Paid Links Should Not Pass Page Rank - Google Internet Government

Michael Gray at SES gave a reasonably good explanation as to why Google is going after paid links and that they have no mechanism to detect if a link is paid or not:

Google developed an algorithm that is based on links. Now they expect you to change your business model to compensate for their flaws. Google made 1.12 billion profit last quarter. Did you? Google expects you to sacrifice income and profitability to help them make money.

With a paid link, unless you’re one of the two people involved, you have absolutely no way to know for certain if that was a paid link or not. Paid links work, that’s why Google doesn’t want people using them. They don’t want to have to change their algorithm. Link. 

Google’s campaign is about creating fear and uncertainty and doubt. They’re trying to convince you that by buying or selling paid links you are breaking the law or being unethical. Google is not the government. They can not change your ethics.