First off, you are answering your own question by labeling it "ratting him out". That carries heavily negative connotations and implies that no matter what you think you should do, your sense of honor, comraderie, or (if we are honest) understandable cowardice. Confessing guilt is hard, no matter who you are confessing for, but you seem, for your own reasons, to subconciously avoid direct involvement or confrontation. Just an observation.
Secondly, I think it is the best kind of friendship when you can tell the other guy what he doesn't want to hear. He might hate you for it, but that's his problem. Be the bigger man.
Here is an example, that is 100% true. I had two old friends who I don't really talk to anymore, but I know them well enough to know the whole story. One of them (we'll call A) started smoking weed in 8th grade. A told the other friend (B) that if A got sucked into drugs, that B would tell A's mom, or some authority figure, so A could be helped. If you know anything about life, you already know that A got sucked into drugs. He never got into anything harder, but he started dealing weed to friends. Before long (about a year), A started getting some phone calls from unknown numbers demanding weed, and A got scared. He brought a fake gun to school for psycological protection and was expelled because of it. Now, B knew about all of this, but A's mother had somehow remained oblivious. B told A's mom what was happening, A got into a lot of trouble, but was eventually reinstated in school and dropped the habit. As far as I know. A and B are still friends.
So yeah, do something. Because if you don't, it'll find a way to bite you in the ass.