Understand what Swift is, the global financial system from which Russia can be excluded

An exclusion of Swift, a discreet but important cog in the mechanism of international finance, is one of the most disruptive sanctions the West could apply against Russia for its attack on Ukraine.

Ukrainian President Volodymyr Zelensky called for such a measure on Thursday, as Western powers consider imposing additional sanctions on Moscow.

The White House has refused in recent weeks to rule out the possibility of barring Russia from the international system that banks use to transfer money, a move that would undermine Russia’s ability to trade with most of the world.

European leaders are expected to discuss the measure at their emergency meeting on Thursday. A European Union official suggested the measure should be reserved for a future round of sanctions, should the bloc need to tighten its punishment.

What is Swift?

Founded in 1973, the Society for Interbank Financial Telecommunications (Swift) does not handle any transfers or funds, but its messaging system, developed in the 1970s to replace reliance on Telex machines, provides banks with a way to communicate quickly, safe and cheap.

The company, based in Belgium, is a cooperative of banks and intends to remain neutral.

What does Swift do?

Banks use the Swift system to send standardized messages about money transfers between each other, money transfers to customers, and asset purchase and sale orders. More than 11,000 financial institutions in more than 200 countries use Swift, making it the backbone of the international financial transfer system.

Its pre-eminent role in finance also meant that the company had to cooperate with authorities to prevent terrorist financing.

Who represents Swift in Russia?

According to the national association RosSwift, Russia is the second largest country after the United States in number of users, with around 300 financial institutions belonging to the system. More than half of Russia’s financial institutions are Swift members.

Russia has a domestic financial infrastructure, which includes the SPFS system for bank transfers and the Mir system for card payments, similar to the Visa and Mastercard systems.

Are there precedents for excluding countries?

In November 2019, Swift “suspended” access of some Iranian banks to its network. The move followed the imposition of sanctions on Iran by the United States and threats made by then-US Treasury Secretary Steven Mnuchin that the Swift would be targeted by US sanctions if it did not agree.

Iran had previously been disconnected from the Swift network between 2012 and 2016.

Is it a real threat?

Tactically, “the advantages and disadvantages are debatable,” Guntram Wolff, director of Brussels-based think tank Bruegel, told AFP. In practical terms, being removed from Swift means that Russian banks cannot use it to make or receive payments with foreign financial institutions for business transactions.

“Operationally, it would be a headache,” Wolff pointed out, especially for European countries that have considerable trade with Russia, which is their biggest supplier of natural gas.

Western nations threatened to exclude Russia from Swift in 2014 after the annexation of Crimea. But discarding such an important country — Russia is also a major oil exporter — could spur Moscow to accelerate the development of an alternative transfer system, with China, for example.