Here is a screenshot of an AI Iconian system, specifically the planet New Iconia, showing 98% crime:

This should incur a -34% morale penalty to the non-criminal citizens of that world.  However, taking the exact same screenshot but looking at the first citizen, it shows no penalty from crime at all:

Jorg the Assured does not have a crime morale hit.  Now, lets look at what happens immediately after I conquer the world and it transfers to my ownership:

Lo and behold, now Jorg the Assured does now indeed have the expected -34% crime morale penalty.  (btw, notice in the screenshot, the "you are at war with my species" shows -10%.  This should show -50%.  The total is still correct at 6% for Jorg as if it is counting the proper 50).

So, it seems that AI citizens are unaffected by crime morale penalties, which is a real shame for Xeloxi trying to spread crime, so hopefully this gets fixed. 

Impacts to their economy and decay rate still show that they are working.  It also seems like crime does increase the likelyhood for enemy citizens to be criminals, and citizens are still affected by crime-related events (also indicating that these events properly occur on high-crime AI worlds). Only the enemy morale impact from crime seems to be broken.  All other crime mechanics appear correct.