Have you lost your mind? WHY would you want him anywhere NEAR your daughter? If he has done it once...and TWICE in his case...he is MORE LIKELY to do it AGAIN. He is 16 years old...he knows better than that...especially to sexually molest his SISTER. I know that he is your son, but think about it like this. If he has had the nerve to touch his own sister there is no telling who else he has touched. At the age of 16 they have already had sex-ed at school and KNOW what is going on!!! HE is playing you. If you don't get that boy help NOW you will only be doing him HARM as well as your baby girl later in life!
***I know that this was harsh but you folks need to GET REAL.***
Regulations governing this sort of situation vary from jurisdiction to jurisdiction. It is not uncommon for such circumstances to be kept confidential when the person who behaved inappropriately is not a so-called caretaker of the child. And, as a note of reassurance, in situations such as yours, the interest of child protective services is in help being provided when needed, not in prosecuting or removing children from their homes. I think you'll be fine to arrange a consultation for your son with a mental health professional. This will not open up a can of worms, so to speak. As far as your daughter is concerned, your son should apologize to her and assure her he will not repeat this behavior, and you can let her know that he acted inappropriately. Unless you see any worrisome reaction on her part, you neddn't seek professional help for her. But reiterate with her that it is not permissible for siblings, peers or others to be touching her genital area, and encourage her to let you know if anyone attempts such a thing.