Tom Bergin

LONDON (Reuters) – Russia’s invasion of Ukraine has stepped up pressure for tougher economic sanctions on Moscow, including potentially shutting the country out of SWIFT – the world’s main international payments network – hitting Russian trade and making it harder for Russian companies to do business.

SWIFT: WHAT IS IT?

SWIFT is the Society for Worldwide Interbank Financial Telecommunication. It’s a secure messaging service that facilitates cross-border transactions and allows international trade to flow seamlessly.

SWIFT messages can be used by banks that connect to SWIFT and have established relationships with other banks to receive payments.

These messages are encrypted so payment instructions can be honored without delay. This allows banks the ability to quickly process large amounts of transactions.

This has been the main mechanism to finance international trade. In 2020, around 38 million SWIFT ‘FIN messages’ were sent each day over the SWIFT platform, according to its 2020 Annual Review. It is the main channel for trillions in dollars being transferred each year.

WHO OWNS SWIFT

SWIFT was founded in 1970 by thousands of institutions that use it.

Based in Belgium, SWIFT makes a modest profit — €36 million in 2020, based on its 2020 Annual Review. Its primary purpose is to provide a service for its members.

WHY IS SWIFT BAN SO IMPORTANT?

If SWIFT were to exclude Russian banks, it would restrict the country’s access to financial markets across the world.

Russian citizens and businesses would be unable to import goods and obtain cash abroad.

Russian banks may use alternative channels to make payments, such as email, SMS apps and phones. Russian banks could use this to send money to countries that haven’t imposed sanctions. However, alternative payment channels are less secure and efficient so transaction volume may fall.

WHAT IMPACT WOULD A SWIFT BAN OFF RUSSIA HAVE ON OTHER COUNTRIES

Exporters to Russia would be more likely to sell their goods if Russian banks were disconnected from SWIFT.

Russia is a major buyer for manufactured goods. According to World Bank data, Russia has Germany and the Netherlands as its top two trading partners. Russia, however, isn’t a top-10 export market.

Russian exporters would find the process more complicated, and could be forced to search for alternative suppliers.

However, it could be more difficult for foreign buyers to locate replacement suppliers when dealing with Russian oil and natural gas.

According to the European Commission, Russia is the largest EU supplier of solid and liquid fossil fuels.

Multiple EU sources claim that Russia’s exclusion from SWIFT would not be reached at the moment.

What WILL SWIFT DO?

SWIFT is a firm opponent to any attempts by certain countries to ban it in the past.

It claims to be neutral and said that it wouldn’t take the decision to deconnect institutions because of political pressure.

SWIFT IS SWIFT RESTRICTED BY ECONOMIC SANCTIONS?

SWIFT, a Belgian-based SWIFT, is bound to Belgian rules and European Union rules. This would also include economic sanctions.

SWIFT’s website says: “Whilst sanctions are imposed independently in different jurisdictions around the world, SWIFT cannot arbitrarily choose which jurisdiction’s sanction regime to follow.”

In March 2012, the European Union barred SWIFT from serving Iranian firms and individuals which had been sanctioned in relation to Tehran’s nuclear programme. It included both the central bank as well as other major banks.

SWIFT spokesmen declined to comment on how they would react to U.S. sanction.