Not gonna work. They took in dirty money and exchanged it for something clean (bitcoin), which could later be exchanged for clean money. That sounds a lot like money laundering to me. Folks on localbitcoins really ought to register as a money service and CYA as much as possible. They probably could have avoided it if they did something as simple as implementing a half-ass KYC/AML policy. I hope that sellers on localbitcoins that knowingly deal with criminals and dirty money are the exception, not the norm.