Paypal freezes Katrina aid, cites fraud concerns

— 9:09 AM on September 8, 2005

On September 3rd, Rich Kyanka of New Orleans-based posted a simple update to his site:

Some people are emailing me, asking if they can donate to SA to help with our server move and downtime and temporary hosting and stuff. Don't worry about us, we'll be fine. If you really want to make a difference, donate to the SA Red Cross Relief Fund link above. They need it more than we do.
Within nine hours, according to Wired magazine, $27,695.41 had poured into the Paypal account, including $3000 of Kyanka's own money, at which point Paypal froze the account. It's not entirely clear why, but all available evidence points towards fraud concerns, and Kyanka himself thinks the rapid transfers (and the amount gathered) may have tripped a red flag at Paypal.

That, in and of itself, is understandable, but the rest of the story doesn't compute. In an attempt to unlock his account, Kyanka faxed copies of his driver's license, bank statements, and credit card statements—only to be told a complete identity check would take three to five days. When he asked Paypal to donate the money directly to the Red Cross, the company declined, citing an exclusive charity relationship with United Way. In the end, Kyanka refunded all the cash he'd collected and asked SA readers to donate directly to the Red Cross.

The most striking thing about this story, I think, is how it illustrates the pervasiveness of the same kind of bureaucratic red tape that reputedly tied up a number of Katrina relief efforts. Under normal circumstances, a delay of three to five days for an identity confirmation might be reasonable. Given the nature of the fund, the massive destruction of New Orleans, and the horrific conditions present in the flooded city, you'd think someone at Paypal might've found a way to speed up the process a little.

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