What Is Swift Banking and How It Can Be Used To in Sanctions Against Russia

Blog / What Is Swift Banking and How It Can Be Used To in Sanctions Against Russia

President Joe Biden announced new sanctions against Russia on Thursday in response to President Vladimir Putin's decision to invade Ukraine.

According to the statement, Biden did not announce that the United States and its allies would impose a harsh financial penalty against Russia and kick Russia out of the SWIFT banking system, but he underlined that such action may still be on the table as the crisis continues.

Biden told reporters at the White House, "but right now it's not the position that the rest of Europe wishes to take." 

According to some financial analysts, this situation is likened to a "nuclear option"; whenever and wherever it happens, it will be an unprecedented move against one of the world's largest economies.

What is Swift?

The Worldwide Association for Interbank Financial Telecommunication (SWIFT) provides its members with safe and secure financial transactions. SWIFT was founded in Brussels in 1973 and is headquartered in Belgium. The US Federal Reserve System is overseen by the Belgian National Bank in partnership with other important central banks, including the Bank of England and the European Central Bank. When it was established, it was backed by 239 banks in fifteen countries. SWIFT was founded in 1973, and as of 2018, nearly half of high-value cross-border payments worldwide are available on the SWIFT network. As of 2015, SWIFT has connected more than 11,000 financial institutions in more than 200 countries and regions. SWIFT sends payment orders that must be settled with correspondent accounts belonging to each other.

SWIFT is a cooperative society of member financial institutions and has offices worldwide under Belgian law. Before SWIFT, companies communicated by telegraphed Morse code messages. While SWIFT creates a secure and fast communication mechanism between financial institutions, it includes approximately 200 types of SWIFT messages.

SWIFT said it recorded an average of 42 million messages per day last year, an 11 percent increase from 2020 when Russia accounted for 1.5 percent of transactions.

What Effect Will it Have on Russia?

It is unclear whether sanctions will be made for SWIFT against Russia. While some world leaders have urged Russia to kick it out of SWIFT, others say it is "unlikely" for EU officials to take this step at this stage, given the potential consequences. "You make a big mess in Russia, but also for cross-border payment services," a senior manager of a foreign lender told the FT. "How will Europe pay the gas bill without SWIFT? President Joe Biden said on Thursday that removing Russia from SWIFT is an "option", but that the United States has not taken that step so far because "that's not the case for the rest of Europe." He wants to take.

For the US and its European allies, removing Russia from the SWIFT financial system will be one of the most challenging financial steps they can take and will damage the Russian economy immediately and in the long run. These said sanctions could deprive Russia of most international financial transactions, including profits from oil and gas production, which accounts for more than 40 percent of the country's income.

The SWIFT option was suspended in 2014, when Russia annexed Crimea and supported separatist forces in eastern Ukraine, by decision of allies on both sides of the Atlantic, after Russia declared that kicking it out of SWIFT would be tantamount to a declaration of war.

The US had previously persuaded the SWIFT system to kick out a country, Iran, because of its nuclear program. But kicking Russia out of SWIFT also hurts other economies, including the United States and a key ally Germany.

Biden noted that Russia will still need the support of its European colleagues, who seem less enthusiastic about such a drastic measure, to gain SWIFT confidence. Russia continues to be an essential energy supplier for Europe.

House Intelligence Committee Chairman Adam Schiff, D-Calif., expressed his support for Biden's heavy sanctions but told MSNBC that the administration could go further by forcing Russia out of SWIFT and European countries accept harsher financial penalties. He said that if they didn't, the United States could go further. should act unilaterally.

Although there are no sanctions against Russia, such as removing it from Swift, there are many new sanctions against Russia, and these sanctions are increasing day by day.

We Will, Paralyze The Assets of The Central Bank of Russia

Ursula von der Leyen, President of the European Union (EU) Commission, said in a statement, "We will paralyze the assets of the Central Bank of Russia. This will freeze its transactions. It will make it impossible for the Central -bank to liquidate assets" she tweeted.

Noting that Russian oligarchs will work to ban them from using their financial assets in EU markets, von der Leyen announced that the designated Russian banks will be removed from the SWIFT system, which provides international money transfer.

Previously, sanctions were imposed on 64 important Russian institutions, EU banks were prohibited from accepting deposits of more than 100 thousand euros from Russian citizens, and the sending of necessary goods, services, and technology to oil refineries was prevented.

European Union Bans certain Russian banks from SWIFT these include:

  • Bank Otkritie Financial Corporation
  • NovikomBank
  • Promsvyazbank
  • Sovcombank
  • Vnesheconombank (VEB)

This ban will enter into force on the tenth day after its publication in the EU Official Journal. It will also apply to any legal person, institution, or organization residing in Russia and whose property rights are directly or indirectly more than 50% owned by the above-mentioned banks.

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