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"...told me that engineers at Amazon were generally forbidden from using AWS due to security concerns."

The opposite is the case: there has been a huge push for some time to move (significant) parts of Amazon retail to AWS. It's extremely complex and service quality is paramount, so it takes a while to make it all happen.

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My friend from Amazon works in the supply-chain side of things, and he said he really wants to use it, but everything has to be encrypted and some stuff is off limits.

I take it you work on the retail side of things? I'd be interested to hear any more details that you can share.

That certain services can't yet be moved to AWS is not an an indicator AWS is compromised. Several services, for example the payments infrastructure, are subject to regulations that make it challenging to implement _at all_, much less in a shared environment like AWS. Again, this is not an argument that AWS is compromised, and teams at Amazon are absolutely using AWS.

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