First of all, I like to inform people before they sign up anywhere and upload their documents. It turns out, many of the people I talk to did try to sign up, but were 'scared off' from the website asking for such personal details. I really like to see and foster this skepticism and use it to aid me explain the importance of Bitcoin and of its proper usage.

If someone did use such an exchange before, there are certainly ways to 'start off clean' again. I created a discussion thread about this a while back and I think my recommendation would be to sell all the Bitcoin off again, through that same exchange. That would allow you to prove you 'don't own them anymore'. Then burn those wallets, addresses, anything you've used (most newbies just bought and maybe withdrew to be honest) and start off fresh.

Does everyone see the contradiction in the bold highlighted part?
Wind_FURY; you care about your friends' funds, yet allow them to use a centralized exchange? How does that make any sense? Yes, there is a real risk of exchanges closing accounts, denying payments, blocking funds, getting hacked, fake getting hacked, exit scam and the list goes on. That's not an argument against Bitcoin or 'tainted UTXOs', it's a strong argument not to use exchanges. They try censoring you and putting the burden on you by claiming you aren't using good UTXOs, but they're the very entity deciding which are fine and which aren't. This would be laughable in any other scenario. As described earlier, imagine going to the store, the cashier taking your $50 bill and saying 'it is a little dirty, you cannot use it', and confiscating it. That's not an argument against old paper bills, it's an argument to rebel against that store.