What the heck is wrong with the wanted system?

In an Empire system minding my own business mining. Ship jumps in and scans me and demands I drop my cargo. I scan him and he's wanted, but I ignore him. He attacks me and flags red, I turn and fire back in self-defense. Oh hey I just gained a 400cr bounty with the Empire. Okay.... penalized for self defense against a pirate. Whatever. I kill him and gain a 1600cr bounty CREDIT from... the Empire... for killing him. So they punish me for attacking him and reward me for killing him. What the... What is wrong with this system?!
 
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