Paypal threatened with Patriot Act forfeiture
by Judy Osburn

FEAR Foundation Journal, Vol. 1 No. 1
Fall 2003
posted on FEAR website 4/10/2004
(c) 2003 FEAR Foundation.  Reprinting for distribution without charge, and republication permitted if article is printed in its entirety without editing, and attribution is given to FEAR Foundation Journal, Forfeiture Endangers American Rights Foundation, 20 Sunnyside Suite A-419, Mill Valley, CA 94941. 

A Missouri prosecutor sent Ebay a letter insisting that its recent acquisition, Paypal, was violating the Patriot Act by processing payments from Internet gambling operations, according to an article titled "Paypal Meets the Patriot Act" by Solveig Singleton.

Internet gambling is illegal in the U.S., but about 5 million Americans use overseas sites. Ebay discontinued Paypal’s gambling operations last fall.

Paypal hooks up to internet shoppers’ bank accounts or existing credit card to let you make a payment to anyone else with an e-mail address and a Paypal account. Millions of people count on Paypal to quickly make payments for an Internet auction without sending cash in the mail or sending a total stranger your credit card number or a check. Sellers rely on the service to accept payments without taking a check from a total stranger or dealing with the expensive apparatus of credit card acceptance. Paypal even offers a money-back guarantee against fraud or disappointment in the purchase of goods for just a few dollars per transaction.

Paypal’s or Ebay’s guarantee may be the Internet’s only real remedy for online auction fraud. Most of the fraud involves amounts less than $500, with a substantial amount being for less than $200 or even smaller amounts. Prosecutors and police rarely pursue cases involving such small amounts, and seldom track electronic offenders over state lines.

But police are interested in pursuing larger amounts of money, especially when they can seize it and keep it– which explains the state prosecutor’s interest in Paypal’s past role in gambling. The Patriot Act provisions that Paypal allegedly violated prohibit the transmission of funds known to have come from criminal activity. And they also provide for civil forfeiture. Obtaining a criminal conviction against either Paypal or Ebay would be extremely difficult; Ebay argues that they acted in good faith. The Missouri prosecutors sent a settlement offer along with their letter.

As Singleton wrote for the Competitive Enterprise Institute (www.cei.org):

Assume, for a moment, that our law against gambling is justified and that those are breaking it are doing something wrong (an assumption that probably wouldn’t stand close examination). Paypal is certainly less involved in the wrongful transaction than those who actually gambled. But civil forfeiture means that prosecutorial discretion will be directed not at the actual wrongdoers (under our assumption, gamblers or gambling businesses), but businesses caught up with them because they offer services to everyone without inquiries into the exact nature of their business.

So again the weight of the law comes down on Paypal, despite the amazing service they offer at extraordinarily low cost. And with every layer of litigation and regulation comes costs that they must eventually pass on to consumers, and also a little less courage to experiment next time. Will this zeal for prosecutions only stop when every computer company is as staid and cautious as the phone company? It would be one thing if the law served consumers, or targeted dangerous criminals. But as long as prosecutors and police are tempted by forfeiture laws, law enforcement will remain divorced from ordinary concepts of individual responsibility and the civil servant’s duty to the public. And it will begin to look a lot more like legalized extortion.