There are two different issues here, both of which warrant discussion.
The first issue is this: when a specialist is released by the Diplomat, does it remain as a captured specialist on an enemy sub, or is it an active specialist on one of your own subs? With regards to this, it is clear that it's supposed to be a captured specialist on a 0-driller enemy sub. Moreover, this doesn't only affect the Navigator, because it also affects whether or not the specialists get their bonuses; for example, if a Smuggler is released it's the difference between 1x and 3x movement speed.
The second issue is this: in sub-to-sub combat, is the specialist released by the Diplomat immediately after the sub-to-sub combat, or does it have to be sent to an enemy outpost first, and released from there? The text description of the Diplomat clearly states that it releases specialists "that are being held at an outpost", so it seems clear that the latter is the way it should work.
Currently, the Diplomat does indeed work correctly when you attack an outpost---after losing combat, your specialist is immediately released back to the nearest friendly outpost on a 0-driller enemy sub. However, after sub-to-sub combat the Diplomat is currently working incorrectly according to *both* issues raised above---it is released *instantly* after combat instead of first being sent to an enemy outpost, and it is released on your own 0-driller sub rather than the enemy's.