Yes. They get money from advertisement, they should check reports.
> does this not put Google at risk of being sued by the removed advertiser?
No. If Google ToS banishes copyright infrigement, they can remove advertisers without questionning.
> or, if Google wrongfully removes a legitimate advertiser, does this not put them at risk of being sued?
Sued? This is inside Google system, respecting Google ToS. They have the right to banish accounts and have done repeatedly in the past.
> which broken laws - of which country - should justify removal?
CA, USA, of course.
> how should they solve the potential problem of scammers flooding the report system?
How do they solve spam on gmail?
> I don't think it's their job to police copyright.
I disagree on Adsense, but agree on Search. Making money from illegal activities is illegal in most (if not all ) countries.