If you found out your Leader or Immediate Supervisor was doing something against the law, like fraud, what would you do?

First depending on the severity of the situation I would confront the person, committing the offense. If it continued, I was report it up the chain of command. I realize by confronting the person first could damage your career, or you would as many as the crappy details or tasks that are available. If it involves Fraud or major criminal activity, there would be no confronting the person, it would be direct reporting up the chain of command.

Document, document and then document some more, everything. Even if the offence is non-life threatening or mission critical (but just plan wrong) because getting away with that kind of behavior encourages worse. If it is minor offence (with documentation in hand) respectfully approach the superior in private and let them know that kind of behavior cannot be tolerated and will stop from this point forward. If it is a major offence, (with documentation in hand) inform their superior immediately! You have then done your due diligence and cannot be held as a co-conspirator for knowing and not saying anything. Also be very careful of who you discuss this with among your peers.
I had to do this with an alcholic platoon sergeant who was a good soldier but was drinking on duty. After the first option did not work, I had to let the 1st sergent know. He had his own suspicions about the matter. I hated the whole situation but it was necessary.

I worked for a CPT (92Y) that looked and acted like he was on steroids, it wasn't till they (I got to transfer units before they deployed) went to Afghanistan that his addiction became horribly apparent, I didn't get all the facts, but in the end, his whole cav troop ended up tieing him to his cot, with the help of the 1SG, and he lost his bars and spent time at Leavenworth.

In the 90’s, when I was an E4, I had a SGT/E5 first line supervisor that popped hot for cocaine on a piss test in late January. Keep in mind that at the time cocaine was only detectable by urinalysis for about 72 hrs (3 days) after consumption. So, he swore up and down he didn’t do it and that the best he can figure is that a month earlier while home on leave for Christmas someone must have slipped something in his drink without him knowing. BULL$#!+! Anyway, everyone from our NCOIC up to our full bird regimental commander bought his boohoo BS story and let him off scott free. His leadership style was toxic (no pun intended) so when he beat the charge despite solid evidence, he was even worse.

Keep mouth shut and take cover. DOD civilian hiring so crooked every civilian knows abuses. DOD brought back 180 day waiting period but they left a back door. Get a waiver. Hold the decision months.

I had a Cpt who after he rotated out , we were tormented by bill collectors, hot checks and furniture stores on missing rentals , I MSG, reported his activity to the IG at his next station

This is what happens to an FAA inspector who becomes a whistleblower about airline maintenance. FAA employs many veterans. http://www.iasa.com.au/folders/Safety_Issues/FAA_Inaction/Diefenderferletter-1.html

We set him up for a sting.... Europe, Black-marketing Cigs and Booze. He was conning some of the Non-smokers/Non-drinkers in the unit for their rations as well. This was in '79/'80, heard he did the Retraining BDE. route because he swung by the Med Det. to retrieve some personal gear he left behind ab out a year after I PCSed.

No matter what you have to do the right thing.

If They're doing something "wrong" confront them, if it's illegal, turn them in. By wrong, I mean something within the spirit, but not the meaning of law or rule