Apart from the fact it would look suspicious walking up to a BTC ATM with a duffle bag full of $$$ - whats stopping these people converting their cash reserves to BTC?
AML, KYC, and daily limits

Ive had the chance to interact wth a few different brands of these machines. a feature I have seen in all of them is the fact that you must associate a phone number with the transaction in order to complete it, basically a small know your customer check that is unavoidable. couple that with the fact that you are on camera, redundantly, as any sane store would have a camera on the atm, as well as the atm having a camera beaming directly into you face. Top all that off with the fact that the limits are typicially 500-1000 USD. That may seem like a lot for some, but trust me, you cant do any real criminal activity (the kind the gov cares about) with that little capital. maybe baby crimes, LOL. small terrorist plots, tiny scandals and lilliputian "licks"

if criminals were able to exploit this, the service wouldnt be available to do so. the government has infinite resources to adapt. and once you make one of these transaction, if you are sloppy, you have identified yourself and all the wallets you have access to on the blockchain.