PayPal glitch caused ‘freeze’ on anti-spy ProtonMail’s fundraising account

PayPal caused a storm on Tuesday after freezing, albeit temporarily, the crowd-funding account of anti-government snooping email startup, ProtonMail — but PayPal says it was just a technical problem.

Alarm bells were raised on Tuesday after Andy Yen, co-founder of ProtonMail, said PayPal had frozen the account it was using to receive payments for its Indigogo crowd-funding campaign, which has so far raised just shy of $300,000.

The Geneva-headquartered company’s encrypted email product is being developed by scientists working at CERT and MIT who are seeking funds to scale up the service after its servers were overwhelmed during its public beta launch in May.  

The company hosts its servers in Switzerland in part because of the belief that the Swiss Federal Act on the Surveillance of Postal and Telecommunications Traffic (SPTT) protects it from being forced by the government to set a backdoor in its email system -- unlike US providers like the now shuttered Lavabit. 

In a blog post drawing attention to the freeze, Yen said PayPal had asked whether it had government approval for its encrypted email product.

“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,” wrote Yen.

“It seems PayPal is trying to come up with ANY excuse they can to prevent us from receiving funds,” he added.

As Yen highlighted, PayPal has a long track record for freezing accounts, in particular for crowdfunding campaigns. Besides the controversial block on WikiLeaks, last year it froze the account of Mailpile, an Iceland-based developer of an email client which had raised $45,000 on Indigogo.

Mailpile said PayPal wanted the company to provide a detailed business plan and evidence of a working product. As Ars Technica reported at the time, PayPal ultimately lifted the freeze, claiming that it was adapting its processes and policies for crowdfunding campaigns.

Read more: PayPal error shows how NOT to use two-factor authentication

PayPal announced its new crowdfunding policy earlier this year, clarifying what campaigns it does and doesn’t support and details it may require, including government issued photo IDs and business plans.   

However, it would seem PayPal still has a few bugs to iron out in its new processes for crowdfunding campaigns.

In a statement to CSO.com.au, a PayPal spokesperson said wants to ensure these campaigns are complaint with its policies and government regulations, but that ProtonMail’s freeze was triggered by a “technical problem”.

“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.”

A ProtonMail spokesperson confirmed to CSO.com.au that it had worked with PayPal this morning and the problem was “resolved in a very short time.”

Read more: Researchers bypass PayPal's two-factor authentication system

Still, ProtonMail notes on its Indigogo campaign page — where it’s also taking payments in Bitcoin — “we're not big fans of PayPal”.

Follow Liam Tung on Twitter 

This article is brought to you by Enex TestLab, content directors for CSO Australia.

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Tags certProtonMailAndy Yen co-founder ProtonMailcrowd-fundingpaypalencrypted emailMITgovernment

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