PayPal has finally ceased doing business with Kim Dotcom’s Mega site and he’s pouting about it. The man who has made millions be monetizing content stolen from others continues to assert that Mega is a legit cloud-based service and that its operations are legal. A statement posted on the site announcing that, “PayPal has ceased processing MEGA customer payments effective immediately…” also makes the claim that the cyberlocker site is being unfairly targeted:
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. The encryption models claimed by various USA and other entities apparently do not represent any problem to PayPal or the parties behind PayPal.
Nice try but even if you dress a wolf in sheep’s clothing he’s still just a wolf. It’s important to note that Mega rose from the ashes of Megaupload, the granddaddy of cyberlockers where the piracy for profit model was perfected and later copied by dozens of other online entrepreneurial thieves. 
After the feds shut the site down in January of 2012, Dotcom got busy working a better way to circumvent copyright law and a year later launched a more nefarious piracy for profit site named Mega. The site uses encryption technology to protect its users (and site operators) from prying eyes. Dotcom claims Mega is full of folks’ baby pictures and the like, but in reality its business model continues to provide pirates with a profitable, and protected, haven for their transactions.
Until PayPal’s recent departure, officials at Mega even pointed to the relationship with the payment processor as a sign that Mega was “legit.” In response to charges in a study published last September by NetNames and the Digital Citizens Alliance, Mega CEO Graham Gaylard told TorrentFreak:
“We consider the report grossly untrue and highly defamatory of Mega…Mega has been accepted by PayPal because we were able to show that we are a legitimate cloud storage site. Mega has a productive and respected relationship with PayPal, demonstrating the validity of Mega’s business…”
For the past few years payment processors like Visa, Mastercard and PayPal have come under increasing scrutiny for their role in facilitating (and profiting from) pirate-linked transactions. Following publication of the NetNames study, Senator Patrick Leahy, Chairman of the Senate Judiciary Committee at the time, sent letters to the head of both Mastercard and Visa urging that the companies sever ties with piracy operations.
I’ve been reporting on this issue since 2010, and while some progress has been made as processors have severed ties with many of the worst offenders, much work remains. According to the study, PayPal was singled out for its business dealings with Dotcom:
PayPal was offered as payment option on only one site (Mega). This represents a major change in the cyberlocker universe compared to just three years ago. The fact that the vast majority of cyberlocker sites do not attempt to take PayPal through hidden or disguised means demonstrates that the payment method is not even considered as an option for accepting subscription payments.
Dropvideo still depends on PayPal
Apparently PayPal officials finally decided that doing business with Mega was no longer an option. Unfortunately, aside from Mega, PayPal’s involvement with pirate sites persists and extends beyond offering subscribers a way to pay for services.
PayPal remains an important cog in the the flow of money that’s central to the business model Dotcom perfected on Megaupload. It was essentially a pyramid scheme as I explained in this blog post from 2011. Basically, cyberlocker affiliates provide the fuel that drive the piracy machine. Individuals sign who up to be cyberlocker affiliates earn money for uploading (stolen) content based on the number of times a file was downloaded. They can also earn commissions for attracting other to enroll in various cyberlocker account offerings. Affiliate payments continue to be the lifeblood that sustain the cyberlocker eco-system and PayPal continues a popular means for affiliates to receive payment for their role in bringing traffic to sites. According to the NetNames report:
…PayPal is still used by some sites for affiliate or reward scheme payments. Of the thirteen sites that offered an affiliate scheme, eight (61.5 percent) offered PayPal as a way for affiliates to receive their payments (other online payment systems such as WebMoney and Payza were also used but PayPal was the most popular).
This morning I took a quick look at Dropvideo.com, a cyberlocker I’d recently sent DMCA notices to. Sure enough, they use PayPal for their affiliate payments. So while PayPal has distanced itself from Mega, the company still has a long way to go to clean up its dirty piracy profits.