It's one of those age-old dilemmas I guess. You create rules not so much to govern and restrict behavior but to give a framework for what the 'spirit' of a thing is supposed to be about. When people respect rules and can intellectually and emotionally respect why they exist and what they are attempting to accomplish as well as respecting the overall goals and reasons that we do various things... well, you don't need to clamp down on everything all the time, you don't need to keep enforcing and adding rules and regulating more and more and more until it gets to the point where things become esoteric enough that almost everything is a gray area, benefit-of-the-doubt, up to interpretation issue or it's needlessly and excessively draconian.
Call it human nature or whatever but there are always people who look at a set of rules and they don't think "okay, that makes sense I can understand why these rules exist, not that I necessarily agree with them all but I can still work within them for the most part and that's a fair compromise" they instead think "Okay, so, how can I break these rules without being punished?" or "What discrepancies exist or technicalities or loopholes exist to enable me to circumvent the purpose of these rules".
I think the best regulation for that sort of thing is pride and community. If Paul legitimately felt like his brand of extreme flopping(that verges on cheating outright) was going to jeopardize relationships within the league, on his team, with his fans, with his friends, with his family or whoever, he'd probably not do it. But he couldn't care less. It's not like teammates are going to stop passing him the ball, he's the friggin point guard. It's not like he'll lose sponsorships, he's a superstar MVP candidate. It's not like he'll lose fan support, fans are stupid. I'm sure plenty of players around the league hate him for it and think he is a punk, but what does he care? he cashes his paychecks and breaks their ankles just the same.
He's basically a 'bully' with his mentality on this. He knows he can do something wrong because no one can really stop him without taking measures that seriously affect _everyone_ negatively. So he does, and tacitly puts the onus on YOU to come up with a way to stop him, which, if it goes to far(Suspensions or whatever), then his fans will take umbrage over how unfair YOU are or how YOU'RE trying to ruin the game or whatever.
Which makes you think maybe he'd stop if other players started doing it to him, and only him. If it became an NBA meme like Hack-a-shaq, flop-on-paul. But being a 6'0 point guard again works in his favor because who is going to believe a power forward getting tossed by Paul? And on top of that, the league isn't really doing anything against Paul's flopping directly because he's one of their studs, but you can be damn sure if other players tried to fight fire with fire on him they'd get the horns.
So it just kind of sucks. You want to believe that the PROFESSIONAL league would have zero tolerance for that REC LEAGUE crap, but entertainment just doesn't work that way.