I'm not sure about other states, but that will definitely get your engine confiscated here in NY. Any tampering with the numbers is a no no, even if the original numbers were legitimately lost.
Which leads to one of the problems we have with questions of this nature. There is no, one law to govern all the states (thank Goodness). It's like the age-old problem of how a racer's truck and trailer is viewed by authorities, in each state. Some states consider them to be hobbyists' vehicles, whilst some states demand the driver be licensed for commercial. Some states use weight as the determining factor, some states use overall length as the determining factor. Some states will not give a racer a second glance, where some states want to impound everything, if is being operated on anything other than interstate and state highways.
When I was at the speed shop, we would purchase 350 Chevy engine cores, then go clear through them, offering them for sale as complete rebuilds. And they were complete rebuilds, they were all align-honed, bored, decked, rods resized, cranks ground, balanced, heads rebuilt, etc. The program was incredibly popular, and we even had a couple of Chevy dealers that were buying engines from us, rather than relying on the GM programs. We would average selling one of those engines about once every week.
But, as all the blocks lost their ID numbers in the decking process, we would stamp an incremental number on the same pad, so we could identify each engine, if ever there was a problem down the road. A customer could call with that number, and within minutes, I could have a build sheet in my hands, which told me everything from what the balancing bobweights weighed, to what bearing clearance was on any given rod. I can't count how many of those engines were used in various, local street rods, and there was never an issue with our own markings being used. As a matter of fact, our former police chief once said the smartest thing anyone could do with engine components was to make unique identification markings on them, keeping records on where and how each component was marked. That would narrow down avenues of investigation, if ever anything was stolen.
@Zandoz, if your brother-in-law was chief of police, then he is the person to answer your questions, because who could be more familiar with your local laws?