I have heard of European hotels asking for passports to be surrendered...but in general, CofS demands them to keep people prisoner.
That explains why they do that in Europe. The last time I stayed in a European hotel was 1969, and I handed in my passport there too.
I agree with Claire re why the CofS does it. They confiscated my passport and credit cards while I was in the PAC RPF in 1996. Maybe they do it to all foreign SO staff too now.