Families of SOs Community Group
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As far as your niece is concerned, neither he nor the courts have any reason to deny your children from seeing or talking to her. She poses no threat to them (whereas, they claim your brother does).
You could say that you are helping to support both. You supervise the visits with your brother (which is a no brainier as they can't see him without an adult regardless of what his conviction is), and that supporting him helps with his rehabilitation (which is true, which is why it's allowed).
Then tell the courts that you will abide by any rules they impose (forbid the kids to see your brother), even knowing it will hurt your kids in doing so.