As said above, could be Oakum
https://linseedpaint.com/buy-oakum-d...EaAgnrEALw_wcB
Or Denso tape
https://www.denso.net/product-groups...MaAoLFEALw_wcB
The rust type deposits are probably the effect of the tape`s impregnated oil - grease drying out
This type of tape has good sealing properties but agree that it should not be there in place of a correct fitting - locknut with sealing ring