It was in no way possible to identify anyone else in the picture, nor was there any embarrassing activity in progress. In the context of his entire page, it’s implied that it’s a tearoom, so it’s plausible that everyone shown was there for the same purpose. That’s my experience, anyway.

I believe that the referral was resolved and it was the decision of the panel members that the reported abuse was NOT egregious enough to delete the member in question. When you received "system" notifications stating, "what's wrong with this?", you could have responded by resubmitting the picture (through the referral process once again) with a response and/or stronger reason.

I saw the picture and as I recall, you only saw that the man's trousers were down around his ankles. The picture may not have been knowingly taken but again, my recollection, it did not show any nudity other than bare ankles.