Around line 1786 of your /includes/modules/payment/paypalwpp.php file you have code that looks like the following. Add the additional highlighted code as shown:
Code:
    // get the payer_id from the customer's info as returned from PayPal
    $_SESSION['paypal_ec_payer_id'] = $response['PAYERID'];
    if ($response['PAYERID'] == 'PUT_PAYER_ID_HERE') {
      $this->terminateEC('Sorry, your transaction cannot be completed at this time.', true, FILENAME_CHECKOUT_SHIPPING);
    }
    $gender = '';
And replace PUT_PAYER_ID_HERE with the customers ID you received from PayPal, for the customer for whom you wish to deny payment.