[Sailor Steve]

Originally Posted by Drakken

It is realistic. And not all merchants had their true country flags. Use of false flags and lights in the night to hide the fact that the ship was an enemy merchantman was a real possibility. Unless you had updated ship registries inside your submarine to check the ship's identity, property and country of registration, you could never be sure if the ship was really neutral. But of course, in the game the ships always display their real country flags.

Which is why they stopped neutral ships and examined cargoes and papers.

Just imagine the consequence if a German ship had sunk a Spanish vessel in Spanish waters.

Apparently not much of a consequense at all.
http://uboat.net/allies/merchants/1151.html
http://uboat.net/allies/merchants/1223.html
http://uboat.net/allies/merchants/266.html
http://uboat.net/allies/merchants/2854.html