Yahoo looks more than ever like damaged goods after Reuters claims that the company colluded with US intelligence services to scan all its customers’ emails for keywords.

The report cites three former Yahoo employees and a fourth insider said Yahoo built a custom piece of software that would search all Yahoo Mail customers’ incoming emails for stuff requested by the NSA or FBI. This apparently sets a new precedent for private company collusion in mass surveillance and does not reflect well on Yahoo’s priorities when it comes to its customers.

In the Reuters piece as well as a follow-up by The Intercept, Yahoo’s only statement was that it obeys the law, while Google, Microsoft, Apple, Facebook and Twitter all said they have received so similar request and would oppose it if they did.

Edward Snowden, the exiled US intelligence contractor behind the massive leak of NSA documents in 2013, has unsurprisingly taken a keen interest in this story. “What are the legal implications of this new @Yahoo-is-scanning-emails-for-US-intel story for the EU side? Cross-border data sharing impact?” he asked on Twitter, presumably referring to the much-criticised Privacy Shield initiative.

Another important question is what all this means for the Verizon acquisition of Yahoo. There was already one nasty surprise in the form of a 2014 data breach that seems to have been kept quiet until after the acquisition agreement was reached earlier this year. The potential PR implications of this latest development could be so severe that completing the acquisition could be actively detrimental to Verizon, so it must surely be rethinking the deal now.