I think it's okay to edit the files,so you don't get negative renown for sinking neutrals.
You can simulate the prize rules and sink them if you want or let them go.

In 1939-40 many neutral ships were sunk according the prize rules.

Here's an example how it was done http://www.uboatarchive.net/KTB37-2.htm

It's the war diary of the 2nd patrol of U-37 from october-november '39,they sunk 3 neutral ships during the patrol.

I always let them go unless its proven that they sail to England or its allies. It won't be good if a Irish ship gets sunk sailing to the US (pre Dec 1941).

I set the neutral renown value to 1/2 of standard and try to behave realistically. If a neutral's on the open sea I will leave it alone, but if it's near a British port or in convoy I will attack. Neutrals from pretty much every maritime country were sunk during the war, and commanders rarely seem to have gotten into trouble for it. I can only recall one commander getting into trouble with Hitler or Doenitz (an attack on the battleship "USS Texas", which missed).

U-507 Harro Schacht sank 5 neutral Brazilian ships in 2 days off the South American coast, resulting in the deaths of over 500 people. Brazil declared war against Germany 5 days later on 22 Aug, 1942.

Bad news, but was he punished for it?

I up the neutrals to full credit, and apply some restrictions to my self.

Anything clearly sailing into a hostile port (notably Hartlepool) and within the declared war zone, or sailing in a hostile convoy is fair game.

All shipping on non-historical courses, or in non-historical locations, are ignored.
Throughout the war, all norwegian vessels, operating in norwegian waters, are hands off.

I haven't found anything saying he was. He sank another one (the sixth) on 22 Aug, 1942, the day they declared war on Germany.