I think that clearly this does work, and that in many cases you won’t be banned – otherwise, you’d see very few people doing it because the risk would be too great.
But there certainly is a risk, as it’s a direct violation of their TOS. Maybe you’d get caught in the first week, or maybe you’d last a year. Certainly if you’re a brand new Adsense/Adwords user, the chances of having your account closed must be close to 100% – but perhaps they turn a blind eye to longer-term users who are making them a lot of cash.
I should imagine that most people who do this have access to multiple Adsense accounts, so that if one goes down they are not stopped for good.
It’s certainly not something you’d want to risk unless you know what you are doing, and/or don’t care if your Adsense account gets shut down.