Research Russia: The SWIFT Sanction Option

#OPINIONLEADER#

• Due to the situation in Ukraine there are speculations about a possible blocking of Russia on the SWIFT network.
• This note explains briefly what SWIFT is and what blocking of Russia would mean.

In the wake of the Russian invasion of the Ukraine, western governments are contemplating a response toward Russia. Among the options being considered is excluding Russia from the SWIFT system and imposing sanctions on big Russian banks. We see a high likelihood that such actions will be adopted as they will be one of the most effective ways to hit the Russian economy.

SWIFT (Society for Worldwide Interbank Financial Telecommunication) is an industry owned organisation based in Belgium that offers software and a secure resilient network for exchanging financial messages.

SWIFT was founded in 1973 and today more than 11.000 financial institutions in over 200 countries are reachable on the SWIFT network. Also large corporate customers, central banks and financial market infrastructures such as clearing houses, central counter parties securities exchanges etc. are connected to the SWIFT network.

The SWIFT network supports a wide range of financial messages such as customer payments, financial institution transfers, treasury markets, collection and cash letters, securities markets, trade-finance and cash management. In short, all types of financial transaction messages.

SWIFT as a company does not have the authority to make sanction decisions. These decisions rest solely with government bodies and applicable legislators.

Today there are already sanctions on two Russian banks and a number of individuals, these sanctions are not specific to SWIFT but SWIFT messages to/from these banks or banks where the sanctioned individuals are customers are stopped by the relevant banks.

In case the relevant authorities impose additional sanctions on Russia (i.e. blocking Russia from SWIFT) it would mean that all messages transported by the SWIFT network sent/received directly from a Russian entity would be blocked. This means that customers will not be able to receive funds or send funds to Russian banks and companies.