We only assume, but we can't be too correct because we don't have internal access to the exchange. In cases where money which they don't trust is being deposited into an account either from a casino or mixer, in most cases the best thing for the exchange to do for them to free themselves from being used as money laundering tools is to return the money back to the address which it was deposited from down to the exchange.
Returning the money doesn’t happen all the time. In fact, it could put the exchange at greater risk rather than freeing them from legal implications. The implication here may be that the exchange is aiding criminals by sending their BTC back to them.
The best an exchange can do in such situations is to:
Freeze the account temporarily
Demand KYC from the owner
If found guilty, report the whole situation to the appropriate authorities (this is much safer than returning the BTC)
The funds are then seized by the right authorities
Is there anything a defaulter can do at this point?
No, there is not much he can do. The funds are lost, and he would have to be extremely careful next time to avoid violating the rules and regulations of the exchange and the government.