In a victory for free speech, PayPal today announced plans to revise their content policies to allow Smashwords writers full freedom to publish and sell legal ebooks.

This is a victory for all writers and readers. It removes credit card companies, banks and payment processors from the business of censoring legal fiction. It creates a new precedent that should allow other payment processors who have previously discriminated against legal fiction to relax their policies.

It will make more fiction more available to more readers. It gives writers greater freedom to express themselves. It gives readers more freedom to decide what they want to experience in the privacy of their own imagination.

First and foremost, we are going to focus this policy only on e-books that contain potentially illegal images, not e-books that are limited to just text. The policy will prohibit use of PayPal for the sale of e-books that contain child pornography, or e-books with text and obscene images of rape, bestiality or incest (as defined by the U.S. legal standard for obscenity: material that appeals to the prurient interest, depicts sexual conduct in a patently offensive way, and lacks serious literary, artistic, political or scientific value).

Recently, PayPal gave online publishers and booksellers, including BookStrand.com, Smashwords, and eXcessica, an ultimatum: it would close their accounts and refuse to process all payments unless they removed erotic books containing descriptions of rape, incest, and bestiality. The result would severely restrict the public's access to a wide range of legal material, could drive some companies out of business, and deprive some authors of their livelihood.

Financial services providers should be neutral when it comes to lawful online speech. PayPal’s policy underscores how vulnerable such speech can be and how important it is to stand up and protect it.

The topics PayPal would ban have been depicted in world literature since Sophocles’ Oedipus and Ovid’s Metamorphoses. And while the books currently affected may not appear to be in the same league, many works ultimately recognized for their literary, historical, and artistic worth were reviled when first published. Books like Ulysses and Lady Chatterley’s Lover were banned as “obscene” in the United States because of their sexual content. The works of Marquis de Sade, which include descriptions of incest, torture, and rape, were considered scandalous when written, although his importance in the history of literature and political and social philosophy is now widely acknowledged.

On Saturday, February 18, PayPal’s enforcement division contacted Smashwords with an ultimatum. As with the other ebook retailers affected by this enforcement, PayPal gave us only a few days to achieve compliance otherwise they threatened to deactivate our PayPal services. I've had multiple conversations with PayPal over the last several days to better understand their requirements. Their team has been helpful, forthcoming and supportive of the Smashwords mission. I appreciate their willingness to engage in dialogue. Although they have tried their best to delineate their policies, gray areas remain.

Their hot buttons are bestiality, rape-for-titillation, incest and underage erotica.

We do not want to see PayPal clamp down further against erotica. We think our authors should be allowed to publish erotica. Erotica, despite the attacks it faces from moralists, is a category worthy of protection. Erotica allows readers to safely explore aspects of sexuality that they might never want to explore in the real world.

The moralists forget that we humans are all sexual creatures, and the biggest sex organ is the brain. If it were not the case, none of us would be here. Erotica authors are facing discrimination, plain and simple. Topics that are perfectly acceptable in mainstream fiction are verboten in erotica. That’s not fair.

A lot of people have been attacking Smashwords for my decision to comply with PayPal's requirements. They're pointing their arrows at the wrong target, and they're not helping their cause. We're working to effect positive long term change for the entire Smashwords community, and that includes all our erotica authors and readers.

Over the weekend, many Smashwords authors and publishers demanded we abandon PayPal and find a new payment processor. It's not so simple, and it doesn't solve the greater problem hanging over everyone's head. PayPal is trying to implement the requirements of credit card companies, banks and credit unions. This is where it's all originating. These same requirements will eventually rain down upon every other payment processor. PayPal is trying to maintain their relationships with the credit card companies and banks, just as we want to maintain our relationship with PayPal. People who argue PayPal is the evil villain and we should drop them are missing the bigger picture. Should we give up on accepting credit cards forever? The answer is no. This goes beyond PayPal. Imagine the implications if credit card companies start going after the major ebook retailers who sell erotica?

We recently placed a temporary limitation of the Courage to Resist organization’s PayPal account as they had not complied to our stated policy requiring non profits to associate a bank account with their PayPal account (for the vast majority of non-profits, this is not an issue).

In a press release issued today, the Courage to Resist organization claimed that their resistance to follow our policy is because PayPal sought to withdraw funds from their checking account.  To be clear: PayPal cannot take such action without the authorization of an account holder, nor does it ever take such unauthorized actions.

Upon review, and as part of our normal business procedures, we have decided to lift the temporary restriction placed on their account because we have sufficient information to meet our statutory 'Know Your Customer' obligations. The Courage to Resist PayPal account is now fully operational.

The online payment provider PayPal has frozen the account of Courage to Resist, which in collaboration with the Bradley Manning Support Network is currently raising funds in support of U.S. Army Pfc. Bradley Manning. PayPal was one way people--especially international residents--were able to contribute to the grassroots effort supporting the accused WikiLeaks whistleblower. "We've been in discussions with PayPal for weeks, and by their own admission there’s no legal obligation for them to close down our account," noted Loraine Reitman of the Bradley Manning Support Network (Support Network). "This was an internal policy decision by PayPal."

[....] The Support Network repeatedly requested and was refused formal documentation from PayPal describing their policies in this matter.

"Demonstrating that Defendant Hotfile.com is aware of the illegality of its conduct, it offers two methods for download services. For its first option, Defendant Hotfile.com permits its partners to download a stolen movie at a very slow transfer speed for no charge. The other option allows users to pay a premium to download the movie ten times faster."

Indeed, the NYT reporters several times acknowledge that public awareness of these operations could trigger serious harm ("inside Pakistan, [] the movement of American forces has been largely prohibited because of fears of provoking a backlash"). Note, too, that Mazzetti and Filkins did not acquire these government secrets by just passively sitting around and having them delivered out of the blue. To the contrary: they interviewed multiple officials both in Washington and in Afghanistan, offered several of them anonymity to induce them to reveal secrets, and even provoked officials to provide detailed accounts of past secret actions in Pakistan, including CIA-directed attacks by Afghans inside that country.

Why aren't Visa, MasterCard, Paypal, their web hosting company and various banks terminating their relationships with The New York Times, the way they all did with WikiLeaks: not only for the NYT's publication of many of the same diplomatic and war cables published by WikiLeaks, but also for this much more serious leak today in which WikiLeaks was completely uninvolved?

Together, the firms hope to tackle every link in the chain that keeps unlicensed pharmacies operating by stopping them showing up in search results, taking their websites offline, delisting the domains they use and stopping payments reaching them.

"The WikiLeaks data dump has jeopardized U.S. national interests and the lives of intelligence sources around the world," Lieberman said, though there is no proof or even detailed allegations that the release has endangered any intelligence source.

"Personal payments to and from India and transfers to local banks in India have been suspended while we work with our business partners and other stakeholders to address questions they have about the service...."

Paypal has as of 23rd of January 2010 frozen WikiLeaks assets. This is the second time that this happens. The last time we struggled for more than half a year to resolve this issue. By working with the respected and recognized German foundation Wau Holland Stiftung we tried to avoid this from happening again -- apparently without avail.