Certain actions are considered illegal, and traders that get caught breaking the law will be asked to pay a fine.
Man in Black
Every once in a while a black-clad gentleman comes out of the Town Hall and strolls around the city square. This individual is monitoring the tavern, and reports any illegal activities to local authorities.
Man in Black appears 45-50 seconds (varies) after you enter a city, and in regular intervals afterwards. While he is present, talking to a Pirate, Burglar or Weapons Dealer will result in a lawsuit.
You can raise the Jolly Roger and sail around the Hanse without fear, but if you attack a ship (or a city) you will risk being reported.
Heresy and Indecency
Traders that forget to pray in the church or bathe in the Bath house, will sometimes be reported for heresy or indecency.