Board Thread:Naruto Discussions/@comment-30881771-20170815144139/@comment-5085906-20170815151906

Orochimaru mentioned that it was Shin's sharingan arm that he transplanted to Danzo. That means he conducted the Shin experiment before the Fourth War in which, if you remember correctly, he was pardoned for his crimes. That's why Naruto didn't arrest him.

And yeah, as Sarutobii2 said, cloning doesn't seem to be illegal as long as there's no human sacrifice involved. Orochimaru would then go on to create Log and Mitsuki even though under Yamato's surveillance.