No, it does not work. The idea of a crime & punishment system is to let criminal and law enforcement gameplay emerge from it and that is not the case. Crime got only made annoying and law enforcement gameplay does not exist.
If you look at a solid example of such a system you could look to the GTA games - you commit a crime and the cops respond and you then face the choice to surrender or can escalate. This escalation gives way to further gameplay choices and ramps up the threat and challenge while also opening up new means of dealing with things. You can at any time choose to give up and submit to the law or pay a hefty penalty but either way end up being a law-abiding citizen again, all dues paid. You can also pay your way out of being hunted by the cops by entering special buildings to have heat stripped from your vehicles and reduce the police awareness this way. You can play hide & seek for a while to watch the wanted level drop. There's also the opposite side in the form of playing police to hunt down bad guys, be it a local thief running with a purse or hopping into a car to chase down other criminals.
While it's a simplistic model without impact on the world at large (as that's beyond the scope of the games) it's still a fully working and enjoyable gameplay loop with plenty of risk and reward potential to spice up the game.
In ED you currently get punished for mistakes and branded as a criminal with annoying penalties and don't have a way out of those - you're flagged for killing an innocent ship strafing throuh your weapon arc in a messy situation and then you face a hidden timer you have to wait out by being logged in to get rid of all penalties.
There's also no reward for further escalating crime and taking on law enforcement. Crime careers should have been significanlty reworked and rewards increased to make them viable. Currenlty you get far less income than safe careers, vastly increased risk of losing the ship, all the gained loot and a ton of additional credits, arcane punishment in the form of the pilot flagging system and on top have little content and constant repetition in gamplay activities. You're also for some reason supposed to be a criminal in a trading ship with tons of collector limpets, yet need a heavy combat loadout as you get shot by traders, their escorts or special police forces with engineered ships.
Crime is one of the most underdeveloped aspects of the game and flawed by design. If you want a taste for it try to steal some cargo from a NPC trader - the hatchbreaking part, the fact that they can run, the constant beating you take and the awful looting mechanics with containers dropping out while the ship tries to boost and get away and your collector limpets not being able to pick anything up make it an abysimal experience. People like to glitch the NPCs by messing with the AI's simplistic scripting to make the NPC stuck in a specific spot or try to disable the drives and bump them to a halt with repeated maneuvers before hatchbreaking to attain some sort of efficiency when pirating. This shows how bad the whole game design is.
Then let's not forget that the revamp of the C&P system hasn't stopped criminals from gunning down innocents for no reason, which by the way is a core game mechanic to influence the BGS and system's security level and should have been fleshed out into proper gampelay instead of trying to shut it down.
What Frontier should do at some point is look at smuggling, piracy, the crime flagging system and the BGS, make sure there are emergent events to support crime sprees with gameplay and make sure to clearly visualize progress of the criminal status and resulting punishment. There should also be law enforcement careers with more content than flying around at a nav beacon or a res site to shoot at ever spawning NPCs with bounties on them. There's so much possible with cops & robbers themes but none of that is in the game, which is a damn shame to me.