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How do I know the ban was from checking ranks via an automated tool? Simple. Google wrote and told me (those were the days when you could actually get a response from writing to them)! And I wasn't the only one over the years to receive a "slap".
In fairness, most people who did suffer a penalty were pretty industrial strength SEOs running multiple reports and I don't believe the average site user got hit.
Now, that was a long time ago. Will it happen today? Who knows, I'm not going to try and see. But then rank checking is really not needed. Check the converting keywords for a site. If they bring traffic, they rank. If your targeted keywords don't rank they won't drive traffic.
As for wondering if they detect it? I doubt if they have lost that ability over the intervening years.
There were legions of discussions on this very subject when it first occurred. Some got removed from some forums as there were potential legal issues with application providers (as some were named). Some got quite heated and speculations were on IP reverse look-ups, some on toolbars, some on if there was identifying code on websites (if you were a reseller or affiliate, perhaps), some people just denying it could have happened (until they were in some cases sent a copy of the SE e-mails, not only confirming the ban and the cause - but also citing the applications being used - even then, some accused the senders of sending faked emails) and a load of other suppositions.
Lots of theories but no conclusions, unfortunately.
But at the time, it was speculated that ranking reports could be run on competitor search terms and maybe could get them banned. Never happened that I am aware of, though.
But Google does specifically state that you should not use such tools - even naming one specific application:
If you want to break their rules, then fine. As stated previously, it may work perfectly OK for you.
It may also be worth looking at this old thread: [webmasterworld.com...]
Particularly the comment made the then "GoogleGuy"!
To summarise he says that if you don't want to believe that they can identify queries from automated rank checkers "..you are welcome to believe that..".
Pointing to an 8 year old thread about software that left behind multiple giant footprints is irrelevant.
Not as an answer to the original question, I think. But, as I said, up to you to determine what you want to do. Just pointing out that there have been consequences for using automated rank checkers, it is still against Terms and Conditions but, of course, given that information, anyone can do what they want.