Not illegal and not unethical unless you are going to allow an unethical/antitrust corporation be the judge.
It's simply advertising. They would prefer that adwords was the only advertising available and they know they cannot control everything....yet. Thus the misinformation campaign.
When you pay for your adwords campaigns, you're buying links. This of course is ok, because google gets the money. If you buy links/ads elsewhere, they will try and con you into believing it's illegal, wrong, or unethical. The only thing unethical or immoral is their attempt to con people into believing that the only place you can buy links legally is from google.
It should be illegal for them to punish companies who advertise/buy links elsewhere which is essentially what they do. You can safely spend as much as you want with adwords and your organic serps will likely improve, but if you do the same elsewhere, then they might severely punish your company with serp penalties.
No other company would be allowed such non-competitive practices, but they obviously have friends in high places and are untouchable.