Hi ajnaT! I'm Australian also, and think I understand the scenario you're describing. I know here in Australia - and maybe everywhere, but I don't know - there are social groups like this that are so strong you kind of think maybe you're crazy for thinking it's wrong, especially in a small town!!! I also say report, but make sure you have support. And yes, I think move from there too - even though that's easier to say than do. I agree that in towns like that the authorities usually do know and are also corrupt.
You will be doing that little girl a big favor if you report it, that's a horrible way to grow up, and as someone else said, one day soon she will be one of those "nubile young girls". Having grown up in a town like that, you probably understand only too well how small town pressure can make you kind of disappear under the weight of it. It would be great if you could escape that, and great for her too if she can be spared it!!
Your brother is sicker than he knows because it's all okay in that kind of town, but it really is very far from okay. Your instincts are all spot on.
It's a big wide wonderful world, that town is just one small dark spot! Maybe you could contact Family Drug Help and they might advise you what the best measure to take would be so that you can report it, but also keep yourself out of the picture - because you need support outside of that town!
It will make you feel better too to do something to help in this situation, but I know how difficult it is when you're dealing with a "gang".
Good luck! I'll be thinking of you xxxx