Explainer: An introduction to SWIFT as the West moves to block Russia from international payments

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The Swift logo is placed over the colors of the Ukrainian and Russian flags in this illustration taken, Bosnia and Herzegovina, February 25, 2022. REUTERS/Dado Ruvic/Illustration

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LONDON, Feb 26 (Reuters) – The European Union, along with the United States and other Western partners, has announced new sanctions against Russia for its invasion of Ukraine, including cutting a number of Russian banks in the SWIFT interbank payment system. Read more

SWIFT is the world’s leading international payments network. Here’s more information on what it does and why it’s important:

WHAT IS SWIFT?

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SWIFT, or the “Society for Worldwide Interbank Financial Telecommunication”, is a secure messaging system that facilitates fast cross-border payments, thereby facilitating the flow of international trade.

Banks that connect to the SWIFT system and establish relationships with other banks can use SWIFT messages to make payments.

Messages are secure so that payment instructions are usually honored without question. This allows banks to quickly process large volumes of transactions.

It has become the main financing mechanism for international trade. In 2020, around 38 million SWIFT “FIN messages” were sent on the SWIFT platform every day, according to its 2020 annual report. Every year, trillions of dollars are transferred using the system.

WHO OWNS SWIFT?

SWIFT, founded in the 1970s, is a cooperative of thousands of member institutions that use the service.

Based in Belgium, SWIFT made a profit of €36 million in 2020, according to its 2020 annual report. It is run primarily as a service to its members.

WHY IS A SWIFT BAN SO SERIOUS?

The exclusion of Russian banks from SWIFT restricts the country’s access to financial markets around the world.

Russian businesses and individuals will find it harder to pay for imports and receive cash for exports, to borrow or invest abroad.

Russian banks could use other payment channels such as phones, messaging apps or emails. This would allow Russian banks to make payments through banks in countries that have not imposed sanctions, but as the alternatives are likely to be less efficient and secure, transaction volumes could fall and costs rise.

HOW WILL RUSSIA’S SWIFT BAN AFFECT OTHER COUNTRIES?

Exporters would find it riskier and more expensive to sell goods to Russia.

Russia is a big buyer of manufactured goods. The Netherlands and Germany are its second and third largest trading partners, according to World Bank data, although Russia is not one of the top 10 export markets for either country. .

Foreign buyers of Russian products would also have more difficulty, which could encourage them to look for other suppliers.

But when it comes to Russian oil and gas, foreign buyers may find it harder to find replacement suppliers.

Russia is the main supplier of crude oil, natural gas and solid fossil fuels to the EU, according to the European Commission.

IS SWIFT BOUND BY ECONOMIC SANCTIONS?

SWIFT is bound by Belgian and European rules, which would include economic sanctions.

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

In March 2012, the European Union banned SWIFT from serving Iranian companies and individuals who had been sanctioned in connection with Tehran’s nuclear program. The list included the central bank and other major banks.

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Reporting by Tom Bergin; Editing by John O’Donnell, Jane Merriman and Daniel Wallis

Our standards: The Thomson Reuters Trust Principles.

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