(the FTC has bought prosecutions on this topic recently)
It's also illegal in the UK and presumably a lot of Europe.
You can't make an ad look like an legitimate endorsement, it's as simple as that. In this case the small "sponsored placement" text could easily be taken to be about the following ad which looks like an ad.
What about when some site is raving about a product, and pointing users to the product's website using an affiliate link. No disclosure at all. Is that also illegal? Because I think it would be great if it was.
Yes. That's a clear violation of the FTC guidelines. If you're presenting a review as an independent opinion without disclosing the fact you're making money from it, that's pretty much exactly what the FTC guidelines are designed to tackle.
If you're just providing links without specific endorsement it's probably fine.
Here's an easier read analysis of the FTC guidelines by the Washington Post:
Well, what's the difference between making an ad look like a legitimate endorsement, and endorsing a product even though you're financially benefiting because of the affiliate link?
It should be noted that the author of the article has moved to Japan; this may complicate any enforcement action, unless his company is incorporated in the US.
American law is unusual in that's it globally binding. If you violate an American law while abroad, even if it's legal in the country you committed your actions in, you can still be prosecuted in the US.
It's how Dmitry Sklyarov was prosecuted even though his actions were perfectly legal where he performed them in Russia. More recently foreign nationals involved in operating non-american gambling websites have been arrested while in transit through US territory for violating US anti-gambling law.
For the US see the FTC guidance:
http://www.scribd.com/doc/20635261/FTC-Guides-Concerning-the...
(the FTC has bought prosecutions on this topic recently)
It's also illegal in the UK and presumably a lot of Europe.
You can't make an ad look like an legitimate endorsement, it's as simple as that. In this case the small "sponsored placement" text could easily be taken to be about the following ad which looks like an ad.