Paper is an interchangeable commodity with many suppliers. Specific software products often are not.
Furthermore, there's a difference between "someone bought this commodity from a distributor" and "we have a contract specifically with this entity".
Furthermore, there's a difference between "someone bought this commodity from a distributor" and "we have a contract specifically with this entity".
"XYZ is doing bad things but it'd be even worse if they did bad things less efficiently" is not an argument to keep selling to XYZ, unless you already agree with (or are indifferent to) XYZ and their activities.
Making an organization less efficient, or otherwise slowing an organization down, is not going to single-handedly stop it, but that doesn't make it pointless or counterproductive.
For the concrete example here, you haven't provided evidence that "less efficient" or "slower" applies only (or disproportionately) to activities that stop hurting people rather than activities that hurt people.
Also, you've created a false dichotomy, dismissing the existence of people who agree with portions of a branch of law but disagree with how that law is enforced.
I also think it's reasonable, given an entity you don't want to do business with, to say "we don't enter into contracts (even our standard contracts) with these entities, and we don't provide any kind of support to these entities".