So it means if politicians one day find out that criminals use centralized exchanges as well, cashing out via centralized exchange won't be any better than P2P or decentralized, right?
I don't think it matters. They know banks are used by criminals, but banks consider money from other banks clean.
That won't ever change either, as long as the top-tier politicians use banks themselves for their shady businesses, right?
It seems to me like you need some sort of 'government-approved party' in your crypto-to-fiat-path to prevent issues with larger amounts. What if new exchanges are going to be based in a crypto-friendly country like Portugal or El Salvador; such an exchange could probably get away with accepting all UTXOs, without blacklisting, while at the same time being 'governmentally-approved' so that banks won't need to thoroughly question source of funds when cashing out.
Something tells me receiving a bank transfer from El Salvador (which
has one of the highest crime rates in Latin America) will be a big red flag.
Portugal won't help much, it's part of EU and thus has to follow EU legislation.
I'm pretty sure that EU legislation is more lax than most countries' individual laws; as we've seen with the house sale in Portugal and no VAT or other taxes on crypto. This is now all a tangent on its own in this topic, so to get back on it; I don't think EU legislation calls for blacklisting of UTXOs. And therefore countries who want to be more crypto-friendly
could explicitly position themselves in favor of fungibility and against 'taint'. In my opinion though, most people don't even realize that this taint and blacklisting is happening or ignore it; there must be demand / public interest for 'taint denying' Bitcoin services / exchanges / countries; then they will in one way or another emerge.