An example: Bitcoin is one of the few ways to fund opposition movements in authoritarian countries. It's unlikely dictators can detect these Bitcoin transactions if they use well known privacy techniques, like CoinJoins, mixers and non-KYC services. Most dictatorship cut off other (fiat) sources, only cash may still work but is a hassle.
But where should these movements spend the money donated to them, if no exchange or merchant accepts their coins, because they are "high risk" and linked to "suspicious" services?
Isn't that what they do? If you have Bitcoins on your address, you can do whatever you want with them but if you try to convert it into fiat, then you'll have a problem if you have a suspicious activity.
Another example: People in democracies are protected by strict privacy protection laws.
Strict privacy protection laws do not mean strict enforcement of privacy laws.
"Money laundering", "sanctions evasion" and "terrorist financing" are the excuses used by the anti-privacy governments. But available statistics about that issue show that cryptocurrencies are a very minor tool for money launderers, compared to the vast options provided by fiat money. Cryptocurrencies do not even provide what money launderers most want: "clean" money. Privacy services like mixers only are able to blur some tracks. But they can never provide "clean" money, only "cryptocurrencies of uncertain origin." They are maybe useful for small criminals, but not for the "big fishes".
Maybe you didn't notice but you just found the perfect answer to your subject of discussion. Cryptocurrencies aren't mostly used for illegal activities but those who use it, are a very tiny minority and if we say it briefly, if we talk about criminal activity and Bitcoin, then we can confidently say that it's only used for small criminals and not for big fishes and here is the answer to your question. The big fish is either the government or big fishes work with the government. Do not make a mistake and do not think that big gangs import coke in the USA out of thin air. It's an agreement between criminals and the governments but it's done behind the scenes. If some random person tries to do anything small, they end up in jail. It's a shitshow to show people that government truly works to prevent the problem and solve the crime issue.