Cutting off Russian banks from SWIFT – the vital global payments network – was seen like a ‘nuclear option’ against Putin’s invasion of Ukraine. But it has not had the knock-on impact and now looks insignificant.
When Russia invaded just over a year ago, the West realised what problems SWIFT would cause Russia as the network is relied on for some $5tn in daily transactions by the 11,000 banks that own it. Yet the organisation’s name did not leave the discussion circles of high finance.
However, it soon became a bold, unexpected way to punish president Vladimir Putin’s aggression. In the hours after his forces surged into Ukraine, governments around the world unleashed an unprecedented package of economic sanctions. Asset freezes, bans on using clearing houses and limits on Russian activity in dollars, pounds and euros were all announced on 24 February 2022.
However, one measure became known as the financial “nuclear option” – banning Russian banks from SWIFT’s messaging network. Suddenly everyone took notice of what it was, according to Nick Kerigan, head of innovation at the Society for Worldwide Interbank Financial Telecommunication. The potential of the Belgium-based cooperative to cripple Russia’s financial flow suddenly became a major talking point for politicians and the media.
But leading industry figures cautioned against the move. Prior to the invasion, Bank of England governor Andrew Bailey warned that the consequences of removing Russia from the network “would be quite substantial”. Financial Stability Board chair Klaas Knot warned the West to “think twice” about the potential risks of banning Russia from SWIFT, calling it a “severe measure”.
French finance minister Bruno Le Maire described the move as a “financial nuclear weapon”. SWIFT itself is apolitical and declines to comment on political decisions. The organisation is governed by the G10 group of central banks and the European Central Bank. Its members – which are also its owners – come from virtually every country and range from small regional lenders to multinationals such as JPMorgan and HSBC. In Russia, 300 banks use the system, according to the Russian National SWIFT Association.
In the early days of the war, a senior regulatory source said that removing Russian Banks from SWIFT risked collapsing the global energy sector. A complete ban would have made it more difficult for buyers of Russian oil and gas to make payments. Without SWIFT messages, banks would need to rely on antiquated systems such as telex to send payment messages.
But less than a week after the invasion began, the button on the – so called – “nuclear option” was pushed. On 1 March, Western governments agreed to eject seven Russian banks from the network – Bank Orkritie, Novikombank, Promsvyazbank, Bank Rossiya, Sovcombank, Vnesheconombank and VTB Bank. An eighth, Sherank, was added in May.
Kerigan said that when the order came to remove them, it was not something SWIFT had much experience with. He said: “It is a fair amount of technical work. We don’t exist with the expectation that we are going to switch off banks or countries.” The only other time SWIFT has disconnected banks from the network was in 2012 due to European sanctions against Iran. Despite the SWIFT ban, Russian oil and gas exports have continued over the past year. The West has taken further economic measures to ramp up pressure on Russia elsewhere and greatly expanded its assistance to Ukraine.
Western leaders have said they are in it for the long haul and will support Ukraine for “as long as it takes”. There are now 10 European sanctions packages, including a ban on crude oil imports and a Western price cap on Russian oil; Ukraine has also received billions of dollars in economic and military assistance. So what looked like a “nuclear option” a year ago now looks insignificant compared to the actions taken since. (The writer is our foreign correspondent based in the UK)
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