He can make up any BS story he likes. AML is taken really seriously. Anyone doing Local Bitcoin is asking for trouble. If you are taking large quantities of fiat in a brown paper bag in an alley, maybe you should stop and think for a second.
Using Local Bitcoin should be fine as long as the transaction is small, (Under 10,000 I believe) and there is no way of you reasonably knowing that either the cash or the BTC was obtained from or shall be used for illegal activity. Also, you need to be sure that you are not charging a premium or they can get you for being an unregistered money transmitter.