Most financial regulation enables payment providers to have unlimited period of account freeze even for the suspect of money laundering. Payment providers are legally shielded for any liability if they are concerned about money laundering. A mere abnormal transaction volume or a single transaction is enough for suspicion. The regulation is so single sided that any financial institution cannot even reply to your messages regarding such cases, as they have criminal liability on “tipping money launderers.”
PayPal just happens to be one of the most used online payment providers, being very trigger happy on this one due to pressure from regulators. This makes PayPal unideal for any businesses that deal with digital goods.
In an ideal world, that would go into an escrow account which the processor would not be allowed to benefit from--to remove the trigger happy incentives-- and which would have an arbitration route for the merchant.
What is the official way that someone whose account is wrongfully frozen is supposed to get their money back? There has to be some answer, at least for US citizens or foreigners in the US whose assets are wrongfully frozen due to the effects of US law... every civil or criminal forfeiture law in the US provides some way for the property owner to challenge the seizure, usually involving filing or defending some kind of court action. I assume that it would be unconstitutional in the US for that not to be possible.
PayPal just happens to be one of the most used online payment providers, being very trigger happy on this one due to pressure from regulators. This makes PayPal unideal for any businesses that deal with digital goods.