You could take your bitcoin and sell it on an exchange as you suggest but there are two problems with this. First, it's not that easy to sell a lot of bitcoin for real USD and the transaction costs can get high. Second, and more importantly, as money launder what you really want to do is take your dirty money in one jurisdiction and take it to another. Did you ever see Blow? Based on a true story. A US guy raised incredible money selling cocaine and stored it in a shady Panama Bank. The bank steals his money. What his recourse? If you are an oligarch in a corrupt country you want to get your money somewhere your government can't seize it. So why not take your bit coin and use it to buy real estate in Dubai? If you took your bitcoin and sold it in a way that ends up in a western bank, that bank is going to do kyc and defeats the whole purpose.
Obviously I have never laundered money and I don't really know. Tell me I am crazy.