Perpetually KYC'd Coins Using Evil Covenants

Sure, but the merkle root changes every time an item is added to the list. Assuming that users don’t want to re-use addresses, and that users (at least some of them) create a new address for each payment, implies that the merkle root changes with every such payment. So signing the merkle root is more hassle than just signing the payment itself.

This also implies that a new address not on the list will have to wait for up to two weeks, which seems unacceptable from a UX standpoint.