upon careful reading ...
... there is nothing in several registrars terms of service, including GoDaddy, that prohibits a person's or business' use of a domain name for illegal purposes .. it's all about restrictions of use of the registrar's SOFTWARE and SERVICES, that usually includes webhosting, email and such, however, it does not include your activities in the use of a domain name .. in fact ...
The ToS INDEMNIFIES the registrar should you be found to be using a WEBSITE for illegal activity with a domain name purchaced there
and think about it .. how can a domain name itself be illegal except for terms on specific TLDs such as:
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ADDITIONAL REQUIREMENTS FOR .cn REGISTRATIONS
If You are registering a .CN domain name You also agree to:
Limitations on Registration
You may not register or use a domain name that is deemed by China Internet Network Information Center (“CNNIC”) to:
Be against the basic principles prescribed in the Constitution of the Peoples Republic of China (“PRC”);
Jeopardize national security, leak state secrets, intend to overturn the government, or disrupt the state of integrity of the PRC;
Harm national honor and national interests of the PRC;
Instigate hostility or discrimination between different nationalities, or disrupt the national solidarity of the PRC;
Violate the PRC’s religion policies or propagate cult and feudal superstition;
Spread rumors, disturb public order or disrupt social stability of the PRC;
Spread pornography, obscenity, gambling, violence, homicide, terror or instigate crimes in the PRC;
Insult, libel against others and infringe other people’s legal rights and interests in the PRC; or
Take any other action prohibited in laws, rules and administrative regulations of the PRC.
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however, again, it's not up to the registrar to determine the *illegality* of a .cn domain, it's up to CNNIC to notify the registrar to delete the domain name from the root registry. That's a contractural obligation between the registrar and the PRC
if a registrar has a provable pattern of selling domains for illegal activity, then a legal case should be made with ICAAN to shut down the registry
good luck there ..