KYC is the illicit activity. It exists distinct from the distributed ledger.

All KYC purchases and sales are recorded forever and shared with the government.

If you have performed a KYC purchase without a KYC sale, you will be assumed to hold that asset.

All of the burden to prove otherwise will be put on you, if they so will it.

Best to not have the KYC purchase record in the first place. That is improved privacy from the get go.