Hiya, I'm glad you're making the decision to try to distance yourself from this guy. If you don't, you're right, some really bad things could come out of that.
It sounds like you don't want to be friends with him at all anymore, but it also seems like he might not let you go so easily. In that case, have you tried to talk to him about why he does what he does? I mean, I know it's probably a delicate situation, but do you think that there's any way that he can get out of his business? If you do decide to talk to him about it, don't just say, "Back off!" You've got to be calm and sensible about it. Tell him that you don't want to get hurt and that you've got other priorities to focus on instead of getting in trouble.
You'll have to use your judgment and decide whether it would be better for you to talk to him about how you don't think you can be friends with him anymore or just leave him without saying anything. Both could potentially make the guy upset, but you'll have to chose which one will make the situation better for yourself.
If I were you, I would slowly start to hang out with some other people. If he asks you to come over, tell him you have other plans. If you do want to stop hanging out with him, you should probably gradually end the friendship. Leaving right away would probably make him suspicious of you... which might not be good.
If it really gets out of hand and someone threatens you, then you need to tell your parents and talk to the police. Even if it means getting that guy in trouble. Believe me, that guy will be afraid of the cops when they come knocking on his door to arrest him. He's probably smuggling so he can get rich, right? Well, he's convicted and has to spend time in prison, there's not going to be any cash left for him. He's just putting up a front for you so that everyone thinks he's a badass.
Good luck, and I hope everything ends up okay for both of you guys.
Take care,
Rachel