A coalition of countries blocked seven of Russia’s largest banks from accessing the SWIFT interbank messaging system in response to the country’s invasion of Ukraine.
The European Commission announced Wednesday it would remove VTB Bank (Russia's second-largest lender), Bank Otkritie, Novikombank, Promsvyazbank, Rossiya Bank, Sovcombank and VEB (Russia's development bank) from SWIFT. Sberbank, Russia's largest bank, and Gazprombank, its third-largest lender, are not on the list.
"It shall be prohibited as of 12 March 2022 to provide specialized financial messaging services, which are used to exchange financial data," to the specified banks, the bloc said in its official journal.
The bloc, alongside the U.S., U.K., Canada, France, Germany and Italy, announced it was “committing” to the move on Saturday. Russia invaded Ukraine last week on a pretext of either supporting breakaway regions as independent nations or “denazification.” Various countries announced sweeping sanctions on Russian entities and oligarchs in response, including freezing assets belonging to VEB Bank, VTB Bank, Gazprombank and Sberbank, Russia’s largest financial institutions.
Cutting these banks off from SWIFT takes these sanctions a step further, preventing them from even trying to send transactions outside of Russia.
SWIFT, or the Society for Worldwide Interbank Financial Telecommunication, is a messaging system that supports international bank transactions. The network does not process transactions itself but is a critical cog in their execution.
U.S. officials said removing Russian banks from SWIFT was still “on the table” after announcing earlier sanctions last Monday. Daleep Singh, deputy national security adviser for international economics, told a press briefing that it would not be in the initial package.
“We have other severe measures we can take that our allies and partners are ready to take in lockstep with us, and that don’t have the same spillover effects,” he said. “But we always will monitor these options, and we’ll revise our judgments as time goes on.”
A senior EU official also said Wednesday the European Commission is checking the extent to which crypto is being to evade sanctions imposed on Russia since its invasion of Ukraine, according to a report by Reuters.
The new restrictions on Russia's participation on SWIFT are part of an escalating series of sanctions placed on the country by the U.S., U.K., European Union and several other nations.
U.S President Joe Biden, who announced the second slate of sanctions against several major Russian banks and oligarchs, said he believed preventing these financial institutions from settling transactions in dollars or within the U.S. might be more severe than removing Russia from Swift.
"The sanctions that we have proposed on all their banks is of equal consequence – maybe more consequence than SWIFT – number one, [and] number two, it is always an option. But right now, that’s not the position that the rest of Europe wishes to take," Biden said earlier this week.
The U.K., Japan and EU similarly blocked Russia from their respective financial systems.
Trading volume between the ruble and bitcoin increased to a nine-month high on Monday following a plunge in the Russian currency. A similar trend was observed in the ruble-tether trading pair.
Much of the trading activity was concentrated on Binance, said Clara Medalie, an analyst for crypto research provider Kaiko. The exchange has said it would not unilaterally block Russian users, though it has committed to preventing any sanctioned individuals from using its services.
However, these sanctions have not blocked transactions with Russia outright. The U.S. even emphasized that transactions for oil and gas would be allowed, if not encouraged.
Similarly, blocking Russia from SWIFT would not completely disconnect the country from the global financial system.
Moreover, disconnecting Russia from SWIFT might accelerate any efforts the country is making to find an alternative messaging system.
Andrew Jacobson, an associate at law firm Seward and Kissel, told CoinDesk that cutting off from SWIFT might not have any long term impact on its own.
"SWIFT is just a messaging system. It'd be an inconvenience in the short term, but ultimately in the long term, countries that have been cut off of SWIFT has still found ways to operate within the global financial system and operate domestically as well. And so I think Europe has been hesitant to cut off SWIFT," he said.
Swift expelled several Iranian banks in 2012, but not the whole country. Some critics of the move at the time expressed concern that Iranian officials would be able to bypass restrictions by using a non-expelled bank.
Nikhilesh De contributed reporting.
UPDATE (March 2, 12:09 UTC): Adds banks' names in first bullet point, background on ruble-bitcoin trading, Binance.
UPDATE (March 2, 12:17 UTC): Adds wording of resolution in first bullet.
UPDATE (March 2, 14:35 UTC): Adds full write-through with additional context.
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