Sure, assuming the artist has the proper license and franchise rights to make and distribute copies. You can go buy a picture of Indy today that may not be printed by Walt Disney Studios but by some other outfit or artists.
Or, you mean if the artist doesn't have a license to produce and distribute Indiana Jones images? Well they'll be in trouble legally. They are making "copies" of things they don't own and profiting from it.
Another question is whether that's practically enforceable.
> Where did I (or the artist) violate any copyright (or other) laws?
When they took payment and profited from making unauthorized copies.
> It is the artist that is replaced by the AI, not the copyrighted IP.
Exactly, that's why LLMs and the companies which create them are called "theft machines" -- they are reproducing copyrighted material. Especially the ones charging for "tokens". You pay them, they make money and produce unauthorized copies. Show that picture of Indy to a jury and I think it's a good chance of convincing them.
I am not saying this is good or bad, I just see this having a legal "bite" so to speak, at least in my pedestrian view of copyright law.