According to Dave Naylor, the punishments Google is handing down for paid links appear to be retroactive. On his blog, Naylor outlines the case of a site that was recently penalized for selling paid links more than six months ago. According to Indigo Clothing’s founder Alex Walker, the site had sold links in the past, but had removed them from its site about six months ago. The site was recently penalized by Google, and Matt Cutts indicated to Naylor that the cause was likely past sales of paid links.
While sites have been penalized for actively selling links, this case appears to be different. If Walker is indeed being truthful when he says they stopped selling links six months ago, that would mean that Google is punishing sites that have already stopped selling links. It will be interesting to see if this is indeed the case, and what the statute of limitations will be.
UPDATE: According to Matt Cutts, Google is NOT applying these penalties retroactively. “We first took action on this site months and months ago, back in 2007,” Matt told me.
So it seems that webmasters that have stopped buying or selling links should not fear retribution by Google for their past actions, as long as they have removed the links from their sites.