This is sailing very close to the wind and I reckon the consequences could be very serious for Alister and his career if the Feds investigated. What is your current immigration status? I only ask because I was almost deported from the USA once for "working illegally"
So, to put this right, I'd suggest doing the FAA CPL/CFI and not instruct until you hold those certificates. At least then he will be legal.
It sort of p*sses me off though that JAA schools abroad use such tactics to train JAA students - and charge them much more than an FAA school would for FAA training. Perhaps it is time for the FAA to clamp down on them, and insist that the FI's must be dual rated?
Actually FTR I don't know why anyone goes to a JAA school in the US. The conversion process is pretty easy between FAA and JAA (if you need to convert), and you have the added benefit of holding 2 seperate licences.