Paypal Cuts Off Mega Because It Actually Keeps Your Files Secret

from the doesn't-paypal-like-encryption? dept

There are way too many stories of Paypal unfairly and ridiculously cutting off services that rely on it as a payment mechanism, but here’s yet another one. Mega, the cloud storage provider that is perhaps well-known for being Kim Dotcom’s “comeback” act after the US government shut down Megaupload, has had its Paypal account cut off. The company claims that Paypal was pressured by Visa and Mastercard to cut it off:

Visa and MasterCard then pressured PayPal to cease providing payment services to MEGA.

MEGA provided extensive statistics and other evidence showing that MEGA’s business is legitimate and legally compliant. After discussions that appeared to satisfy PayPal?s queries, MEGA authorised PayPal to share that material with Visa and MasterCard. Eventually PayPal made a non-negotiable decision to immediately terminate services to MEGA. PayPal has apologised for this situation and confirmed that MEGA management are upstanding and acting in good faith. PayPal acknowledged that the business is legitimate, but advised that a key concern was that MEGA has a unique model with its end-to-end encryption which leads to ?unknowability of what is on the platform?.

MEGA has demonstrated that it is as compliant with its legal obligations as USA cloud storage services operated by Google, Microsoft, Apple, Dropbox, Box, Spideroak etc, but PayPal has advised that MEGA’s “unique encryption model” presents an insurmountable difficulty.

That last line is particularly bizarre, given that if anyone recognizes the value of encryption it should be a freaking payments company. And, of course, Paypal can’t know what’s stored on any of those other platforms, so why is it being pressured to cut off Mega?

Mega’s theory — which is mostly reasonable — is that because Mega was mistakenly listed in a report released by the “Digital Citizens Alliance” that insisted Mega was a rogue cyberlocker storing infringing content, that payment companies were told to cut it off. If true, this is problematic on multiple levels. The methodology of the report was absolutely ridiculous. Because most Mega files are stored privately (like any Dropbox or Box or Google Drive account), the researchers at NetNames have no idea what’s actually being stored there or if it’s being done perfectly legitimately. Instead, they found a few links to infringing works, and then extrapolated. That’s just bad research practices.

Furthermore, the Digital Citizens Alliance is hardly an unbiased third party. It’s an MPAA front group that was the key force in the MPAA’s (now revealed) secret plan to have states attorneys general attack Google. Think the MPAA has reasons to try to go after any potential revenue source for Kim Dotcom? Remember, taking down Megaupload and winning in court against Dotcom was a key focus of the company since 2010 or so, and Dotcom recently noted that he’s out of money and pleading with the court to release some of the funds seized by the government to continue to fight his case. The lawyers who represented him all along quit late last year when he ran out of money. It seems like the MPAA might have ulterior motives in naming Mega to that list, don’t you think?

And, this all goes back to this dangerous effort by the White House a few years ago to set up these “voluntary agreements” in which payment companies would agree to cut off service to sites that the entertainment industry declared “bad.” There’s no due process. There’s no adjudication. There’s just one industry getting to declare websites it doesn’t like as “bad” and all payment companies refusing to serve it. This seems like a pretty big problem.

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Companies: digital citizens alliance, mastercard, mega, megaupload, mpaa, paypal, visa

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Comments on “Paypal Cuts Off Mega Because It Actually Keeps Your Files Secret”

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Anonymous Coward says:

Didn’t Rapidshare have to take Paypal to court in Europe over blocking it’s pay services after Mastercard an Vista interfered with payments?

You have the NSA claiming the way to secure your communications is to use encryption, a speech by the president recommending encryption use, corporations protecting their client info by encryption, financial dealings on the net with encryption and then suddenly Paypal of all people wants to block business over it? Seems on side of the mouth doesn’t know what the other says.

Quiet Lurcker says:

Re: Re:

The difference here is, with banks and companies, there’s a weakness in the encryption scheme – on the (probably unencrypted) company servers – and (at least in the states) there’s the infamous (and IMHO dead wrong) third-party doctrine. Storing encrypted information on cloud servers maintained outside the U.S. and run by a non-U.S. company, which does NOT have the decrypt key makes those weaknesses go away.

My crystal ball (been in the family for years) tells me, if you dig long enough and hard enough, you may well find out that the card services and paypal could well have been compelled by REDACTED to take the stance they have. Admittedly, it also predicted Dewey over Truman by a landslide….

Anonymous Coward says:

Re: unique encryption model

If the program does not work, then it does not matter whether the encryption is client-side or not. I have numerous work orders with SpiderOak, outstanding since September. Neither my Linux machine nor my Windows machine can access the small amounts I have stored there. I have sent them log files and offered more if needed. I keep getting offers from them to up my storage space, and reply with ‘hey fix the outstanding issues’, and get a reply from a first level support person, but never hear from the engineers. I am not the only one with this problem with SpiderOak. Their forum is filled with complaints about failures of their engineering team to address issues. I got started with them after I learned that Snowden had used them and I think that information seriously overwhelmed their capabilities. If I actually had something other than a basic backup to store, I would look elsewhere.

retrogamer (profile) says:

I have to say, the monopoly Paypal has on online payments is really troubling. I already quit using ebay for this reason, but the fact is that are very few alternatives in some cases. I wish people would support competitors like eBid (I already went to Etsy where possible). This isn’t just a Mega issue either; I’ve run into this with VPNs in the past as well, I used to use iPredator but ended up switching to a different VPN after Paysafe dropped them (Paypal already wasn’t an option).

John Fenderson (profile) says:

Re: Re:

“I have to say, the monopoly Paypal has on online payments is really troubling. I already quit using ebay for this reason, but the fact is that are very few alternatives in some cases”

This. I have a deep-seated mistrust of and aversion to PayPal due to a long history of misbehavior, and avoid using it to the maximum extent possible. I just wish it were always possible.

retrogamer (profile) says:

Re: Re: Re:

My problem with Bitcoin is that the value fluctuates so rapidly, and it’s no longer possible to at least break even (in terms of electricity costs) by mining it with an AMD GPU, meaning I have to rely on a broker of some sort (which doesn’t strike me as better than a paypal alternative using hard currency). It’s better than no option, but one based on a hard currency would still be preferable for me anyway.

Greatwolf says:

Re: Re: Re: Re:

The volatility issue has already been solved. There are solutions like BitShares, coinapult, bitreserve etc. you can use to eliminate bitcoin’s volatility. In addition, the merchant can use bitpay or coinbase’s service that instantly converts to US dollars behind the scenes — which again avoids any volatility.

In light of recent events, it really underscores how bitcoin can help here.

retrogamer (profile) says:

Re: Re: Re:2 Re:

I have to disagree on this; coinbase for example have already been cutting off certain services (like gambling) and tracking what their users are spending their Bitcoins on. I’m not sure how that really ends up being any better an option than Paypal. My point being when you use those services over volatility concerns, you end up with something just as ripe for abuse as Paypal-like systems, so I still don’t see how Bitcoin is any better in that regard.

Pragmatic says:

Re: Re: Re:

That’s because the **AAs write laws for our government to enact and enforce. They’re not the only ones, of course. It’s the reason I oppose corporate rule — and am routinely accused of being a Socialist for it.

Those who call democracy “Mob rule” should be careful what they wish for. “The market” isn’t going to get us out of this mess.

Anonymous Coward says:

there seems to be a problem here with the way this report has been put out too. according to a piece on Torrentfreak, the main instigator of what has gone on here is Senator Leahy! yet another USA government official stepping in at the behest of that same entertainment industry that supposedly asked and received special favors from the Vice President, if i remember correctly!!
this sort of behavior has to stop! it is really bad practice for the government to interfere anyway but to do so because a particular industry is friends with government officials who then do what is asked and gets a swat team, fully armed, to invade a house with women and children in, in another country, just because that said industry doesn’t like what another company is doing!! this is easily the start of complete segregation of which businesses can start or be stopped, just because what they do is better than another industry wants to do itself!! absolutely disgraceful!! and i bet this has come at this time just to turn the heat up on Dotcom who, as stated, is well short of money. if he cannot pay for legal representation because the USA is holding up access to his own money, i’ll bet the movie studio bosses are all sitting back, gloating like cats and saying ‘now fuck with Hollywood’!! pity it has taken such action against someone who had done what they wanted from the start, but even worse, were the biggest copyright infringers going!!

Anonymous Coward says:

There’s a new Russian-based payment processor that was started because of the shenanigans that all the US/EU-based payment systems were pressured into perpetrating — including the boycott against Russia.

Hopefully this (or something similar) will become an alternative to Bitcoin for use on sites that the copyright cartel doesn’t like. I just hope Americans aren’t going to be forbidden to use it, but it could soon very well be like buying Cuban cigars here for the last half-century.

Anonymous Coward says:

Re: Re:

“What is the difference between a few industries and government? The fact there’s a revolving door among a few handful of people is what makes me very uncomfotable.”

The revolving door between the US federal government and the private banking industry is indeed huge. Goldman Sachs alone constantly puts its people in top White House positions.

But for independent-minded companies who choose to work outside the corrupt “system” can expect nothing less than scorched-earth warfare in return. Many companies such as Liberty Reserve, E-Gold and Liberty Dollar have been raided by the FBI, assets seized, and the owners jailed on some trumped-up charge like counterfeiting. The list is very long. Perhaps worst of all, depositors who had their accounts seized have found it next to impossible to get their money back.

The lesson to the big credit card and payment processors should be obvious: “do whatever we say or we will destroy you.”

retrogamer (profile) says:

Re: Pray for Rebellion

In my case with online auctions, I’d be happy for now if you could just do offline payments (which worked fine in the late 90’s/early 2000’s). I don’t mind using Western Union or sending a money order in the mail, but eBay has even destroyed that; you are stuck with Paypal or nothing. My problem with Bitcoin is that the value fluctuates too much and it takes more electricity to mine than the value I get in return, hopefully there will be a viable third option.

Also Anonymous says:

Re: Re: Pray for Rebellion

About time. Any VPN or file locker that does not accept bitcoin as payment is foolishly removing themselves from consideration by those valuing privacy.

Once it is accepted, the bitcoin option partially protects the business itself from future arbitrary repressions instigated by dishonest competitors. When such actions can be rendered less effective, they are less likely to be made in the first place.

retrogamer (profile) says:

Re: Re:

I don’t think anyone disputes that some alternatives exist, but they are not widely accepted, and most sites that accept them aren’t used. I have bought some items using eBid via PPPay with no issues – The issue is that not many items are being listed on eBid compared to eBay.

Also Anonymous says:

Re: Re: Re:

A non-US Paypal replacement could move toward critical mass by satisfying each market demand as it is blocked off by Paypal.

For example, they might act as a Bitcoin exchange limited to small amounts. Many individuals would like to make small purchases of Bitcoins for online purchases, such as VPN or secure cloud storage service, but without risking retribution from corrupt corporate-controlled officials. Trust could be established by handling customer funds only long enough to complete each transaction.

As they build up a customer base driven to them from Paypal, start offering an eBay-type market. It might be more of a “buyer beware” type structure, since Paypal-type backing requires more control and intrusion into private transactions. Still, with a lot of thought, this might evolve into something widely used.

There are great opportunities created when maket demand is repressed by entrenched incumbents. It does require careful thinking to work out details making the transition easy and convenient for customers driven away from the incumbents.

Anonymous Coward says:

Popmoney has been working for me lately. I think we’ll be seeing a lot more of these types of services appear … at least until there’s a reason that can be used against them.

The broad questions are if we have a full right to use encryption and the ability for one industry or trade group to shut down competitors (with Congress blindly in tow).

John Fenderson (profile) says:

Re: Re:

Which may or may not matter. It depends on a few things.

Will Google be better than PayPal? We won’t know until Google’s system has been in use for a while, but it’s far from a sure bet.

Will the people and companies that I want to give money to actually use Google’s system? If not, then it may as well not exist for me.

Will I be required to have a Google ID to use it? If so, then it’s a nonstarter right there. For all its sins, at least PayPal doesn’t require me to have an account with them.

Anonymous Coward says:

Re: Re: Re:

“Will I be required to have a Google ID to use it? “

Yes and you have to give Google your social security number if you want to use their Wallet service…

Seriously though, these types services are completely pointless since their only purpose is to convert your money to their digital currency, similar to Bitcoin, but the exact opposite in terms of an anonymity.

Anonymous Coward says:

Re: Too much power

This will be one of the founding laws when the new country emerges from the ashes of the USA. When the curtains are pulled back and people learn how badly our monetary system has been manipulated, everyone who knew or should have known will be blamed. There is a reason why the government treats the debt as a none issue. Its all imaginary in the first place and the books have not ever balanced and cannot be balanced.

Anonymous Coward says:

Re: Re: Too much power

“When the curtains are pulled back and people learn how badly our monetary system has been manipulated”

The private corporation (actually a nest of corporations) known as the Federal Reserve will fight tooth and nail against any and all attempts to audit their books. Because, as they claim, when the Fed is no longer “above the law and accountable to no one”, all sorts of terrible things will start happening. Which is basically the same claim made by every government agency when asked to show some transparency.

Anonymous Coward says:

Im kinda hoping see mega build a bitcoin alternative to paypal, not easilly circumvented or in the control of tptb

Something along the lines of adding something like vouchers or something with a predetermined amount of bitcoins, that anyone can trade plain cash for, so no need for credit cards, and allowing ANYONE to purchase bitcoin within ANY nation

Mega would initially have to buy enough bitcoins to cover the vouchers they send out, but after a while, the trade of fiat money for bitcoins would cover their costs not………i dont know………but i do think using money to buy online currency from any shop is something worth thinking about, look at this story, a respresentive without authority, without a court decision, manages to “persuade” two credit companies, to bully a third company to do something they might not have done otherwise, and dont tell me it has nothing to do with the kind of control/influence the government has given itself over these companies through tax/regulation/favours/bribes

Although Paypal was strongarmed, so they say, i wont give them a pass, … could of fought back………either paypal did and decided not to, or paypal has nobody working for them that see’s this as a bad thing, which means when the alternative comes, goodby paypal goods and services hello better alternative

Another thing is that, we already know visa/mastercard most likely hand over all of our info probably paypal one day if not already, and there are no other reak altefnatives that is available to EVERYONE, creating a substantial alternative …….goes hand in hand with the drive for stronger encryption/defensive security

Anonymous Coward says:

Re: Not a bocott, but basic business sense never to use paypal again

I absolutely refuse to use Paypal, Google Wallet, and any other type of ‘digital wallet’ service.

Their only purpose is to exploit you, track your spending habits, and royally FK you in the arse at any chance they get:

Search: “Paypal stole my money.”

Not to mention, it makes very easy for others to rob you if you use Paypal to purchase items on Ebay…I could tell you a personal horror story but my patience for typing it out tonight is a little thin! lol

Anonymous Coward says:

Re: Re: Not a bocott, but basic business sense never to use paypal again

I dropped Paypal after having an account with them for years. Then suddenly one day they can’t process payment because they want all sorts of ID they never required before. I’m not giving them the info they want. Screw em. They can keep the $20 but they’ve lost the thousands in the process over years where I used them to buy new computers and the like over the internet.

Given the NSAs penchant for intercepting computers in route to ‘doctor them up’ I’ve also given up on that method of buying a new computer. It’s not like I’m a drug lord or something with untold amounts of cash flowing through. I’m just Joe Average that once in a great while used their services as I would any other business locally when I had some need to fill.

Anonymous Coward says:

Re: Re: Re:2 Not a bocott, but basic business sense never to use paypal again

If you buy a computer online to be sent to you by mail, they can intercept that specific computer en route, knowing it’s for you.

If you buy a computer at a brick-and-mortar store, even if you pay with a credit card, they can’t intercept that specific computer en route, since while it was en route they only knew it was for a store.

They could compromise, but to target you they would have to compromise every computer sent to every store you could possibly use to buy a computer.

nasch (profile) says:

Re: Re: Re:3 Not a bocott, but basic business sense never to use paypal again

They could compromise, but to target you they would have to compromise every computer sent to every store you could possibly use to buy a computer.

I don’t know about you, but I’m more concerned about the NSA compromising and intercepting everything than about them targeting me specifically.

Anonymous Coward says:

Re: Re: Re:3 Not a bocott, but basic business sense never to use paypal again

If you are a specific target of the NSA, there is almost nothing that you, as an individual (short of abandoning all modern technology & communications), can do to avoid them.

Never mind that, if you live in the US and are a US citizen, you are highly unlikely to be a target of the NSA – any number of other TLAs, yes, but the NSA, not likely.

In general, if a gov’t is targeting you specifically, good luck escaping their surveillance. I suggest you get rid of all your electronics and go live in the bush.

nasch (profile) says:

Re: Re: Re:4 Not a bocott, but basic business sense never to use paypal again

Never mind that, if you live in the US and are a US citizen, you are highly unlikely to be a target of the NSA – any number of other TLAs, yes, but the NSA, not likely.

I wouldn’t say that. If you regularly speak with foreigners, particularly in government or in violent/terroristy parts of the world, or if you have a job where you have access to information the NSA would like to have, you could very well be targeted.

Anonymous Coward says:

And, this all goes back to this dangerous effort by the White House a few years ago to set up these “voluntary agreements” in which payment companies would agree to cut off service to sites that the entertainment industry declared “bad.” There’s no due process. There’s no adjudication.

Well, you opposed to SOPA where there would have been due process under the Federal Rules of Civil Procedures. Now you have this. Hope you’re happy!!

Anonymous Coward says:

Re: Re: Re:2 Re:

Your comment, in response me pointing out that you now have SOPA with no judicial protection, was: Whined the chicken boy.

Your stupid remark was in response to my comment, not the the fallout from the SOPA debacle. Nice try moving the goalpost, loser. Now suck it up and deal with the consequences.

Anonymous Coward says:

Re: Re: Re:5 Re:

You whining about supposed “due process procedures” was the exact response you gave when your lot whined about SOPA’s downfall. You spent months campaigning for something, then shook your fists screaming “You’ll be sorry!” when that plan went bust.

The same response as you posted above. All that money spent on a campaign that you didn’t even need since you’re going to bypass whatever “procedure” when you see fit anyway.

Why not go back to screaming about pirates stealing your imaginary work that you’re never going to publicize, publish or cite?

Tom says:

not holy

lets for a moment stop pretending to not know what Kind of person Kimble is and what kind of services he provided, past and present.

The PR statement above is from Mega. Where is the part where you asked PayPal for their side of the story, as any journalist, even on the lowest blogger level, knows to do? If you did and they didn’t answer, that belongs in there.

Journalism 101, please. Not even expecting that you ask Visa and MasterCard as well, but you take a press release and turn it into a story. Really?

That One Guy (profile) says:

Re: not holy

In your eagerness to brush this off, you seem to have missed the fact that Paypal’s half of the story was included in the source article, making contacting them for ‘their side of the story’ redundant.

You are also mistaken in claiming that this is a ‘journalism’ site, it isn’t, and in fact Mike has stated this fact repeatedly and consistently. It’s a site for analysis and opinions, and as such there’s no absolute need to get every side of the story before writing up an article. But hey, if you want to go the extra mile, and contact Paypal for their statement on the matter, feel free.

That One Guy (profile) says:

Re: Re: Re:3 not holy

Ah yes, straight to the insults, that’s certainly a convincing argument.

But hey, I’ve got a few minutes to burn, so here:

‘This is a cheap shot that is beneath you. Techdirt has always been an OPINION site. We express our opinion. Always have. We’ve never suggested that the site is some sort of bogus “objective reporting of both sides” of a story, because we think anyone doing that is misrepresenting the truth. We present our opinion.


There, that was Mike stating pretty clearly that TD is a site for opinions, nor ‘journalistic reporting’, and hence has no requirement for both sides to present their take on something(and in fact he notes that be doesn’t believe that such is always a good thing).

Now then, if you can, go ahead and provide a quote where he states the opposite.

John Fenderson (profile) says:

Re: Re: Re:5 not holy

And sometimes Techdirt has “done journalism”. That’s not at odds with this being a commentary site any more than publishing an editorial makes a news site any less of a journalism site.

Comparing Techdirt is Fox News shows clearly that you don’t understand what’s happening here. Unlike Techdirt, Fox News actually claims to be primarily a journalistic endeavor.

Anonymous Coward says:

This is the real power of the US government. They can literally take away your money at a moments notice. The best part is they don’t own banks, visa, mastercard, etc they just tell them what to do.

It is a perfect setup, you have complete control of all transactions without having any accountability. Got to hand it to the government though, it is a sweet setup.

Padpaw (profile) says:

Nothing like having an out of control government ignore its own laws just to inflict petty revenge against anyone that defies it in any way.

Even better when they have access to weapons that could destroy the planet. I know that won’t happen, but it is a rather big card to play to prevent anyone from taking said bully to task over their unlawful actions.

If someone is beating you up, most people are unlikely to fight back if he also has a gun pointed at you by his friend the cop.

Anonymous Coward says:

Re: Re:

“I agree with Mike. It looks like it is the problem.”

It’s only the tip of the iceberg. Payment processors have had a long history of refusing service to a wide variety of sites, even those that are undeniably 100% legal by anyone’s definition. “Counterfeit” clothing and knockoffs, “unauthorized” products, offshore gambling, “adult” material (however that’s defined), politically-incorrect speech (again, highly subjective), firearms …. the list is long and growing.

“The refusal of a leading credit card payment handler to process transactions involving legal gun sales is compelling licensed dealers to hunt for alternative credit card systems, and is provoking boycotts by incensed gun enthusiasts who complain of political interference. The controversy erupted late in September with word that, one of the nation’s largest credit card “payment gateways,” abruptly severed its business relationship with the Hyatt Gun Shop of Charlotte, N.C., which calls itself the nation’s largest gun store.”

A bit off-topic, but this is more of the kinds of things that Paypal does:

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