PayPal Violated PATRIOT Act, Says Prosecutor

James Kittock passes on this news item from Reuters' Internet Report:

PALO ALTO, Calif. (Reuters) - A federal prosecutor has alleged eBay Inc. (Nasdaq:EBAY - news) unit PayPal violated a 2001 anti-terror law aimed at fighting money laundering when it provided payment services to online gambling companies, the Web auctioneer said in its annual report filed on Monday.

Silicon Valley-based eBay said it received a letter on Friday in which the U.S. Attorney for the Eastern District of Missouri accused PayPal of violating a provision of the USA Patriot Act.

The provision prohibits the transmission of funds that are known to have been derived from a criminal offense, or are intended to be used to promote or support unlawful activity.

PayPal has gotten out of the business of funds transferral for online gaming (except where it hasn't — see below). But the question of whether transferring funds for online gaming is prosecutable under the PATRIOT act strikes very close to home. Chances are high that if you are reading this someone you know is liable for prosecution as a terrorist.