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Note: this analysis dates from late February 2022 and describes the sanctions context of the time; it remains of general interest on the SWIFT mechanism.
The context and the SWIFT company
On 26 February 2022, the leaders of the European Commission, France, Germany, Italy, the United Kingdom, Canada and the United States announced their commitment to ensuring that certain Russian banks would be removed from the SWIFT messaging system, so as to disconnect them from the international financial system. According to Ursula von der Leyen, the aim was to weaken Putin’s ability to finance the invasion of Ukraine.
Founded in 1973, SWIFT (Society for Worldwide Interbank Financial Telecommunication) is a cooperative company under Belgian law and an international interbank electronic communication network that carries and automates messages and standards, including payment orders, between financial institutions. SWIFT centralises payment and fund-transfer orders, and securities-transfer orders, between more than 11,000 financial institutions in over 200 countries. Members are identified by their BIC code (bank identification, country, location).
Consequences of excluding Russian banks from SWIFT
Described as a financial nuclear weapon by the French economy minister, such a suspension would prevent about 70% of Russian banks from carrying out payment orders with the Western world. With their global financial transactions blocked, the measure would have a devastating effect on Russian exports and imports. Iran had faced a similar exclusion in 2012 (Regulation (EU) 267/2012), and further suspensions in 2019.
But Russia already has its own system
The exclusion would not reach transactions internal to Russia, which already has its own payment-validation system, the SPFS (System for Transfer of Financial Messages), created in 2014 after US threats following the annexation of Crimea. China likewise has a comparable system, CIPS. While the sanction should have heavy short-term consequences for the Russian economy (Moscow’s Carnegie Centre estimated a 5% GDP fall in 2014), it will inevitably strengthen the independence and popularity of alternative systems such as the SPFS, or the cryptocurrency market.
What is needed to actually exclude Russian banks from SWIFT?
SWIFT is run by a board of 25 independent directors. Oversight is exercised by the G-10 central banks (Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, the UK, the US, Switzerland and Sweden) and the European Central Bank, with the National Bank of Belgium playing a leading role. A majority of the 25 directors is required to exclude the Russian banks, and SWIFT, established in Belgium, must also comply with EU law.
On the various sanctions imposed on Russia, see also our article on the EU sanctions and the role of banks.
This article is a translation. Only the French version is authoritative. It is provided for information purposes and does not constitute legal advice.
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