Adsense Optimization - Adsense Links Look Like Internal Pages

I was browsing through some websites this evening that were a direct competitor of one of my websites. Well, I came across one and was at first trying to figure out how they were monetizing it because I did not see the usual Adsense look.

At first I thought the links on the right sidebar were internal pages on the site. But, I was completely wrong they were actually Adsense links.

Let me give an example. Let's say the site was about "Caring For Dogs". On the right sidebar, they had a link to the About Us, Contact Us, Privacy, and Sitemap pages. Right below that, it would say "Ads by Google", with links in the same font and size as the above links. Underneath "Ads by Google", there would be simple text links that could say using the above example - "Feeding Your Dog", "Ensuring Your Dog Gets Exercise", "Cleaning and Bathing", etc. At first glance to me, these looked like internal pages on the site. But, they are not. I think that most users would think that they were internal pages and not actual Adsense ads.

So, when someone goes to their site and wants to look for more articles on the subject, they automatically see these as links to other articles. Once they click on one of the links, they are lead to another site with additional Adsense ads.

Anyway, I just wanted to check to see if anyone else has seen a site done in this way, how to set this up, and if this is against any Google policy. I can't specifically reveal the site as I don't want to reveal the niche. However, I can easily see how they are probably getting a fair amount of money with Adsense.