I opened a paypal account for a relative so I can send money to them
instead of writing a check. This is simply from personal to personal account so no credit cards/fees involved.

Now since I visit this relative every few weeks , I often use their computer to login to my paypal account. So now paypal thinks our accounts are linked and thinks we are engaged in some kind of money laundering. So they placed my relative's account in "Limited access" and said:

"We understand risk is inherent in doing business. However, as of
right now, we're not comfortable with the amount of risk your business is exposed to.

With that in mind, we have decided to end our business relationship
while minimizing disruption to your business."

Money in your PayPal account will be held for 180 days. After 180
days, we'll email you with information on how to receive your funds.

So can they legally freeze my money like this? This sounds rather
harsh and something I would not even expect to happen in a 3'rd world
country? I know somewhere in their T&C they say they can do it. But common sense always takes precedence over whatever legaleese a company throws in their multi-page contract.

Thankfully I dont need the $850 in the account, but can you imagine if someone was living paycheck to paycheck how angry they would feel? I guess this just goes to show how 'backward' the Internet really is. It still resembles the wild west more than anything else.