Drug dealers and people laundering money want fiat. How do you get fiat? Exchanges follow KYC and if you exchange in person your face and identity are seen. It's not as easy as it sounds. Does it happen? yeah of course, but people have money laundered in crazy ways.
Im pretty sure that money launderers either find a way around the exchanges or get to avoid having to deal with KYC. It may not be easy but these schemers would be willing to go through the hassle because they will have profit anyways. They would really go through crazy ways just to money launder. Pablo Escobar even had a hard time to the point where he buried some of his money because he already had so many. Lets not make mistake, however, to think that the crypto market largely comprises of money laundering activities.