Hi James,
Another thought: Is your friend a firearms enthusiast or collector? If not, he could get the necessary permits to shoot and / or collect, and once he is properly licensed, he could see about registering the gun as an inheritance from the grandfather. Of course the above mentioned papers are needed anyway.... maybe he'll end up as a future Luger expert- who knows? He does need to be up front with the government in any case.... in the meantime he could perhaps entrust it or store it with a licensed gunshop or police until proper registration could be organized.
Just another idea.... may take a while, but maybe your friend will discover a new interest he didn't know he had