8 Comments

Summary:

The Switzerland-based startup, established by MIT, Harvard and CERN researchers, couldn’t access money that crowdfunding backers have given it, because PayPal had frozen its account. A PayPal rep apparently asked if ProtonMail had asked the government for permission to offer encryption.

About 6 weeks ago my colleague Barb Darrow covered a new secure email startup called ProtonMail, which was set up by a bunch of MIT, Harvard and CERN researchers who are annoyed with the NSA’s intrusive ways.

The team’s Indiegogo crowdfunding campaign has done pretty well in the last 2 weeks, thus far raising $283,675 off a $100,000 goal. But Geneva-headquartered ProtonMail, which is keen to rent servers and get the product out of beta, hit a snag on Monday when it discovered PayPal had frozen its account.

Restrictions on the account were lifted on Tuesday, with ProtonMail crediting the reversal to media coverage, but PayPal said the account had only been frozen in the first place due to a technical problem. However, when ProtonMail was trying to find out why the block had been put in place, a PayPal representative apparently asked whether the startup had sought government approval for offering encrypted services.

The payments firm said in a statement:

PayPal recently made changes to the way it handled accounts of people who were using crowdfunding sites to support their ideas. In response to customer feedback we established a streamlined process to specifically support crowdfunding campaigns. This process involves engaging crowdfunding campaign owners early on to clearly understand their campaign goals and help them ensure their campaigns are compliant with our policies and government regulations.

In the case of ProtonMail, a technical problem this week resulted in PayPal applying restrictions to the account. We have contacted ProtonMail today to solve this and can confirm that ProtonMail is able to receive or send funds through PayPal again. We are sorry for any inconvenience caused.

ProtonMail had received no warning before its account was frozen, and it took the best part of a day for the startup to get any response from PayPal. Prior to PayPal’s statement, it seemed a story to file under either “PayPal being annoying because of its historically over-cautious take on crowdfunding” (which it promised to fix) or “PayPal being annoying because of its politics” (see also: the cutting-off of Wikileaks’ funds).

In a blog post on Monday, the ProtonMail team began by erring towards the former explanation:

Like many others, we have all heard the PayPal horror stories, but didn’t actually think it would happen to us on our campaign since PayPal promised, very recently, to improve their policies. Unfortunately, it seems those were hollow promises as ProtonMail is now the latest in a long string of crowdfunding campaigns to be hit with account freezes.

However, this may be more complicated than that. ProtonMail went on to ask why it was being singled out, then dropped this weird detail:

When we pressed the PayPal representative on the phone for further details, he questioned whether ProtonMail is legal and if we have government approval to encrypt emails. We are not sure which government PayPal is referring to, but even the 4th Amendment of the U.S. constitution guarantees: “The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures….”

Strong encryption is at least theoretically subject to export controls in the U.S., but it’s certainly not illegal to use it there, and it doesn’t require government approval either. The same applies most places, though of course law enforcement powers of ordering decryption are another matter.

This article was updated at 8.30am PT to note a message I received from ProtonMail saying PayPal had lifted the account restrictions, then again at 9.20am PT to reflect PayPal’s subsequent statement.

  1. rolandalden Tuesday, July 1, 2014

    Couldn’t possibly have anything to do with Palantir Technologies.

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  2. isaac327671 Tuesday, July 1, 2014

    I doubt that one illiterate call center dweeb represents PayPal’s legal policies.

    That said, I would think twice before using PayPal to accept a significant transaction. It’s not just the crowdfunding thing, it’s their general willingness to screw people over.

    http://nyti.ms/1xbyVtf

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  3. Paypal you are disgusting cowards and don’t deserve your American citizenship. Will not being using your shit service ever again. COWARDS!
    If I was face to face with a paypal exec, I would spit in their face.

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    1. Glad PayPal did the right thing in the end, but I am sticking with my statement of Cowards for failing in the first place. A coward forced to do the right thing is still a coward.

      “Restrictions on the account were lifted on Tuesday, with ProtonMail crediting the reversal to media coverage, but PayPal said the account had only been frozen in the first place due to a technical problem”

      “technical problem”, Ya Right! :)

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  4. take bitcoin forget paypal

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  5. Paypal, you are nothing but cowards and shills for the communist US government!

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  6. Be sure that your credit card processor is not PayPal or a credit card processor that uses PayPal.

    PayPal in its desire for more market share will offer services cheaper and reject qualified payers/donors based on the payer and not the credit card.

    This way the Payee (Proton Mail) unkowningly loses funds because of improper rejection while thinking that PayPal is doing a superior job of rejecting bad Payers.

    I know this because I experienced this personally first hand.

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  7. Public service by Pay Pal to protect people from fraudulent claims?

    http://vimeo.com/99599725
    https://plus.google.com/+AlexandreKeledjian/posts/dPTgkN1d8Di

    Has anyone read *and understood* Moxie Marlinspike’s debunking of Lavabit?

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