Nothing illegal about it, its against terms of service maybe, but those are not the law. Also it might be illegal to have such terms in EU.
Also there is no rule that breaking terms of service results a lifetime ban from majors.
All in all the idea is that if a player is caught cheating he will be perma banned from majors, which is not what people are arguing against even. The point is that valve could help verify if it was jamppi or not who was cheating, they should have a bunch of logs about the ban and i'm sure if jamppi was using both of those accounts they should show same ip and hw ids etc, if they are and have always been just like jamppi said completely separate and used by different people, then he surely did break the terms of service but probably doesnt deserve a lifetime ban. Valve should be able to verify his story to be true or not and make a decision based on that, they are known to not do any of this, that is why they made the lawsuit.