PARIS, May 31 — By booting more Russian banks from SWIFT over the war in Ukraine, the West has left them out of the backbone of the international financial transfer system.
The European Union agreed yesterday to exclude three more Russian banks from SWIFT, including the country’s biggest, Sberbank, as part of a sixth set of sanctions over the conflict.
The EU had previously kicked seven Russian banks out of the financial messaging system in an effort to cripple the country’s banking sector and currency.
Here are five questions regarding SWIFT:
What is SWIFT?
Founded in 1973, the Society for Worldwide Interbank Financial Telecommunication, or SWIFT, actually does not hold funds or manage accounts itself.
But its messaging system, developed in the 1970s to replace the use of ageing Telex machines, provides banks the means to communicate rapidly, securely and inexpensively.
The non-listed, Belgium-based firm is actually a cooperative of banks and proclaims to remain neutral.
What does SWIFT do?
Banks use the SWIFT system to send standardised messages about transfers of sums between themselves, transfers of sums for clients, and buy and sell orders for assets.
More than 11,000 financial institutions in over 200 countries use SWIFT.
But its preeminent role in finance has also meant that the firm has had to cooperate with authorities to prevent the financing of terrorism.
Who represents SWIFT in Russia?
According to the national association Rosswift, Russia is the second-largest country following the United States in terms of the number of users, with some 300 Russian financial institutions belonging to the system.
More than half of Russia’s financial institutions are members of SWIFT, it added.
Russia does have its own domestic financial infrastructure, including the SPFS system for bank transfers and the Mir system for card payments, similar to Visa and Mastercard.
Are there precedents for excluding countries?
In November 2019, SWIFT “suspended” access to its network by certain Iranian banks.
The move followed the imposition of sanctions on Iran by the United States and threats by then-Treasury Secretary Steven Mnuchin that SWIFT would be targeted by US sanctions if it didn’t comply.
Iran had already been disconnected from the SWIFT network from 2012 to 2016.
Seven Russian banks were excluded in March.
Sberbank had not initially made the list in order to allow EU countries to pay for Russian gas and oil deliveries.
Gazprombank, the financial arm of Russian energy giant Gazprom, remains in the system. Most of EU payments for Russian oil and gas deliveries go through that bank.
Is exclusion an efficient weapon?
In practical terms, being removed from SWIFT means Russian banks cannot use it to make or receive payments with foreign financial institutions for trade transactions.
Sberbank said today that it was not affected by the new EU sanctions, pointing to previous US and UK measures that already isolated its financial system.
It said the cutoff from SWIFT “does not change the current situation for international transactions”, while transactions within Russia do not use the Belgium-based messaging platform.
Excluding a major country such as Russia could also spur Moscow to accelerate the development of an alternative transfer system with China. — AFP
