what is the best way for his sister to convert them to USD, how long would this take, and what would the average fee wind up being? She can provide AML docs. I am hoping it is easier and/or cheaper than an international wire with a currency conversion.
For an amount like that, wire transfer costs are not that excessive on a per-bitcoin basis (e.g., maybe 1%). ACH, an alternative to bank wire for domestic bank transfers, is essentially free (or trivial when using an intermediary such as Dwolla or OKPay).
A problem with this request might come f this needs to be converted all at once (e.g., within the same day), then there are not that many exchanges that can handle a conversion of that size without the trade ending up with lower proceeds from the sale of the coins due to slippage. Slippage occurs when the selling takes out all the bids and ends up trading below the current market exchange rate. Mt. Gox can handle that order size fairly easily. A few ofher exchanges could handle it but would probably require breaking the sell order up into multiple chunks and selling them over several hours. BitSTAMP and BTC-E are two examples of where this volume could be broken down into chunks.
As far as AML, this will be required for the account owner doing the trading. There's nothing that says that your friend can't take care of all the conversion of BTCs to USDs at Mt. Gox and then send the USD wire transfer to his sister's account without any involvement (or AML verification) by her at all.
If this might be a recurring request though, she might want to get set up with an account at an exchange (e.g., Mt. Gox) and then go through the AML verification and also the Dwolla verification. That way there are no fees for moving the USD funds (except for the $0.25 per-transaction fee by Dwolla).
Mt. Gox's Level 1 AML Verification: (up to $10K USD per day)
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https://support.mtgox.com/entries/20919111-aml-account-statusesNow for transfers of fiat from one currency at a bank in one country to another fiat currency at a bank in a different country, then Bitcoin may not be the most economical method. There are cheaper alternatives just for this purpose. If CurrencyFair is supported for your friend's (sender) currency, then that might be something to consider as well. Before converting, CurrencyFair is used to get funds that will be traded via bank transfer. Then the funds are traded into USDs (by trading with others wanting a trade in the reverse direction) and then withdrawn to any bank account (as a domestic bank transfer/ACH in the U.S., for example)
But a scenario through Mt. Gox, for example:
One-time preparation: Create account at Mt. Gox and submit identification info Duration 1 business day.
BTC transaction: Provide Bitcoin address from Mt. Gox account. BTC Funds transfer (confirm) in about an hour.
Trade BTC for USD. With Mt. Gox's liquidity, a single ask could be placed as a limit order at the current market price and would become a 500 BTC ask wall. It could be chewed up in minutes, potentially. To avoid the market reacting to the existence of that large sell order, the order could be placed instead as a market order, and the trade would be concluded nearly instantly.
Withdraw: An international bank wire request could be made the same day, but for various reasons (not the least of which is the time zone differences), next day would be more likely (or two or three days if your bank screws up. Withdrawal to Dwolla should be fast but Mt. Gox had a backlog and that still may end up being days of delay before Mt. Gox performs the account-to-account (A2A) transfer to Dwolla. If that backlog were eliminated, then Dwolla would be the next best method for withdrawal for that amount of USDs. Their ACH withdrawals from Dwolla than are next day or if not, two days.
