Possible, but not only with Bitcoin, but fiat can also do money laundering too.  That's why a centralized exchanger implements this KYC.

We can't deny the fact that Bitcoin and other cryptocurrencies can be used for money laundering especially Monero besides, for those who really want to do this they can always find ways to succeed in their felonious act.  In comparison to diamonds and golds, cryptocurrencies are more complex and anonymity is more secure in making transactions although we have KYC procedure it will still not be an obstacle for any culprit to continue using this platform for money laundering.

AFAIK even governments have no way to trace such activity in crypto transactions if one is already made for money laundering.  IF, they know how to mix their coin for harder tracing the transactions.