ZURICH, Feb 14 (Reuters) - Switzerland should tighten money laundering laws so its banks do not accept cash looted by dictators, some politicians said on Monday after the government froze the assets of deposed Egyptian president Hosni Mubarak.
Susanne Leutenegger Oberholzer, a Social Democrat member of parliament, wants to look into proposals to change the law so that foreign leaders wanting to bank in Switzerland have to prove their money is clean.
Birgit Wyss, a Greens parliamentarian, is pushing for the law against money laundering to be extended to real estate.
"Since the financial crisis, a lot of illicit funds have been flowing into property. Real estate agents should be obliged to report suspicious flows just like banks," she said.
While left-leaning parties have called for tighter money laundering laws before, the conservative majority in the Swiss coalition government looks unlikely to adopt them and Finance Minister Eveline Widmer-Schlumpf cast doubt on the idea.
A group of Swiss non-governmental organisations including Transparency International Switzerland said in a joint statement last month that the system of self-regulation that relies on banks reporting suspicions of money laundering has failed.
"The bank's obligation to exercise due diligence is not taken seriously enough and politicians are not holding them to it," said Mark Herkenrath, tax expert at the Swiss Alliance of Development Organisations.
"What is the point of being a pioneer in returning money but at the same time being the first point of call for wealth of dubious origin?"
Switzerland has worked hard in recent years to improve its image as a haven for ill-gotten gains, seizing the assets of numerous deposed dictators and agreeing in 2009 to soften strict bank secrecy to help other countries catch tax cheats.
"KNOW YOUR CUSTOMER"
"Banks have no incentive to take plundered assets," said James Nason, spokesman for the Swiss Banking Association, rejecting putting the burden of proof on bank clients.
Stung by scandals, the Swiss banking industry drew up their own due diligence rules in 1977 that set out the "know your customer" principle that demands a bank establishes the identity of the beneficial owner of an account or asset.
In 1998, Switzerland introduced an obligation for banks to report suspicions of money laundering and from 2003 demanded that banks take particular care when dealing with "politically exposed persons", potentially tempted by bribery or corruption.
Switzerland says it has returned about 1.7 billion Swiss francs ($1.75 billion) of looted funds in the past 15 years -- more than any other major financial centre.
So far only Switzerland has announced a freeze on Mubarak assets and British business minister Vince Cable said on Sunday there should be an international approach to dealing with his holdings, reported to be worth many millions of dollars.
Swiss foreign ministry spokeswoman Jenny Piaget said on Monday the government was waiting to see whether banks had found any Mubarak assets. "Then the Egyptian government will have to open a procedure and request legal assistance," she said.
Switzerland moved this month to enable the restitution of assets to failed states after struggling for years to return frozen funds looted from the Democratic Republic of Congo by Mobutu Sese Seko and from Haiti by Jean-Claude Duvalier.
The new law which came into force on Feb. 1 makes possible the confiscation of illicit assets without the need for the prior conviction of the politician or when the judicial system in the country of origin is too weak to seek restitution.
"Swiss policy has given corruption fighters plenty to cheer about," U.S. compliance lawyer Richard Cassin wrote on his blog about the U.S. Foreign Corrupt Practices Act.
"Still, it takes a revolution, coup, or similarly cataclysmic event before the Swiss and others will act against self-enriching rulers. So the question is, will the time ever come for pre-emptive action?"
But Finance Minister Widmer-Schlumpf said it was unrealistic to expect Switzerland to unilaterally block the accounts of politicians while they are still in power.
"According to what criteria would you do that?" she told Swiss television. "It cannot be the job of Switzerland to check the question who is legal and who is not legal and in which regime is somebody legal or not legal."
See Reuters Breakingviews: Swiss make life a bit more difficult for despots
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