Could using Bitcoin in a money exchange business lead to arrest?

Depends in which country this is and what sort of law they can slap on you.

In any market you operate in, you have three choices:

• Bitcoin is not regulated / not defined, hence you are in a gray area, but if the regulator wanted to come down hard on you, they could apply the foreign exchange / foreign currency money laws to you.
• Bitcoin is regulated - in which case find out from the regulator if bitcoin for value-transfer is allowed in money exchange business.
• Bitcoin is illegal - in which the answer is no.

When in doubt, ask!