It is worth noting that the Treasury clearly indicates that the concept of a mixer while inherently risky, could be fine designed such that it can't easily be used for illegal money laundering.
For example, if a smart contract mixer was designed to hold incoming funds in abeyance until the submitter contacts the operator, provides proof of identity, proof of source of funds, etc, and once everything is checked out was finally given some signed token that they can send to the mixer to release the funds from abeyance, at which point it starts getting mixed with other transactions, that might potentially be acceptable.
The checking needed is to stay on the treasuries good side is probably slow and complex (and require the operator to take a substantial fee), possibly to the point where no such mixer could get enough transaction volume to actually function, but it is in principal possible. Note this works even when the contract's design is such that the operator cannot possibly determine which output comes from which inputs.
But Tornado Cash by design cannot do anything to even attempt to prevent criminals from using it, which is why it got sanctioned.
Anything aiding privacy such as privacy coins, mixers, etc will be banned by the exchanges, authorities and other centralized entities which can detect that the coins have been through a mixer.
Given that many regulators have already banned and delisted some privacy coins from being exchanged, it is not a surprise to see Tornado.cash and other mixers also being banned by exchanges.
Mixers are really great at doing stuff they claim to do, and they do work as intended.
Tornado.cash was next no matter what, it was just 'when'.