The Russia-Ukraine situation
As tensions simmer on the Russia-Ukraine border, financial institutions and international businesses with ties to Russia must prepare for the economic and financial consequences of Russia’s potential invasion of Ukraine. While Moscow denies planning such an incursion, U.S. intelligence-gathered images reportedly show that thousands of Russian troops were stationed along the border of Ukraine.
The U.S., UK, and EU have warned Moscow that an invasion of Ukraine will result in unprecedented sanctions. As the world waits for Russia’s next move, the Western allies are coordinating options for what sanctions to impose against Russia, and when and how to impose them, and considering restrictions on exports and imports of goods and technology, as well as energy and banking measures, among other options.
Consideration of sanctions banning Russia from access to SWIFT
One potentially far-reaching sanction reportedly under discussion is banning Russia from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) communications platform. SWIFT is a global provider of secure financial messages used by banks, brokerages and other financial institutions to send and receive information for transferring money across jurisdictions or settling securities trades.
Cutting off access to SWIFT would have both direct consequences for Russia and collateral consequences for other countries and businesses that operate internationally. As the situation evolves, now is the time to take steps to prepare for any sanctions that may be imposed: Companies with commercial ties to Russian companies should plan for how they will carry out business operations if Russia is banned from using SWIFT and banks and other financial institutions should take steps to help ensure integration of any new sanctions measures into their sanctions compliance programs.
Below, Reed Smith provides answers to frequently asked questions to help companies with commercial ties to Russian companies, as well as banks and other financial institutions, prepare for and respond to the economic and financial consequences of possible sanctions against Russia prohibiting access to SWIFT.
Frequently asked questions and answers
1. What is SWIFT and who owns it?
SWIFT is a global network used by financial institutions worldwide to wire money to each other quickly, accurately and securely. SWIFT is a cooperative company owned by its more than 2,000 members with oversight by the European Central Bank and the G-10 central banks in Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, the UK, the U.S., Sweden, and Switzerland. The National Bank of Belgium has the lead oversight role. The Bank of Russia participates in the SWIFT Oversight Forum, through which the G-10 central banks share information on SWIFT oversight activities with a broader group of central banks. The 25-member board of directors of SWIFT currently includes one Russian national.
2. What does SWIFT do?
SWIFT provides a messaging infrastructure that banks around the world use to quickly, accurately, and securely send and receive financial messages. SWIFT messages are used predominantly for cross-border transfers of money. In 2021, SWIFT launched a new service for small businesses and consumers to make cross-border payments from their bank accounts.
3. Is SWIFT required to follow all countries’ sanctions that may bar it from providing services to Russian banks?
No, SWIFT is incorporated under Belgian law and must comply with related EU regulation, as confirmed by the Belgian government. SWIFT must follow any Belgian law or EU regulation that may bar SWIFT from providing financial messaging services to EU-sanctioned Russian banks. Although SWIFT is not subject to U.S. law, the U.S. may exert influence in other ways since by some estimates, more than 40 percent of 2021 payment communication flows were in U.S. dollars.
4. Is SWIFT responsible for ensuring that banks and other financial institutions that use SWIFT services comply with applicable sanctions laws?
No, individual banks and financial institutions are responsible for ensuring that they comply with applicable sanctions laws. SWIFT is a messaging service provider only and has no involvement in or control over the underlying financial transactions. SWIFT hosts sanctions tools that banks use to screen transactions for compliance with sanctions and other financial crime laws.