The United States, the European Union, Canada, and the United Kingdom on Saturday agreed to block “selected” Russian banks from the SWIFT global financial network and to impose “restrictive measures” on its central bank in retaliation for Russia’s invasion of Ukraine.
The joint statements in Washington and Brussels late Saturday sent a powerful signal of how western capitals intend to respond to the Russian aggression and pressure Russian President Vladimir Putin to seek diplomatic measures to the crisis.
The U.S. and its allies said the new round of financial sanctions is meant to “hold Russia to account and collectively ensure that this war is a strategic failure for Putin.”
“Putin embarked on a path aiming to destroy Ukraine, but what he is also doing, in fact, is destroying the future of his own country,” Ursula von der Leyen, EU Commission President said.
“We are resolved to continue imposing costs on Russia that will further isolate Russia from the international financial system and our economies. We will implement these measures within the coming days,” the statement by western capitals read.
“First, we commit to ensuring that selected Russian banks are removed from the SWIFT messaging system. Second, we commit to imposing restrictive measures that will prevent the Russian Central Bank from deploying its international reserves in ways that undermine the impact of our sanctions.”
This, they said, is to ensure that these banks are disconnected from the international financial system and harm their ability to operate globally. Russia’s central bank has more than $600 billion in reserves, according to Wall Street Journal.
They also expressed commitment to launching a transatlantic task force that will ensure the effective implementation of their financial sanctions by identifying and freezing the assets of sanctioned individuals and companies that exist within their jurisdictions.
“As part of this effort, we are committed to employing sanctions and other financial and enforcement measures on additional Russian officials and elites close to the Russian government, as well as their families, and their enablers to identify and freeze the assets they hold in our jurisdictions.
“We will also engage other governments and work to detect and disrupt the movement of ill-gotten gains, and to deny these individuals the ability to hide their assets in jurisdictions across the world.”
What is SWIFT and how does it affect Russia
Swift is a global financial network used by banks that allows the smooth and rapid transfer of money across borders. It stands for Society for Worldwide Interbank Financial Telecommunication (SWIFT).
Founded in 1973 and based in Belgium, SWIFT links more than 11,000 financial institutions in nearly 200 countries, making it the backbone of the international financial transfer system.
But Swift is not your traditional High Street bank, the BBC explained. “It is a sort of instant messaging system that informs users when payments have been sent and arrived.”
The system sends more than 40 million messages a day, as trillions of dollars change hands between companies and governments.
SWIFT is a cooperative company under Belgian law. On its website, it says “it’s owned and controlled by its shareholders [financial institutions] representing approximately 3,500 firms from across the world”.
The system is overseen by the G10 central banks, as well as the European Central Bank, with its lead overseer being the National Bank of Belgium.
According to Al Jazeera network, the Russian National SWIFT Association has the second-most users after the U.S., with some 300 Russian financial institutions belonging to the system. More than half of Russia’s financial institutions are members of SWIFT, the network said.
With the new sanction, the west’s aim is for Russian companies to lose access to the normally smooth and instant transactions provided by SWIFT. At the same time, payments for Russia’s valuable energy and agricultural products will be severely disrupted.
Banks would be likely to have to deal directly with one another, adding delays and extra costs, and ultimately cutting off revenues for the Russian government, experts told the BBC.
But, BBC noted that removing Russia will likely hurt companies that supply goods to and buy from Russia, particularly Germany.
“Russia is the European Union’s main provider of oil and natural gas, and finding alternative supplies will not be easy. With energy prices already soaring, further disruption is something many governments want to avoid.
“Companies owed money by Russia would have to find alternative ways to get paid. The risk of international banking chaos is too large.”
At the moment, it is not known which Russian banks will be removed from SWIFT but “this is expected to become clear in the coming days.”