Kava also means coffee in one of the European languages (Lithuanian).

On top of that it is legal in a lot of pacific islands.

Neither the sender or receiver had ever stepped foot in Europe or the UK and had anything to do with those jurisdictions.

Go read the Acceptable Usage Policy... nowhere in it will you find anything about every customer being subject to UK law. In fact they go out of their way to make you think the opposite is true... by showing you different AUP's depending on which country you're in.

You have something to do with the jurisdiction of the UK when you use a service based in the UK. Illegal drugs are clearly forbidden in the acceptable use policy, and the terms of use states English law is used.

UK law on kava (and many other drugs) is stupid, but that's not TransferWise's fault.

US/EU banking / antiterrorism regulations apply to any entity worldwide which wants to do business in the respective markets.

Assuming that there are two parties interested in doing a hawala exchange in two countries where this is legal, they still cannot (openly) use a bank that does business in US/EU because if the bank knowingly executes that transaction they could be facing serious fines.

Sure, but this is merely UK food safety regulation we're talking about. It is illegal in the UK to trade in kava for consumption (based on a German court decision that's since been thrown out). Kava is legal almost everywhere else in the world.

The grandparent comment is about how the CEO of TransferWise is obsessed with customer satisfaction. If X is banned on TransferWise, then TransferWise should say so in their AUP.

To simply lock accounts out of the blue is ridiculous.