yes that can be right there is no doubt about this because bitcoin has the property anonymous and people must be taking advantage of this property and may be using it for illegal activities.
if the government know the reality then why not they take such kind of steps through which they can stop them from using bitcoin for illegal activities, the government should take such step through which they can stop the illegal activities, for examples if some people are using it for buying illegal weapons then they should stop the transport of illegal weapons if they cannot stop purchasing them.