Points a friend out for punishment! (5)
I believe the answer is:
penal
'for punishment' is the definition.
(I've seen this in another clue)
'points a friend out' is the wordplay.
'points' becomes 'en' (compass points east and north).
'a friend' becomes 'pal' (pal can mean a friend).
'out' means one lot of letters goes inside another.
'en' placed within 'pal' is 'PENAL'.
(Other definitions for penal that I've seen before include "Corrective" , "Involving legal punishment" , "Very severe" , "Deliberately unpleasant" , "Punishable by law" .)