If I saw a friend cheating I would confront them about it the first time.  They should know cheating is bad and that they can get in big trouble for it.  If they cheated another time I would tell their parents and have their parents talk to them about it.  If it continued I would go to the principal and tell him about what is going on and how it needs to stop.  Thats what I would do if I saw a friend cheating.