It fixes one "fraud" path - where somebody seizes control of an account and holds it for ransom. Since the account itself is effectively destroyed by any flagging, it's then of no use as a hostage. An account that is flagged in any way is no longer of any use at all, no point to taking them over.

Of course, a scammer could threaten to destroy your accounts, and can do so very easily and credibly... So that's not exactly a huge improvement.