The majority could switch a blacklist off, but if it didn't do it simultaneously, everyone who rejects the blacklist would put their business at stake by accepting coins that might remain tainted. If we used "whitelisting" like you suggest, we are effectively trusting another party to make blacklist decisions for us. If that's the case, it's no longer voluntary. If we're willing to do that, why not just allow the blacklists themselves to blacklist other blacklists? This would remove some of the confusion anyway.
I don't think so. Maybe I should have been clearer what the penalties are for not checking any given list - zero. So it wouldn't put your business at risk to accept coins that appear on some blacklist.
The basic assumption behind this kind of system is that if it works properly, people should volunteer to be a part of it, because it will correctly fight real criminals and won't be subject to abuse. Doing business in a lawless country is really hard, and that's the incentive for people to take part.
So if someone switches off a list and accepts some coins, then re-spends them on to someone who is still checking, OK, what does the recipient do? Well, they could do nothing. Or file a report saying "Bob Smith gave me coins that appeared on a blacklist" (and now the taint is cleared for people who trust you to take action for that blacklist). Bob Smith didn't do anything wrong though. He might get a visit from the police some time later and they'll ask him where he got the coins from. "I don't know" is an acceptable answer.
This might seem pointless, why would anyone co-operate with the police if they didn't have to? Well, because as I said, there's a lot of value to stopping really bad crimes. Running a shop is tough if people break in and steal your inventory every week.
Existing AML systems make reporting mandatory in some cases (over a particular threshold) or when you personally deem a transaction "suspicious". The reason is that the way AML works today is, all the costs fall on banks, and the costs are really high in terms of paperwork and so on. So banks are incentivized to not do it because that way they can undercut their competitors. If you have a very efficient system and the costs are spread out across all participants in the economy, then you shouldn't need coercion anymore.
A lot of replies here and on reddit are based on the assumption that governments will force people to check blacklists and so on, so my proposal is evil. But that's arguing with a proposal I have not made. It's a description of the existing system, which I agree has a lot of problems. My proposal is for a system that shares the same overall goals (keep crime in check) but doesn't have those problems and isn't subject to government abuse in the same way.
What stops governments passing new laws that aren't in my proposal? Nothing, of course. But they're much more likely to pass bad laws if nobody proposes better laws. I mean, politicians aren't going to come up with a system that uses crypto to limit the governments power.
Another aspect in this: Say we have 10 "tainted" bitcoins. The theif or w/e then sends them, in parts of 0.00001 to everyone and everybody, without prior warning. Do you want thousands of people to call the police all over the world then? Who is going to pay for all these peoples time? How do we know if they actually do it? What happens if they say they do, but don't? Do they get to keep the coins?
Just don't take any action and keep the coins. Even the existing AML systems have thresholds because police time is limited. It isn't worth chasing small transactions. So configure your wallet to ignore taint on transactions of less than a given value.
In the past the AML reporting thresholds (below which nobody cares) were pretty high. When the BSA was first passed they were about $50,000 in todays money. Unfortunately they were never adjusted for inflation and today $10,000 isn't as much as it once was. Also they've tried to push the thresholds down over time, but in the system I propose there wouldn't actually be any central regulators. The right thresholds to use would be decided by the participants.
Not to mention yours is vastly superior due to the cryptographic privacy guarantees. 
