The European Union has disconnected seven Russian banks from financial messaging services, in particular from SWIFT. What is SWIFT, how does disconnecting from it work, and why the whole of Russia has not been disconnected.
Due to the war of the Russian Federation against Ukraine, the European Union disconnects a number of Russian banks from financial information exchange systems, in particular from SWIFT. This decision of the Council of the EU was published on Wednesday, March 2, in the Official Journal of the EU, after which it immediately entered into force. DW explains how these sanctions will work.
Which Russian banks have been disconnected from SWIFT
Seven banks fell under the sanctions: VTB, Otkritie, Novikombank, Promsvyazbank, Russia, Sovcombank and VEB (Vnesheconombank). The restrictions also apply to Russian legal entities that are more than 50% owned by these banks.
The shutdown itself will not happen immediately, but after 10 days, on March 12. An official from the European Commission explained to DW that this period is necessary for European banks to complete ongoing transactions. Otherwise, they will have to be compensated under the guarantee of export risks.
What is SWIFT
SWIFT (an abbreviation of the name Society for Worldwide Interbank Financial Telecommunications – Society for Worldwide Interbank Financial Communication Channels) is often referred to as a payment system. But this is a misnomer. SWIFT does not make any payments.
It is a financial transaction messaging service. With it, banks, including central banks, investment institutions and companies exchange secure messages about payments, trades or securities. This service has been operating since 1977 and is used by more than 11,000 financial institutions worldwide.
Are there alternatives to the SWIFT service
Can I make payments without using SWIFT? Yes it is possible. And there are alternative services. One of them is the Chinese CIPS (Cross-Border Interbank Payment System). The second is the Russian Financial Messaging System (SPFS).
However, they can only partially replace SWIFT. The first of them is used primarily for settlements between Russian and Chinese banks and companies, and the second is used mainly for domestic Russian transactions.
But, according to the European Commission, SWIFT dominates even for payments within Russia, covering 70% of them. And worldwide, SWIFT serves more than half of all cross-border payments.
Another replacement option is direct messaging via e-mail or fax. For some payments, this method can be used, but compared to SWIFT, it is much slower and more expensive, less secure, and has a higher risk of human error.
Without SWIFT, it is especially difficult to make numerous payments or transactions that go through several banks.
Why did the European Union disconnect only certain banks from SWIFT
Why did the EU choose these seven banks to impose sanctions? A DW source in the European Commission notes that they are directly or indirectly connected with the financing of the Russian military machine and its invasion of Ukraine.
Among the banks disconnected from SWIFT, there is the second number in the banking market of the Russian Federation – VTB. But the list does not include the country’s largest credit institution, Sberbank. Also, no sanctions were imposed against Gazprombank. Why did they make an exception for them? The reason is that it is through Sberbank and Gazprombank that the main settlements with Russia for gas and oil are carried out.
Since last year, their prices are already very high. And the sanctions imposed by the European Union due to the war of the Russian Federation against Ukraine will also hit its economy hard. Therefore, the governments of the countries of the association do not want to further worsen the situation with energy prices for EU residents.
Was it possible to disconnect Sberbank and Gazprombank from SWIFT, making an exception for oil and gas payments? No, it is technically impossible to disable only certain types of payments. It is possible to disable only specific users entirely. Then their codes are blocked, after which no messages can be exchanged with them.
The European Commission emphasizes that the purpose of the sanctions is to weaken the ability of the Russian state to wage war against Ukraine, and not to harm the Russian economy.
Are Russian banks cut off not only from SWIFT?
It should be noted that the regulation adopted by the Council of the EU does not directly mention SWIFT. It prohibits seven banks from providing “customized financial messaging services that are used to exchange financial data.”
Since SWIFT is the most common such service, it is primarily about it, but the restrictions apply to all such services registered in the EU.
Not only all EU countries, but also the Big Seven (G7) agreed to disconnect banks from these services. Since legally SWIFT is a company registered under Belgian law, a decision from the European Union was needed to disconnect specific Russian banks from it.
It was adopted in the form of a regulation that has direct effect on the territory of all countries of the association, including Belgium.
Russia banned the delivery of euro cash
Along with the disconnection from SWIFT, the European Union introduced other sanctions. Firstly, it was forbidden to supply, sell or transfer European currency banknotes to Russia. This was done to block Russian banks from circumventing EU financial sanctions by importing euro cash into Russia.
This ban does not apply to money for personal use with which individuals from the EU will enter the Russian Federation. An exception is made for cash needed for the work of diplomats, consular services or international organizations in Russia.
Secondly, it is prohibited to invest, participate in, or contribute to future projects financed by the Russian Direct Investment Fund. This is a sovereign investment fund of the Russian Federation, investing in high technologies and promising sectors of the economy.
A source: Russian service DW
News from Korrespondent.net in Telegram. Subscribe to our channel https://t.me/korrespondentnet
–
