Meta was found to be raking in astronomical revenue from illegal ads.
According to a series of internal documents obtained by Reuters on the 6th (local time), Meta earned $16 billion (about 23 trillion won) a year from illegal ads on Facebook, Instagram, and WhatsApp. That amounts to one-tenth of Meta's annual revenue of $164.5 billion last year.
Illegal ads distributed through Meta range from fraudulent e-commerce and investment scams to illegal online gambling and sales of banned medical products, and the number of "high-risk" scam ads shown to users alone was estimated at an average of about 15 billion a day. A review report written in May noted that one-third of "successful" scam cases in the United States occurred on Meta. An analysis report in April last year also said, "It is easier to place scam ads on Meta than on Google."
In fact, in Korea, indiscriminate investment scam ads impersonating not only well-known business leaders, economic experts, and celebrities but even the president recently became a controversy, centered on Facebook. Meta is supposed to identify and block these ads as illegal, but it failed to do so in practice.
Meta uses an automated system to determine whether ads are illegal, and it was found to block advertisers only when the probability of committing fraud is 95% or higher, leading to these outcomes. If the probability falls short, Meta imposes indirect sanctions by charging higher ad rates instead of blocking the ads directly.
There is another problem. Users who click a fraudulent ad once end up seeing more similar fraudulent ads. Meta serves personalized ads based on individual interests, determining that ads previously clicked are of interest.
Meta's internal review related to scam ads is presumed to be connected to investigations by regulators into Meta. According to the internal documents, the U.S. Securities and Exchange Commission (SEC) is investigating Meta on suspicion of running financial scam ads, and in the United Kingdom, a regulator said Meta was involved in 54% of all payment-related scam losses in 2023.
However, Reuters commented that Meta is hesitant to crack down on illegal ads out of concern it would hurt business profits. Meta estimated up to $1 billion in fines from regulators over such illegal ads, which is far less than the revenue earned from them. According to a document drafted in February this year, the team in charge of vetting advertisers within Meta was prohibited from taking actions that could incur expense exceeding 0.15% of the company's total revenue. In other words, Meta set a cap out of concern that reducing illegal ads too much would significantly cut sales.
Instead of a firm crackdown on illegal ads, Meta's management decided to focus on countries where short-term regulation is expected. After consulting with Chief Executive Officer Mark Zuckerberg, Meta decided to gradually reduce the share of revenue related to illegal ads from 10.1% last year to 7.3% this year, 6% next year, and 5.8% in 2027.
Sandeep Abraham, head of Risky Business Solutions and former head of global operations (trust and safety) investigations at Meta, said, "Meta's acceptance of suspected scam revenue reveals a lack of regulatory oversight in the advertising industry," and noted, "If authorities do not tolerate banks profiting from fraud, the tech industry should not tolerate it either."
Andy Stone, Meta Spokesperson, said of the documents obtained by Reuters that they were "assessments conducted to respond to scam ads," but explained that the estimate that 10% of last year's revenue came from illegal ads was "inaccurate and overly broad." Stone argued that many legitimate ads were included among those suspected of fraud, so the actual share of scam ads is lower, but refused to provide specific figures. He also responded to allegations that the company barred ad crackdowns that would affect more than 0.15% of total revenue by saying it was "a figure mentioned in sales forecasts, not a strict limit."
He said, "We are actively blocking scam ads because platform users and legitimate advertisers do not want them," adding that reports of scam ads fell 58% over the past 18 months and that more than 134 million scam ads have been removed so far this year.
Reuters pointed out that scams carried out via Facebook and Instagram include not only those using Meta's paid advertising platform but also romance scams using chat functions, among others, yet Meta is also stingy about suspending these scammers' accounts.