I feel that this current system is terribly unfair to newer players and to players who tend to run solo either temporarily or for an extended period. My main reasoning for this is that, as Digger 360 pointed out, it is simply too easy for some players to circumvent. A player who has been on longer or has joined a town has a much greater chance of knowing someone they can trust, and in the event of a bounty, give all of their coin to in order to avoid the penalty. While investing all of your funds (i.e. buying gold) is also possible, it is a great deal more difficult for a newer player to do this and keep their resources safe due to the cost of an LWC being rather high for someone who is being hunted and killed instead of gathering funds and is additionally losing a portion of the funds that they have managed to collect from voting or otherwise. In the case of a rich player finding a newer player to be undesirable, players can theoretically keep a player from even reaching LWC indefinitely. I understand that it is already quite easy, between Track and Recall, for groups of players to detriment or destroy another player's Herocraft experience, but I feel that there should at least be a way for the player to trudge on through it and thrive economically.
There is punishment for being caught, and realistically that would be either jail time or death. The idea of hiring a bounty hunter to cause someone to lose money doesn't really make sense, at least to me. You may as well hire someone to steal from them directly.
But moving away from realistic expectations, there was always a punishment and that punishment was death. That being said, obviously death can have very different repercussions in Minecraft, depending on your current situation. I honestly disagree with having a bounty system at all in a world where death can be, quite frankly, meaningless. If you want someone to die and suffer from it then I'd imagine it would be wiser to contract a killer privately rather than announce your intent to the target publicly. While the automation of this system is a cool concept, I suggest that the public bounty system be remade into a more personal hitman system. Since you guys can already detect a player's death and award it to the killer, I imagine it would be possible to allow a private transaction between two or more players that would be confirmed upon the death of the target. This would prevent the target from being warned ahead of time, and thus greatly increase the chances of dealing significant economic damage to the target upon their death. That being said, while I do believe it will increase the chances of economic damage, it will not guarantee this in the case of a player who simply happens to be carrying nothing at the time of their death. Another issue I see is that it will be more difficult to become a "Hitman" than it is now to become a "Bounty Hunter" due to the obviously public nature of bounties.