You say "no, sorry, I can not violate [insert your country here] Copyright Law. I'd be glad to help you license artwork legally."
You should also have a clause in your contracts along the lines of "all artwork provided by the client shall be artwork the client has full rights to reproduce. Designer will not be responsible for any artwork that was provided by the client"
UPDATE:
It should also be mentioned that if the client says:
Do a Google image search for 'XXX XXX XXX' and you'll see everyone is using it
...well, law aside, that's a perfect reason NOT to do it! I'd say "To make your business stand out, I suggest we not copy what every other business is doing"