It's a tricky one, the heart sides with you as it's actually impacting other gamers further than the normal cheating (punishing them for no reason), the head says it's still not right to take away his/her licenses to purchased content.
I have to stick with the head here.
If I were whoever this is I'd worry more about the internet retaliation scene. Which I don't condone at all, but some pissed off people are probably going to go on a hunt.
Well they dont need to close the entire account, which i would say is extreme but fine in this case, but limit the account to the max.
No community, no online, no option to purchase ++++
He got a ghost account with games, which may even be worse for someone.