I have a swastika on all my flags in the game. I wonder if that came with the NYGM Tonnage War mod or something. I know I never downloaded a specific swastika-fix.
And as for flags, the Kriegsmarine flag is the one shown above, the German civilian flag (the one flown by merchant vessels) is the red flag with a white circle and swastika (no black lines and no "iron cross" in the corner). Just like how the British civilians fly the red ensign but the Royal Navy has a different flag. Same thing. What you saw was a German merchant vessel.
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