The background for my comment: I've been peripherally involved with SEO for a couple of years now, and although I cherish my white-as-the-driven-snow reputation I know some folks socially who, well, don't. It's an open secret that a huge amount of the internet advertising market is a hive of scum and villainy. We often refer to it as PPC, which in this context means "porn, pills, casino", although there are other industries which have varying levels of sketchiness associated with them -- Make Money Online, government grant scams, ringtones and other rebilling fraud, etc etc etc.
Google has, since the inception of AdWords, made billions of dollars off of these. No joke.
Now, the government is often slow on the uptake, but they're not unaware of this. So here's a conversation which has virtually certainly taken place before:
Government: I see you're advertising X.
Google: We are?
Government: See here.
Google: Oh we are.
Government: You can't advertise X.
Google: We'll get right on that.
12 months pass
Government: You're still advertising X. Did you "get on it?"
Google: Oh yeah, we put some new heuristics in place.
Government: What does a heuristic mean?
Google: The computers guess whether that text means X and if it does, we don't advertise it.
Government: The heuristics seem to be missing quite a bit of X.
Google: Yeah, that happens.
Government: What do you mean "that happens"?
Google: No heuristic is 100% perfect.
Government: OK then, you need to have a human review these to make sure they aren't X or Y or Z.
Google: We don't do that.
Government: ... excuse me?
Google: We prefer scalable methods to manage our advertising programs. After all, there are only about ten thousand of us and we only make tens of billions of dollars with 35% margins.
Government: ... what?
Google: So you see, we won't manually review ads.
Government: This account, how much money has it spent on your ads while not being manually reviewed?
Google: SQL query About a hundred thousand dollars.
Government: Your compliance is not optional. Do you know who we are?
Google: Do you know who we are?
Government: You might think that was a cunning retort but, well, not really.
Edit for P.S.
Speaking of which, take a look at Aaron Wall's screenshot of an AdSense interface which allows you to opt out of having various seedy industries on your website.
Except Google employees do manually review ads. Ads that might break the guidelines, such as pharmacy ads, are flagged by the system when they are submitted. Flagged ads are then reviewed manually to see if they comply with policy.
Certainly ... and the condemning / damaging thing is the scale of the imperfection. But it's also worth pointing out that many of Google's AdWords policies have long been written to be at the edge of a nexus of the law and public pressure of a market. Pornography, for example. Or "drugs and drug paraphernalia", where bongs and water pipes are prohibited, but vaporisers are allowed if they are advertised as "an aromatherapy device".[1] Which is to say: the pharmacy policy, like others, was likely constructed by Google to get away with as much as possible without damaging the brand or the bottom line. And it hasn't worked.
So 500 million dollars worth of ads slipped through?
I think you're right, they probably manually went through the ads and approved these sketchy online pharmacies. Does it make Google more or less complicit? The fact is that they don't really have much of a defence when they made 500 million dollars on it. If it was 50$ I think we could all agree some things slip by.
The government probably had to communicate with Google via an impersonal form that resulted in a form response that didn't address the problem in any way and required filling out the form every single day for 2 weeks until giving up in frustration, then ultimately getting an email from an engineer 7 weeks later letting you know the problem has been solved.
I'm joking, but only a wee bit.