What are the punishment steps and how does it work ?

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The cliff's notes version:

From the Instant Feedback System FAQs:

PUNISHMENTS GENERALLY FOLLOW A BASIC ESCALATION PATH:

• First Offense: 10 Game Chat Restriction
• Second Offense: 25 Game Chat Restriction
• Third Offense: Two Week Suspension
• Fourth Offense: Permanent Suspension

However, it is possible to skip to a Two Week or Permanent suspension based on the severity of the behavior in the game. Excessive negative behavior can result in a Two-Week or Permanent suspension at any time without having a chat restriction on the account.