Google agreed Wednesday to pay a $500 million fine to the U.S. government for knowingly allowing Canadian pharmacies to advertise prescription drugs to U.S. residents.

Importing drugs into the U.S. is not legal, though the feds almost always turn a blind eye to drugs from Canada and don’t prosecute individuals.

The forfeiture, which the feds describe as one of the largest ever, forces Google to return all the revenue it generated from those ads, and pay the feds the estimated gross revenue of the Canadian pharmacy sites that placed the ads.

The announcement was widely expected as Google mentioned in an SEC filing in May that it was setting aside half-a-billion to pay a fine. The fine represents more than 20 percent of Google’s profits from the first quarter of this year.

“This investigation is about the patently unsafe, unlawful importation of prescription drugs by Canadian online pharmacies, with Google’s knowledge and assistance, into the United States, directly to U.S. consumers,” said Peter Neronha, the U.S. Attorney for the District of Rhode Island in a written statement. “It is about holding Google responsible for its conduct by imposing a $500 million forfeiture, the kind of forfeiture that will not only get Google’s attention, but the attention of all those who contribute to America’s pill problem.”

The investigation also involved undercover work that included the feds setting up fake online pharmacies to see if Google profited illegally from ads placed by non-U.S. pharmacies. Their interest was piqued after the feds busted a fugitive who fled to Mexico and began selling drugs online using Google’s self-serve AdWords system. After the Secret Service nabbed him in Mexico and he told agents about his use of AdWords, the feds set up a series of sting operations.

The investigation also included the FDA and Rhode Island’s attorney general.

Google and other search sites blocked many overseas pharmacy ads in early 2010, because it’s illegal for U.S. citizens to have such drugs imported.

Google did, however, make an exception for Canadian pharmacies — though it limited them to ones approved by a licensing body.

Google changed its policy on pharmacy ads in February 2010, so that it would only take ads from U.S. pharmacies accredited by the National Association of Boards of Pharmacy, and from online pharmacies in Canada that are accredited by the Canadian International Pharmacy Association.

That compromise was not, however, enough to placate the authorities.

U.S. citizens order from Canadian and overseas pharmacies to get cheaper prices on medicine, though it’s illegal to do so even with a prescription or for drugs not available in the U.S. Online ordering also carries a higher risk of encountering counterfeit pills. Last summer, a 22 year-old Canadian was sentenced to 33 months in a U.S. federal prison for selling fake cancer-fighting drugs over the internet.

Still, it’s not clear that extracting $500 million from Google’s rather full coffers is going to do much to stop the business of online pharmacies. Those sites are already masters of spam e-mails and spam websites, in no small part because the expensive U.S. health care system creates a lot of demand for cheaper drugs.

And now instead of paying a U.S.-based company for online ads, those pharmacies will likely simply invest that money into getting to the top of that site’s search results by spending more money on spammy websites and black hat SEO.

Photo: ASCII art for rogue pharmacy. (Yandle)