The LPI are working to be more corrupt, while there is a ban on Rheinland vehicles I have on multiple occasions PM'd or local chatted at someone and said "Mighty fine cruiser over at Fort Bush, would hate for it to rough up your ship. 100k says it stays there and I forget I saw you."
Also works with small amounts of contraband, and if it isn't drugs I'll take a slight cut of the product and a small bribe rather than calling you out. Works better than saying "drop it all and pay 2 mil" and feels better than blasting them. Especially when you don't actually have the firepower to blast them and would need to ask a larger vessel (like the aforementioned cruiser) to do so.
On my RM a few days back I noticed a Luxury Liner with about 2000 passengers, 50 slaves, and a bunch of various random things a liner would need. I stopped him for a more detailed scan, determined nothing really hazardous (how do you recognize small amounts of slaves from regular people, anyway?) and let him move along. Shot him a PM saying "//thank you for smuggling properly, please come again".
On occasion I've had to call jurisdiction when a random person calls out contraband in such cases, and told them their scanners must be malfunctioning. If they persist in trying to ruin a good attempt at roleplay, they get shot for insubordination.
Hmm, maybe I should make Zapp give a formal LPI decree that as the police authority of Liberty, the LPI's word on law-breaking is the top word, trumping everything others say on the matter. Might let us be good role-models for how to deal with good smugglers.