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The issue of censorship on Wikipedia continues to be debated, although for the most part, the concept that Wikipedia is not censored holds strong dominance. On Wikipedia, the general concept is that concepts should not be censored, and that media which illustrates such concepts should likewise not be censored, if it has encyclopedic value. Determining whether something has encyclopedic value is subjective and debated. Beyond that, the varied landscape of legal doctrines (and related discourse) influence what can or cannot be on Wikipedia.
Recent controversies (as of February 2009, search "wp+block" search "wp+porn") include Katina Schubert's (detail) attempted criminal charges against the German Wikipedia for its article on Hitler Youth, in which she claimed that the article's usage of Nazi symbolism had exceeded reasonable documentary usage. Another recent issue regarded the Virgin Killer article, which shows the picture of a nude 12 year old girl in a seductive pose, in a suggestive context (reference to her virginity). The British Internet Watch Foundation listed Wikipedia as in violation of its laws against child pornography, and blocked Wikipedia from view in Britain (detail) (it was apparently not technically possible for them to block just the page or the image). The issue was resolved when the IWF removed the block after public support fell on the side of Wikipedia.
Note also the issue of Wikipedia:Flagged revisions involves an element of censorship. Flagged revisions has had media attention recently, due to the January 2009 controversy on the Edward Kennedy article.
This Daily Telegraph article lends weight to the argument that Wikipedia is censored, or at least engages in self censorship: http://www.telegraph.co.uk/news/politics/7883064/MPs-scandals-covered-up-on-Wikipedia.html.
Note that the term "censorship" varies by usage and is debated by differing factions. In fact "censorship," as it is typically used, is a pejorative, carrying with it a connotation of suppression, totalitarianism, and the imposition of point-of-view on others. Suppression represents the denial of freedom of speech for the messenger, and the denial of the "right to know" for the audience.
Both of these concepts are anathema to most people in free societies (and on Wikipedia). Yet even in the most liberal concept of freedom, there are concepts, and media which illustrate such, which are widely offensive, as they represent destructive and harmful acts and ideologies. Regardless of advocates who promote a completely unlimited concept of free expression, most societies are in agreement that certain concepts should be destroyed.
There are certain types of expressions which are not allowed on Wikipedia, for one reason or another. In general the rule is that if it doesn't have encyclopedic value, or if it doesn't follow copyleft principles, it is removed. Vandalism is easy enough to discern and remove. Nudity is rarely an issue, though the issue on Commons is that there may be too many nude images, of particular subjects, to justify. Certain types of "sexual content" however may be allowed, as the definition of what constitutes pornography is subjective. Pornographic material is itself quite often removed, but on the basis of its encyclopedic value (or lack therof), rather than based on concepts of decency.
Ita quam est
Currently, the issue for Wikipedia is whether or not its concept of freedom are in harmony with the varied concepts of decency. Wikipedia aims to be a free resource for everyone, but what use is it to anyone if it is blocked?
The issue of blocking is a two way street: Wikipedia could, for example, say absolutely "is not censored" and allow all sorts of disgusting or offensive media to be displayed in its articles. It would then conceivably be blocked in most parts of the world, regardless of what value it had in terms of encyclopedic content. Conversely, in cases like China and Iran where material is censored not based on more universal concepts such as criminality or decency, its censorship deals largely with protecting itself from dissent, thus suppressing its own people under totalitarian concepts.
In fact, according to some definitions, Wikimedia already does have unencyclopedic media on its servers. (MediaWiki:Bad_image_list) Acts depicting the rape of a person under adult age, for example are immediately removed from commons. Why? Because regardless of its anathema to censorship, Wikimedians still have a certain degree of common sense, even if it just a fear of legal troubles, such that in effect (like it or not) Wikipedia does operate in accord with some standards of decency, even if that word ("decency") for some carries with it connotations of suppression and totalitarian world order. Note that even while Wikimedians in general decry censorship, it still asserts that some images are "bad" such that they do not belong on non-related articles. Thus there is still a concept of "decency" at work here, even if its called by other things (encyclopedic, etc.).
Indeed, there appears to be an issue when considering how Commons is quite permissive in handling uploaded media, and how this puts the burden on particular Wikipedia's to add particular Commons filenames to their respective bad image lists.