I think, that’s the way to go.
11 or less victory cities is too easy for the axis.
12 victory cities for less experienced axis players (7VC on europe and 5 on the pacific side seems like the allies are loosing on both sides. Only 1 victory city to go for eiter a european or pacific win).
13 victory cities for experienced axis players (Win on one side of the board but don’t loose the other)
14 victory cities seems to be too difficult, but if you want a challenge as the axis, or if you really, really want to play the axis
Keep it global, even for the axis. (My personal opinion.)
They were not intentionally cheating, I am sure, however, they are still breaking the rules and will have to be penalized accordingly. Which probably means returning their ships to the proper sea zones, removing the infantry and surrendering whatever collected money they had to the bank.