It all boils down to what the "inappropriate touching" is, imo. kids can do some pretty inappropriate looking things completely by accident if they haven't yet had "the talk." My little brother used to play our own version of tag where we pretended we were animals and one of us was hunting the other. We were really imaginative and really bored so we really got into it - and sometimes it ended up with one of us "chewing" on the other lol (not really anywhere inappropriate but I can only imagine it would have looked REALLY weird to a paranoid adult). I can also remember when I first learned that it was inappropriate to scratch myself in certain areas in public - from an older cousin, at a family gathering when I was probably about 5 or 6. Even as a kid I was pretty embarrassed when I learned what I was doing was inappropriate. I just didn't know, because my mom went to extreme lengths to not have to talk to us about those things (e.g., extreme church involvement, homeschooling, limiting our interaction as much as possible to people at least as religious as themselves, etc).

I think it's definitely a good idea to have a talk with your brother to let him know he should probably have a talk with his kids, but I'd be careful to frame it without jumping to any conclusions about what happened. Unless the "inappropriate touching" was, um, indisputably outside of your comfort zone.

I would also consider any course of action with how you think he will most likely react. If you think there is a high probability he will react badly and freak out on his kids for something that was probably unintentional (Which is down to your judgment, since you saw it) I'd actually consider asking the kids a few questions myself before I decided if or how to approach him. Otherwise I don't see any reason you wouldn't want to mention it, even if it turns out to be nothing.