I do not AFK buff/wound heal. I do it while at keyboard, and rather often, which means I receive a lot of cash tips as well. I am not, in any way, in favor of this proposal.
However, if it does come to pass, I think the police that go after the pick pocket should be at least 2 elite NPCs that spawn randomly near the crime scene as the smuggler is making his getaway and they are on level or a little higher than the level of the pick pocket. If caught, the smuggler goes to jail for a short time (in-game time so they do not just log out and play another character), but if he chooses to fight them, there is no incapacitation—it is a fight to the death. If caught or killed, the loot from the most recent theft is automatically returned to the last person stolen from. This would allow for real world consequences should the smuggler turn to a life of crime. You might even have a pop up on the side of the person stolen from that says "You've been robbed", and give them an option of calling the police or placing a bounty on the thief's head.