All you need to know about SWIFT as tensions between Russia and Ukraine rise
Hyderabad: One month after Russia put forward security proposals, sending troops to Ukraine’s border, the United States responded with NATO allies that it was ready for any eventuality, and would not budge on Russia’s core demand that Ukraine never be allowed to join NATO. As western governments threaten Russia with a package of sanctions to […]
Hyderabad: One month after Russia put forward security proposals, sending troops to Ukraine’s border, the United States responded with NATO allies that it was ready for any eventuality, and would not budge on Russia’s core demand that Ukraine never be allowed to join NATO.
As western governments threaten Russia with a package of sanctions to deter President Vladimir Putin from ordering an invasion of Ukraine, one of the measures they are looking at is cutting Russia off from the global banking system ‘SWIFT’.
What is SWIFT?
The Society for Worldwide Interbank Financial Telecommunication (SWIFT), founded in 1973 to replace telex, is a member-owned cooperative connecting more than 11,000 banks, financial institutions, and corporations in more than 200 countries and territories. SWIFT is a cooperative company under Belgian law and is owned and controlled by its shareholders (financial institutions) representing approximately 3,500 firms globally.
Does SWIFT comply with all sanctions’ laws?
SWIFT complies fully with all applicable sanctions’ laws. Responsibility for ensuring that individual financial transactions comply with sanctions laws, however, rests with the financial institutions handling them, and their authorities. As a global utility, SWIFT has no authority to make sanction decisions. Any decision to impose or to lift sanctions on countries or individual entities rests solely with the competent government bodies and legislators.
Does SWIFT expel banks?
In March 2012, pursuant to international and multilateral action to intensify financial sanctions against Iran, SWIFT was prohibited under EU Regulation from providing financial messaging services to EU-sanctioned Iranian banks. SWIFT had to comply with this regulation as confirmed by its home country government. SWIFT implemented the regulatory obligation by disconnecting the related EU-sanctioned Iranian banks.
Economic impact if Russia is excluded from SWIFT
Russia will not receive foreign currency, and European countries dependent on Russia, will not receive oil, gas, metals, and other important components. The exclusion from SWIFT will make it nearly impossible for financial institutions to send money in or out of Russia. The move will also shrink the Russian economy. Research shows Iran lost half of its oil export revenue and close to one-third of its foreign trade following the SWIFT disconnection.
European Union’s stance
The European union is ready to respond to a Russian invasion of Ukraine with comprehensive sanctions. Germany, France, and Britain are in talks with the US to discuss the possibility of banning Russia from SWIFT, as they see it as a potent weapon against Russia.
Countermeasures by Russia
Russia created its own payment system, SPFS, after it faced western sanctions in 2014 following its annexation of Crimea early that year. SPFS currently has around 400 users and about 20 per cent of domestic transfers are currently done through SPFS. Russia may also explore using China’s Cross-Border Interbank Payment System (CIPS) or cryptocurrencies.
Rough weather
The United States has warned of severe actions and consequences if Russia invades Ukraine, including possible personal sanctions on President Vladimir Putin. NATO has put 8,500 troops already on standby but is hopeful of de-escalation. The United States meanwhile advised its citizens to leave Ukraine, warning an invasion could be imminent.
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