It's not quite as simple as that, though. If you want to refuse to accept stolen coins, then for every deposit you accept, other than highly publicized media cases, you are going to have perform blockchain analysis on it to ascertain who deposited it and where it came from, which defeats the entire point in the first place. It also sets the precedent that you may refuse coins which are deposited to your service if you ascertain them to be "tainted" in some way. That all defeats the very point of a mixing service. I'm not doing anything illegal, but I'm certainly not going to use a mixer if I know they are spending time trying to analyze my deposits and identify my coins.

Exactly. Whenever governments or corporations try to "ban encryption" or some other such nonsense, such as Facebook putting backdoors in to WhatsApp so they/law enforcement can still read all your messages despite their "end to end encryption" lie, I always make the same argument: Only the stupidest of criminals are going to communicate on a platform they know is being monitored. They will simply move to other platforms, or in some cases, build their own. Both Al-Qaeda and ISIS were known to build their own encrypted messaging software, and the initial developer of TrueCrypt was a drug cartel leader. It's cliche, but if you make privacy illegal, then only criminals will have privacy. The same is true of mixers and other bitcoin privacy services. Criminals are always going to find ways to cover their tracks and launder money. If you make coinjoin or mixing illegal, then only innocent people suffer.