With a Police tag, you should use a Trader ID (not a Smuggler), and you should not be hauling contraband. If you want to carry contraband, try getting a slightly less lawful tag (Junker maybe, but you'd need a double bribe). I there there are some how-to manuals on reputation fixing, somewhere around here.
Another option would be to start a whole new character with NO tag. Then you could use either a Trader or Smuggler ID, and you could haul contraband if you wanted to.
