Research Russia: The SWIFT Sanction Option

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  • Due to the situation in Ukraine there are speculations about a possible blockade of Russia in the SWIFT network.
  • This note briefly explains what SWIFT is and what a blockade of Russia would mean.

After the Russian invasion of Ukraine, Western governments are considering a response to Russia. Among the options considered are to exclude Russia from the SWIFT system and to impose sanctions on major Russian banks. We see a high probability that such actions will be taken, as they will be one of the most effective ways to beat the Russian economy.

SWIFT (Society for Global Interbank Financial Telecommunications) is an industry-owned organization based in Belgium that offers software and a secure resilient network for exchanging financial messages.

SWIFT was founded in 1973 and today more than 11,000 financial institutions in more than 200 countries are accessible on the SWIFT network. Also large corporate clients, central banks and financial market infrastructures such as clearing houses, central counterparty securities exchanges etc. are connected to the SWIFT network.

The SWIFT network supports a wide range of financial messages such as customer payments, financial transfers, tax markets, collection and cash letters, securities markets, business finance and cash management. In short, all kinds of financial transaction messages.

SWIFT as a company does not have the authority to make sanction decisions. These decisions belong only to government bodies and applicable legislators.

Today there are already sanctions against two Russian banks and some individuals, these sanctions are not specific to SWIFT but SWIFT messages to / from these banks or banks where the sanctioned individuals are customers are stopped by the relevant banks.

If the relevant authorities impose additional sanctions on Russia (ie block Russia from SWIFT), this would mean that all messages carried by the SWIFT network sent / received directly by a Russian entity would be blocked. This means that customers will not be able to receive funds or send funds to Russian banks and companies.

This morning we published Explore Russia – Russia launches full-scale attack on UkraineFebruary 24, in which we enter more details about market movements and what to follow from here.

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