe Vestager, the EU’s head of competition, said in a statement on Saturday. “With today’s agreement, we ensure that platforms are held accountable for the risks that their services may pose to society and citizens.”
The deal still needs to be signed by parliamentarians and all 27 EU countries before it becomes official later this year. Large companies will then have four months to comply with the rules, and all other companies will have 15 months. Smaller businesses can apply to be exempt from certain rules.
Google said it welcomed the DSA’s goals and looked forward to “working with lawmakers to get the remaining technical details to ensure the law works for everyone.”
The DSA is the second major piece of legislation in Brussels’ digital rulebook to be cemented in a month. On March 24, the EU finalized its Digital Markets Law, a related framework that requires “gatekeepers” to adhere to strict antitrust rules.
Read more: Big tech companies face crackdown as EU negotiators back tough law
Both laws were designed to address market dominance and security on the Internet. But while the previously announced DMA targets a dozen major tech companies, mostly based in the US, the DSA sets basic standards for all websites.
Big companies, including TikTok Inc and Pornhub, will face additional obligations, including opening up their algorithms to designated enforcers and investigators. Social media companies and search engines will also have to offer a non-profile-based product, while e-commerce sites will have to run random checks on products sold on their sites.
They will also have to explain to Brussels what they are doing to combat harmful content, such as propaganda or disinformation during emergencies, often seen during the Covid-19 pandemic and Russia’s war in Ukraine.
The EU could impose fines or require policy changes if companies cannot show they are doing enough to combat harmful content.
Read more: Algorithms increasingly in the sights of legislators
The new fines are in addition to the applicable penalties under the DMA. Under that law, the world’s largest technology companies face fines of up to 10% of their global annual sales for an initial violation, rising to 20% for repeated violations. Those who routinely break the rules could be temporarily banned from undertaking mergers and acquisitions.
Still, it is highly unlikely that the EU will issue such massive fines. It has never applied the maximum possible penalties according to the laws of the General Data Protection Regulation, for example. Those rules have been in place since 2018 and allow fines of up to €20bn or 4% of a company’s global sales. The largest penalty issued to date was a €746 million fine imposed on Amazon in July, which the company is appealing.
Amazon and Google have long been the targets of antitrust investigations from Brussels, but these cases drag on for years in court and have had little impact on behavior. Officials say they need tools like DSA and DMA to break what the EU claims is a stranglehold on digital ecosystems and platforms by a handful of giants.
But questions remain about how Brussels will enforce the two new laws, as both boards require more than 200 people in the European Commission to oversee compliance. That is why companies with more than 45 million users will have to pay the annual supervision fee.
If successful, the EU rules could be a model for other countries to control tech platforms. Although Washington initially rejected EU plans to regulate big tech, some US lawmakers are now looking to Brussels to enact similar restrictions. Former US presidential candidate and Secretary of State Hillary Clinton endorsed the DSA before the final negotiations.
The UK’s recently proposed online safety bill goes even further by imposing higher fines and possibly jail terms for non-compliant executives.
Read more: UK sets law to prosecute bosses in Big Tech crackdown
(Updates with possible EU ban in the third paragraph, schedule in the seventh, more requirements in the 11th.)
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