They definitely depend on web users (most likely your competition) to report paid links. I imagine they've also been able to identify patterns that could be a giveaway that the link is paid. This might include things like where on the page links are located, frequency the links may change (most links are for a certain time period, so if the links on a site change every six months, that could be a giveaway) or the page code that inserts the link into a page. This is just my speculation, I would love to hear from anyone who has some experience getting their PR or rankings slapped down because of buying/selling links.