Hm, I think there are 2 separate issues described there:
1) Guard looting, which is in fact 'item removal', it's small tested feature that tries to punish players who deliberately were forcing others to kill them/be killed by guards then their 'friends' were taking all the items, but, as many of such features it has got tremendous fallbacks, it may be scrapped soon, we will see.
2) Mercs looting dead opponents, which is part of every-npc AI.