They can do that as much as they want, but all transactions can be traced back to the blacklisted address because they are all in the blockchain. Any address that is only 1 or 2 hops away could be considered "tainted" by the blacklisted address...
You do realize that you can generate any number of addresses at will, and create as many "hops" as you want for any amounts and there is nothing whatsoever to tie any of these addresses or transactions to any particular entity? Or just place a bet on satoshi dice and you can probably "taint" half the blockchain. Not to mention there are "shared" wallets out there specifically designed for laundering and probably about a million other ways to do it.