Ethically, they should deny reviewing it to avoid bias. However, it depends on whether it is single-blind or double-blind peer review. In a single-blind peer review, reviewers know the authors' names and affiliations, but authors don't know those of the reviewers. In a double-blind peer review, the authors and reviewers keep their anonymity; only the editor knows their identities.
I think,if it's double blind, the reviewer knowing the author may defeat the purpose. Again, it depends on whether or not the reviewer is disciplined and reliable .