To my knowledge, this is not as offensive at it sounds. In Japan, there are two ways to get rank: (1) by technical testing in front of a grading committee, or (2) by recommendation. Option 1 is so very very very hard, for example, out of hundreds of people tested for 8th Dan in JKF-Wadokai last year, only one passed.
Option 2 will be given based on an individual's contribution to the ryuha/style and organizations and his time in grade. Off course the "contributions" could also means "financial". However, (if I am not mistaken), those who receive their high Dan rank through option 2 would still have to pass their 1st and 2nd Dan by actual testing through their sensei and/or through a grading committee, before they will be considered to receive their subsequent Dan levels through option 2. So option 2 is really just for 3rd dan and above.
Many people received their high Dan rank due to this option and it is not considered illegitimate in Japan.
There is also Option 3, which is "honorary" dank (Mei-yo Dan) given to people who gave a significant contribution to the growth of Wadokai in a country. But off course this is just "honorary" and the recipient cannot claim to possess the skill level of his honorary grade.
Off course I could be WAY OFF.. after all, TKD is Korean and Karate is Japanese.. maybe there are differences in culture which I don't understand..