A few weeks ago, I sent a few bucks to a known exchanger, the funds got frozen, a refund was not possible. No big deal, that is on me. If I had exchanged them P2P instead, some innocent crypto enthusiast from across the Pacific or from the Middle East would have received them. And it would have been his problem. And I seriously doubt any of the high-level operating con artists would send them to a KYC-enforcing exchanger. Among the actual crypto users, there are simply no winners in this.
KYC, AML, and SoF checks should work the following way, if applicable: The exchange asks you to provide the address that you will pay from. When you do, they do their background checks with their third-party blockchain analysis providers. You receive feedback that states that your coins are either ok or additional information will be needed from you. If it's the latter, the exchange should inform you what documents you will need to provide and why to go ahead and exchange the funds from the address you submitted. It's then up to each individual user to decide how to proceed. Give up on using that service or submit all the data and hope for the best.
But this isn't going to happen. Why? In many cases, the exchanges don't even know why certain coins are deemed dirty and unwanted and they don't care. They just get the green or red light from their partner services and forward the information to users. They also won't implement this because it's a great opportunity to steal crypto from users and direct it towards their pools for other customers to swap with, while giving the original owner a hard time.
The worst part might be that I personally cannot tell whether all of this will worsen in the future, or if we will get lucky and privacy will come back into vogue.
Privacy and anonymity coming back to give you greater freedom and possibilities? Yeah, right. Forget about it. It's only going to get worse.