The secret Uber program that prompted a federal criminal investigation, explained

Uber’s bad year just keeps getting worse. Reuters reported late Thursday that the company is facing a federal investigation that could lead to criminal charges related to its use of “Greyball,” an internal software program that Uber allegedly used to deceive local government officials and evade enforcement of local laws.

Uber is already facing a high-profile lawsuit from Google’s Waymo division for allegedly stealing self-driving car secrets. The company is grappling with charges that it has a sexist corporate culture that has alienated many female engineers. And — perhaps due to these and other problems — it has been losing senior executives at a steady pace.

Now there’s a possibility — though it’s far from a certainty — that the Justice Department will bring criminal charges against the company.

The investigation arises from actions Uber took when it was still a small startup trying to break into new markets where local regulators were often hostile to companies trying to compete with incumbent taxicab companies. Uber’s early approach to local taxi regulations was to ask for forgiveness instead of permission. It proved to be an effective strategy for rapid growth.

But federal investigators are now considering whether Uber broke the law with its Greyball program, an elaborate scheme to hide its activities from local government officials trying to enforce taxi laws. Under the Greyball program, Uber would try to identify government officials and give them a fake version of the Uber app that showed inaccurate information about driver locations and didn’t allow any rides to be hailed. That made it difficult for local officials to fine Uber drivers or impound their vehicles. But it also may have run afoul of federal law.

Each city had a different set of local regulations, and some of these laws were quite burdensome. So to a large extent, Uber’s strategy was simply to ignore the law. The company tried to enter a market so quickly that by the time regulators started cracking down, the company had thousands of loyal customers who would advocate for loosening taxi rules.

In these early years, Uber often seemed like the plucky underdog. In 2012, for example, there was some ambiguity about whether the ride-hailing service was compliant with taxicab regulations in Washington, DC. The DC City Council was working on legislation to clear up Uber’s legal status, but early drafts looked more like a poison pill than a serious reform. One proposal would have forced Uber to charge at least five times the minimum taxicab fare, effectively limiting it to the high-end black car market and shielding conventional taxicabs from competition.

Luckily for Uber, the company hadn’t waited for the council to clarify the law before beginning operations in DC. It had a lot of customers who lived in the District, and asked them to call their city council members. Thousands did so, and the minimum fare proposal was dropped.

Uber was even more aggressive in other cities. In Philadelphia, the company paid thousands of dollars in fines on behalf of its drivers when their vehicles got impounded. Eventually, most regulators relented and allowed Uber (and competitors like Lyft) to operate in their cities.

Thanks to a March scoop in the New York Times, we now know that Uber was also using subterfuge to give itself an edge in its early fights with local regulators. Uber’s app had a feature called Greyball that identified likely government officials and then showed them inaccurate information about the locations of Uber drivers.

If these officials tried to hail a cab, the app would make it look like a driver had accepted the hail and then canceled before reaching the customer. By preventing city officials from locating Uber cars, this made it more difficult for city governments to fine drivers or impound their vehicles, leaving them with few ways to enforce the law.

According to the Times, Uber went to elaborate lengths to identify and Greyball city officials. Company managers would manually identify the location of key government offices and blacklist customers who hailed rides there. Customers who signed up with a credit card linked to a law enforcement credit union got extra scrutiny. Uber would even check social media accounts to see if a customer could be identified as law enforcement.

“Enforcement officials involved in large-scale sting operations meant to catch Uber drivers would sometimes buy dozens of cellphones to create different accounts,” the Times reported. “To circumvent that tactic, Uber employees would go to local electronics stores to look up device numbers of the cheapest mobile phones for sale, which were often the ones bought by city officials working with budgets that were not large.”

There’s no question that these revelations made Uber look bad. The big question is whether they broke the law. The new Reuters report doesn’t indicate what charges the government might bring, but one legal expert suggested to me that obstruction of justice is a possible charge.

Of course, it’s important to stress that an investigation doesn’t mean Uber will be charged with a crime, or that it would ultimately be convicted. Investigators might review the evidence and conclude that no laws were broken. But it gives Uber CEO Travis Kalanick another thing to worry about, and he really doesn’t need that.