ANDY'S ANSWER: As the parent of a son who could get himself in considerable trouble with the law, as well as the psychological damage he can do to the young family member, you have every right to be scared if not terrified for his actions.
It's not abnormal for a boy of his age to be thinking about sex. Every waking moment, as a matter of fact. However, most boys manage to keep themselves under control in private with masturbation, while learning how to woo the favour of a potential mate amongst their peers.
The problem is that instead of pursuing someone in his own age and peer group, he is approaching a younger relative, perhaps someone he is comfortable with and considers to be an easier person to convince.
You need to sit down and have a talk with him immediately. The reason why family members get molested before strangers is because of accessibility. At this point in time, I would ensure the safely of any younger relatives by making sure that your son does not have unsupervised alone time with them. As a matter of fact, it's probably a good idea for parents to be paying attention once their kids hit puberty and not put them in a position of having opportunity to act out their sexuality with younger siblings or others. Hormone-driven teens cannot always be trusted to make the best decisions where there is opportunity even when they know what they are doing is wrong.
Acting out his sexual urges with ANY younger person is totally inappropriate and will get him arrested at the very least. If he does not have the maturity to be able to control himself you might want to get him into immediate counselling to help him learn to deal with his sexuality in a more appropriate manner before something serious happens.