in short
assessing whether a virtual currency
(1) has substantial exposure to a high-risk or sanctioned jurisdiction;
(2) is processed through a mixer or tumbler;
(3) is sent to or from darknet markets;
(4) is associated with scams/ransomware;
(5) is associated with other illicit activity relevant to the VC Entity’s business model
in short. if you are a person that commits no crimes, but wear a tin foil hat about "gov surveillance", where you are paranoid that you thing the government will know about innocent purchases of, for instance a sofa..
and whereby you think that you can avoid governments getting reports about your sofa purchase by using a mixer to hide where you bought your new sofa..
using a mixer(2) will be the exact reason an exchange will have to report details to governments.. your sofa purchase will end up on a government report.
where as just buying a sofa from a vendor accepting bitcoin without using a mixer wont cause a flag. the exchange wont report it to the government. and it just becomes a unwatched note on an exchange database that no one looks twice at.