Well, in what way is it illegal? Is he just unlicensed? Is it something he cannot do from that neighborhood at all, legally? Or what?
If it is a matter of needing a license, I think I would say "Hey, you know it is my job to uphold this stuff. I can hardly ethically or legally look the other way. Get Legal and do it real soon."
A lot of businesses start sort of casually and then grow and it gets kind of fuzzy at what point it quit legally not really being a 'business' and started needing all the licenses and whatever. It is not illegal to make a few extra bucks on the side doing whatever, as long as it doesn't violate any codes about 'manufacturing', dangerous substances, etc.
Is it possible to take the position of 'Gosh, I know you kind of fell into this and it wasn't clear to you that you had to do X, but I deal with these rules for a living and the rules are: a, b, c. So, now that you know, you have no defense if you choose to continue it in this manner and don't come whining to me." etc.
I was a member of a college math honor society when I was 16 and in 11th grade. As a member, I tutored twice a week at the school. I lived up the street from a cousin of mine who was in Algebra. She got a D or an F the first six weeks and her excuse was 'the teacher can't teach'. I told her she had no excuse. She could have come to me at any time and gotten it explained to her. She obviously wasn't interested in making any effort. We were never very close again.... giggle. Oh well.