[Jack Simth]

Good point, but rather than disabling mercs aquiring items, just tell the player renting them out who rented them - it could go something like:

Turn X: you (Pangea) set commander Jimbob's orders to "Turn Merc", don't accept from Ermor or Machaka (at war with them); for an immediate cost of 300 gold.

Turn X+1:you get a message: "Jimbob has contacted the mercenaries guild, and his availablility has been posted."

Turn X+2: you get a message: "Jimbob was hired by Abyssa for 450 gold" at which point you get the money (for a 150 net profit, so far - combat losses not yet tallied).

Turn X+6: Jimbob returns and you get a message "Jimbob has returned to the capitol after fighting for Abyssa"
You check Jimbob - he now has a bane venom charm, and is consequently diseased (and diseasing your capital!) (you maybe got a virulent disease message too).
Turn X+7: Everbody (except Abyssa (did the trapping), Machaka, Ermor (at war with them - let them find out about Abyssa's betrayl the hard way), and Pangea(you)) gets a message from you: "Abyssa just stuck my merc Jimbob with a bane venom charm while he was renting him!"
Turn X+12: Abyssa realizes that nobody except Machaka and Ermor has been offering him mercs for the past several turns....

Of course - heaven forbid - if this kind of thing happened reasonably often, someone might lie to gain advantage over another player who didn't do any such thing.

Likewise, only commanders from living nations can be so boobytrapped.

With such a measure, it would be a trick you could get away with a few times before nobody would offer you mercs anymore. After which you would be at a disadvantage if ever you need a bunch of troops fast, as you can't hire player-mercs. A little display of who is involved to the involved parties (quite reasonable, no?), and you get a "prisoner's dilemma" situation that renders trapping mercs a strategy that isn't long-term beneficial.