Swift, the hand of global finance and a weapon for sanctions against Moscow

Leaders of the 27 European Union (EU) countries agreed Monday night to exclude three Russian banks, including Sberbank, from the international Swift system: a solution that would deprive those banks of access to a restrained but important cog in international banking exchanges.

The country’s main banking institution says the sanction will have only a limited effect, as the group has already come under other sanctions since Russia’s invasion of Ukraine in late February.

What is the real impact of these financial weapons, which have already been applied to seven Russian banks since early March?

What is Swift?

Swift, founded in 1973, is one of the largest banking and financial messaging networks. The company, short for the Society for Global Interbank Financial Telecommunications, is based in Brussels.

Swift is organized as a banking cooperative. The company presents itself as neutral.

In particular, it is the basis of the BIC code, which allows you to identify the bank using a unique code consisting of 8-11 characters, taking into account the name of the bank, its country of origin, location and branch. having processed the corresponding order.

What is Swift for?

Implemented to replace the outdated Telex technology, the group performs several tasks: transit of payment orders between banks, orders to transfer funds from bank customers, orders to buy and sell securities, and more. All thanks to standardized messages that allow you to communicate quickly, confidentially and inexpensively between financial institutions.

The company promotes its reliability on its website and claims “more than 11,000 banking and securities, market infrastructure and corporate clients in more than 200 countries and territories.”

Swift’s role goes beyond finance: the agreement, signed in mid-2010 by the United States and the European Union, officially allows US Treasury services to access European banking data through the network on behalf of the fight against terrorism.

What is Swift in Russia?

According to the website of the national association Rosswift, Russia will be the second country after the United States in the number of users with about 300 Russian banks and institutions that are part of the system.

More than half of Russian credit institutions are represented in Swift, according to this source.

However, Moscow is creating its own financial infrastructure, whether for payments (Mir cards, the equivalent of Visa and Mastercard), ratings (Accra agency), and transfers through a system called SPFS.

On Tuesday, Sberbank stressed that the decision of Brussels did not affect domestic operations in Russia, which are not dependent on Swift.

Are there any precedents?

The exclusion of Sberbank and two other Russian banks is not an isolated case: in March, seven Russian banking institutions were disconnected from the international financial system.

Gazprombank, the financial arm of the hydrocarbon giant, through which most payments for Russian gas and oil supplies to the EU pass, remains in the system.

Prior to Russia’s invasion of Ukraine, Swift had already “suspended” some Iranian banks’ access to its network in November 2019 as part of US sanctions against Iran.

Iran was also disconnected from the Swift system from 2012 to 2016.

Is it an effective weapon?

Cutting off a bank’s access to the Swift network means banning it from receiving or making payments through this channel. In addition, it also prohibits foreign institutions from trading with this bank.

Thus, it complicates economic exchanges between the countries that use Swift and Russia, in particular for the purchase of gas, the main supplier of which is Moscow.

In the case of Oschadbank, tough sanctions have already been imposed by the United States and Britain. “Swift’s exclusion does not change the situation with international payments,” the bank said on Tuesday.

Exit Swift from an important country like Russia could also accelerate the development of a competing system, such as China. Swift becomes even more effective when everyone is involved.

bur-bp-cdc / kd / bt