Low luck leading to him being mistaken for a criminal makes perfect sense. No, I don't mean that sarcastically lol.
Haven't played AOC before, but apparently if you kill another player who's not flagged (Non-consensual PvP) the results for the attacker are pretty brutal.
This system here reminds me of GTA Online. In short, certain actions against NPCs can cause you to get a bounty on your head. Any player who offs you while under a bounty gets a reward. If you outlast the bounty timer, you collect a reward. Other players can also call in a bounty on another player.
On top of that, there's a sanity meter or s/t (I forget, it's been so damn long since I last played) where the more erratic your actions are like frequently mowing down NPCs, even by accident. Shooting at people or in view of them, brandishing weapons, causing accidents, etc leads to a high unstable mentality and you are likely to be hunted down by cops or other players.
This one time I had a high mental instability and a gun store shopkeeper tried shooting me when I entered. So I called the cops on him... they came in blasting and I dropped a landmine at the front door while swooping around them as they were leaving. Landmine went off, killing all the cops giving me a wanted status. So I ran and grabbed the cash they dropped on death, emptied the register in the store and hid in the back room calling 911 on the cops. Yes, you can call the cops on the cops XD All that effort for so little profit though...