Google stopped allowing Canadian pharmacies to purchase AdWords ads in 2009. Before then Google reportedly prevented drug sellers in other countries from purchasing AdWords ads, but allowed Canadian marketers to do so.
Whatever the search giant did in the past, in the last year Google appears to have made efforts to police rogue pharmaceutical ads. Last September, Google filed suit against several so-called "rogue pharmacies" for violating its policies. In July, a federal judge in San Jose, Calif. entered an order banning several of the defendants in that case from advertising on Google in the future.
A Justice Department official said in a statement that the agency "will continue to hold accountable companies who in their bid for profits violate federal law and put at risk the health and safety of American consumers." The official added that the settlement "ensures that Google will reform its improper advertising practices with regard to these pharmacies."
Web companies like Google typically are immune from liability for illegal ads created by users, but there's an exception for ads that violate federal laws. That exception only applies when federal law enforcement authorities bring charges, and not when private individuals, or even state officials, sue -- which is why companies like Craigslist or Village Voice Media have won in court when they were sued for allowing prostitution ads on the site.