Yes, i know bitcoin is not a privacy coin, nor does it offer privacy at the protocol level. But it can use privacy solutions as you said, laundering from crypto to crypto looks more complicated, for that solution we have mixer services which when it is done, it is very difficult to track it. Such things don't exist with FIAT, there is always a way to track them, and that's why criminals prefer bitcoin.
BTC has a transparent blockchain, mixers are risky to use because of their custodial nature and not everyone can use CoinJoin, nor can they efficiently stay private when they use BTC. I believe criminals would prefer cash for illicit tx's because it is very difficult to trace, i am not talking about digital fiat tx's, but cash, this is part of the reasons why governments want to lauch cbdc's and why merchants receiving cash deposits above a certain limit have to report it to the authorities, cash is a perfect tool for money laundering.