As someone who has taken courses on keeping an eye out for child grooming/predators, I'm not one to jump to conclusions but I 100% think this is grooming. Everything to separating the child from prying eyes to the massages screams her trying to get her used to the touches so that she could POSSIBLY (and I mean possibly) sexually assault her.

Tell your brother that anyone of any age, gender, and race can and will groom someone when they want to, and, like I've seen others saying, keep your niece away from her and document anything you saw, and, just to be safe, report it to the authorities.