I totally agree with seabreezeblue regarding this. What you should be aware of is that it can be just as damaging and harmful for this daughter being inappropriately loved by her father as it would be if he actually did something sexual/physical. I am not very familiar at all with this personally but have read many times of survivors struggling with the effects of this. The name for this is emotional incest or covert incest, you can read up on the internet about it, and its seen as a form of abuse. So I really agree with the suggestion that if sexual abuse has happened that you report it, and that they ideally both go to a therapist (individually and/or both).
You also never expanded on what the "crossing boundaries" consisted of, so only you and much more the father actually knows whats going on, and you have to consider that the father hasn't told you the whole truth. but as I said a father being in love with his daughter and committing emotional incest can be just as harmful as any other form of abuse. Out of friendship and loyalty it must be hard knowing what to do, but you must do the right thing here. Here are two articles about the subject and its effects. I hope they get the help they need.
http://blogs.psychcentral.com/sex/2014/ ... dult-life/
http://outofthefog.net/forum/index.php?topic=13855.0