Why didn’t the US cut Russia off from SWIFT? It is complicated.
President Biden said Thursday that the United States and Europe are united in their efforts to confront Russian aggression against Ukraine with aggressive sanctions. However, there was one area where he suggested disagreement: SWIFT.
The Belgian messaging service, formerly known as the Society for Worldwide Interbank Financial Telecommunications, connects more than 11,000 financial institutions around the world. It is seen as a potential nuclear option in the sanctions world because if Russia were kicked out of SWIFT, the nation would essentially be cut off from much of the global financial system.
But that wouldn’t be simple and could bring its own set of costly complications for countries other than Russia, many of which depend on the country for energy, wheat and other commodities. This has made some nations hesitant to pull the trigger.
SWIFT is a global cooperative of financial institutions that began in 1973 when 239 banks from 15 countries came together to find the best way to handle cross-border payments. In fact, it does not hold or transfer funds, but it allows banks and other financial companies to alert each other to transactions that are about to take place.
Blocking Russia from SWIFT would limit its ability to conduct international financial transactions by forcing importers, exporters and banks to find new ways to transmit payment instructions. Due to Europe’s heavy reliance on Russian energy exports, analysts say, some eurozone leaders are reluctant to take this step and risk such purchases by making trade relations with Russia more expensive and complicated.
The Financial Times reported Thursday that British Prime Minister Boris Johnson was pushing for Russia to be pulled from SWIFT, while German Chancellor Olaf Scholz said such a move should not be included in a European Union sanctions package.
Mr. Biden argued on Thursday that the sanctions imposed by the United States on Russian financial institutions would be as significant as the exclusion of Russia from SWIFT. He said expelling Russia from the platform remained “an option”, but most of Europe opposed such a move at this time.
“It’s always an option,” Mr Biden said. “But at the moment that’s not the position the rest of Europe wants to take.”
The United States and Europe disagreed on whether to oust a country from SWIFT before, most recently in 2018, when the Trump administration wanted to cut off Iran’s access. Ultimately, SWIFT severed its ties with Iranian banks for fear of violating sanctions against that country.
Yet sanctions experts have said SWIFT is often overrated as a tool and cutting off access could actually backfire by forcing Russia to find other ways to participate in the global economy, including by forging stronger ties with China or developing a digital currency.
The Russian Attack on Ukraine and the World Economy
Growing concern. Russia’s attack on Ukraine could cause skyrocketing energy and food prices and could scare off investors. The economic damage caused by supply disruptions and economic sanctions would be severe in some countries and industries and go unnoticed in others.
Emily Kilcrease, a senior fellow at the Center for a New American Security, argued that such a move could accelerate Russia’s efforts to expand use of its own financial messaging service and bring it closer to China.
“There’s also this longer-term question of whether de-SWIFTing per se just creates a lot of bad incentives for Russia,” Ms Kilcrease said.
Michael Parker, a lawyer at law firm Ferrari & Associates, suggested blocking Russia from SWIFT would likely open the door to other workarounds, including finding alternative communications systems. A more effective first step, he said, would be to impose the kind of banking sanctions Mr. Biden announced on Thursday.
“To really cut Russia off from the US banking system or the global banking system, Russian banks should be sanctioned. And that’s what they did,” he said. “At the end of the day, this is a financial tool – hitting their major banks is about as far as we could reasonably go to a first line of sanctions.”
Emily Flitter contributed report.