Commission's surprise charge stems from company's purchase of WhatsApp in 2014

By Sam Schechner

The European Union on Tuesday accused Facebook Inc. of giving "incorrect or misleading information" to investigators who were probing its purchase of chat app WhatsApp in 2014, a surprise charge that exposes the company to a hefty fine.

The European Commission, the bloc's top competition-enforcement body, said it suspects that Facebook inaccurately claimed during the 2014 takeover that it was unable to reliably match user accounts between Facebook and WhatsApp -- something the company started doing two years later when it began combining user data across the services.

If it decides Facebook breached EU merger-procedure rules, the commission could fine the company up to 1% of its world-wide revenue. That could work out to up to $179 million based on Facebook's 2015 revenue. The EU made the accusation in a formal statement of objections.

The charge sheet, to which Facebook must respond by the end of January, adds a new regulatory battle for the social-media company over its conduct with WhatsApp, a privacy-centric chat tool it purchased for $22 billion in cash and stock.

"We've consistently provided accurate information about our technical capabilities and plans," a Facebook spokesman said. "We respect the commission's process and are confident that a full review of the facts will confirm Facebook has acted in good faith."

It is rare for companies to be charged with making misleading statements during a merger-approval process in Europe, and the EU says it hasn't taken such a step since new rules that boosted fines came into effect in 2004.

"What we're looking at today is a moral stand to say, even to big tech companies, that you don't lie to the agency," said Nicolas Petit, a professor of competition law at University of Liège, in Belgium.

The potential fine is Europe's latest salvo in its aggressive policing of big U.S. tech companies, including Alphabet Inc. and Apple Inc., over issues including antitrust, privacy, and taxes.

The accusation also comes near the end of a year when, amid soaring revenue and profit, Facebook has faced criticism on several fronts, resulting from its increasing influence -- and European authorities have been quick to pounce. Last week, senior German legislators proposed a new law requiring Facebook and its social media peers to remove fake news and hate speech from their platforms within 24 hours.

In September, a German privacy watchdogordered Facebook to stop collecting user data from WhatsApp, one of several investigations by national data-protection regulators, including those in Ireland, the U.K. and France, about its announcement in August that Facebook would start merging user data from WhatsApp. Earlier in the year, Germany's Federal Cartel Office announced it was investigating whether Facebook abuses its dominance as a social network to harvest personal information.

Facebook has said it follows European privacy laws, but it has paused some of the data sharing pending the outcome of those probes.

A Facebook spokesman said the company initially reached out to EU antitrust officials earlier this year to inform them of its intention to start linking up information between WhatsApp and Facebook after "we figured out a way to reliably match the users across the two services."

In September, following WhatsApp's announcement that it would start sharing userdata with its parent company, the commission said it was aware of the changes and was "in touch with Facebook on the issue." On Tuesday, however, the commission said its objections were procedural and "unrelated to neighboring privacy, data-protection or consumer-protection issues."

The next step in the EU case will be Facebook's response, after which the EU's antitrust arm will decide whether Facebook was guilty of providing the misleading information and, if so, assess a fine. Any decision can then be appealed in court.

The commission said the probe "will not have an impact" on its approval of the WhatsApp deal. The EU approved the WhatsApp takeover without any conditions.

"A statement of objections is us raising concerns. We haven't come to a final conclusion," a European Commission spokeswoman said at a press conference Tuesday. She added that statements by Facebook and WhatsApp have led the commission "to believe there could be a deliberate omission of information. Facebook now has its right to respond and we will take it from there. "

Write to Sam Schechner at sam.schechner@wsj.com

(END) Dow Jones Newswires

December 21, 2016 02:47 ET (07:47 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.