A secure email startup that has raised more than $328,000 on crowdfunding website Indiegogo saw its PayPal account frozen, then restored this week.

Swiss company ProtonMail has been raising money for its encrypted email service since 17 June, having far exceeded its initial goal of $100,000. PayPal is one of the main ways backers can pledge to its campaign.

This week, the company's chief executive Andy Yen criticised the payments company after ProtonMail's PayPal account was being restricted pending further review.

"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 an unimpressed Yen in a blog post.

His company switched to a mixture of credit card and bitcoin payments before its account was restored on Tuesday (1 July), enabling it to extract the funds already donated through PayPal.

For its part, PayPal has said the restrictions were due to a technical problem. "We have contacted ProtonMail today to solve this and can confirm that ProtonMail is able to receive or send funds through PayPal again," a spokesperson told security firm Kaspersky's Threat Post blog, while apologising for the error.

With the restrictions now removed, the controversy is likely to prove beneficial to ProtonMail as it enters the last 16 days of its crowdfunding campaign, with stretch goals including mobile apps if it raises $500,000, encrypted chat at $700,000 and encrypted file storage if the campaign tops $1m.

Developed by staff from the European Center for Nuclear Research (CERN) in Geneva, the service will offer end-to-end encryption of emails for its users, with servers hosted in Switzerland: "Outside US and EU jurisdiction so all user data is protected by strict Swiss privacy laws".

This week's events will lead to more scrutiny of PayPal's policies regarding restrictions on accounts, particularly of crowdfunding companies.

In September 2013, its chief risk officer Tomer Barel promised an overhaul of its policies, following media coverage of limits placed on the accounts of startups including another encrypted-email service, Mailpile.

"Because the model is so new, it is potentially open to abuse. PayPal has a responsibility to ensure that the system remains secure, in compliance with Government regulations around the world, and that consumers who contribute to these campaigns understand where their money is going,"wrote Barel in September.

"Some of PayPal's competitors solve this by simply refusing to allow their payment systems to be used at all for crowdfunding. We don't believe that's the right approach because, when done right, crowdfunding is a powerful catalyst for innovation. However, it's clear that our existing policies and processes aren’t working quite right for this particular fundraising model."

Among the changes promised by Barel were that a senior member of his team would review every crowdfunding campaign using PayPal for donations.

from http://www.theguardian.com/technology/2014/jul/02/paypal-protonmail-secure-email-indiegogo