Best solution to the problem I've seen is to edit the basic.cfg so that sinking neutrals does nothing, ie. neutral=0 During Drumbeat several Brazilian ships were sunk in American waters by u-boats - they were all blackened out. It was an enforced policy that ships travelling in certain areas were required to be blacked out, regardless of their position (Axis, Allied or Neutral) in the war.
There can be neutral ships intermixed with large convoys, to take the time to inspect the ships for their flags was unreasonable if there were travelling in one of the Allied convoy lanes. Sinking a neutral ship was never a good idea and not something any ever did deliberately, and most captain only did it once; but they didn't get court marshalled over it.
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