Due process protections in the US generally mean that there tends to be a gap between "government has a pretty good idea that something illegal is being done and a fairly specific idea of what it is" and "government has its ducks in a row regarding proof that will stand up in court to begin legal action with a reasonable probability of success".
I actually think this is the core of one of the best features of our government, so I don't think it paints the government in a bad light at all that it often knows about bad things happening considerably sooner that it has the practical legal ability to stop them (or, at least, before exercising that ability will jeopardize the ability to hold wrongdoers accountable under the law.)
Ethical guidelines for this kind of bystanding typically allow crimes like fraud to proceed temporarily but not murder or assault and so forth.