Librarian/School Employee Privacy Dilemma

There are codes of ethics that you follow when you are a librarian. There is also a set of responsibilities that you legally must adhere to when you work in a school. Being a high school Librarian (assistant in my case - status not important), which set of guidelines do you follow first.

Here is the situation. A student walks into the school library and asks for books on satanism. O.K. I'm open minded. I tell him that we will most likely not have very much and that most of our nonfiction books try to be curriculum related. He didn't want to know about satanism, he wanted books with instructions and rituals. We don't have that type of material in the library. I told him that we are a high school library and that we can't afford to support, nor do we have room for all materials. He may be able to find some of the information at the larger public library. Then he asked for books on the development of hatred and anger, what makes people violent, etc.

The kid seemed nice enough, polite, quiet, but wore long black zip-up gloves to his elbows, black satanic t-shirt and the black nail polish to finish the look. I've known nice kids like that who were just trying to make a statement. This kid just seemed different. You could feel it in the air you breathed around him.

The dilemma:
As librarians, we should not judge what people read, and everything should be confidential. You don't know what he is using the books for. It may be for a project.
As school employees, we are obligated by law to report any suspicions we have about a student who we feel may be in some form of trouble. It does not necessarilly need to be reported to the state, but it should at least be reported to the counselor.

I was told by the school library coordinator that we are going to act as librarians and be nonjudgemental, not report anything, and leave it at that.

I wanted to tell the counselor that the student was interested in some books on some very serious topics (not tell what they were) and say that it might be worth checking in on him to make sure everything is alright.

What should have been done?

I would actually like to hear several opinions on this question. I don't know how to spread this to more than my group. If someone knows how, can you please spread it?

Thanks