DirectNic Demands SlicksNetwork.com Hand Over Model IDs

[softball]

OK, here is a possible scenario. A Canadian registers his domain with Directnic. Directnic decides he is posting dodgy stuff so demands id's or Directnic will lock up his domain and virtually shut him down.
Here is the cunundrum.
The Canadian government says that is illegal and the Canadian citizen could be prosecuted for doing what Directnic demands.
What is this "innocent" person supposed to do in this case? Roll over and provide the id and possibly go to jail? Or get shut down because someone at Directnic has decided that it is illegal content.
This is a pandora's box of ethical issues.