The Police ID is the one you seem to get most often at start up, and like what was posted earlier, you see it all the time on so many different players that as far as i know its fine for generic players to have - and the majority of the community, at least for the time ive been here, seem to see it that way in game.
I have a trader that im pretty sure is police tagged, ive traded into pirate systems - and rarely if ever get asked about it after my ship has been scanned and occasionally taxed.
When asked, i say that the character "registered" his ship with the authorities of his local system, hence the tag. - an entirely plausible explanation if i do say so myself.
What i feel is most important here is the ID and then (for pirates and/or zealous cops) the cargo - In the case of the Liberty embargo, liberty players should know what cargoes are likely to be carried by a trader coming from rheinland and vice versa.
