I believe that is how it works here, with the exception that a player or npc can notice you doing so and call the guards to kill you. To the best of my knowledge that is how it has always been on OSI.
Was it that you could loot corpses and you would go grey, and a player could call guards on you, but NPCs would not call guards even if they were right next to you?
Here on UOR, you will get a GW when NPCs see you looting a blues corpse. Not sure, how it was on OSI.
On OSI (in the era UOR is based) I spent quite a bit of time trash collecting so I know for certain: Looting turned you grey and people could call guards but NPC's did NOT call guards on you.