US, European Allies Cut Key Russian Banks from SWIFT Banking System

WASHINGTON — The United States and its European allies will kick certain Russian banks out of the global interbank messaging system, known as SWIFT, a step intended to devastate the Russian economy in response to the country’s invasion of Ukraine.

Cutting Russia’s access to SWIFT is a dramatic escalation in the economic warfare being carried out by the Biden administration and its allies.

SWIFT, which stands for the Society for Worldwide Interbank Financial Telecommunication, is an independent entity based in Belgium that serves as an internal messaging system between more than 11,000 banks and financial institutions in over 200 countries and territories.

Moscow’s exclusion from its services means Russian banks cannot communicate securely with banks beyond its borders. 

A similar punishment was imposed against Iran in 2014 following developments to Tehran’s nuclear program.

The U.S. and its European allies also committed to imposing measures to prevent the Russian Central Bank from using its reserves to undermine sanctions.

The allies have also committed to taking steps to limit the sale of citizenship — so called golden passports — that could have allowed wealthy Russians connected to the Russian government to become citizens of allied countries and gain access to our financial systems.

In addition the White House announced the launch this coming week of a transatlantic task force to identify and freeze the assets of additional Russian officials, and “elites” and their families close to the Russian government, and collectively hunt down “their yachts, jets, fancy cars and luxury homes.”

During a briefing with reporters, a senior administration official called the combined actions “an unprecedented act of global sanctions coordination.”

Speaking specifically of removal of Russian banks from SWIFT, the official said the move effectively shuts them out of the world’s most important payments network, one that almost all banks in the world use to transmit financial information to each other as they make or receive payments.

“Now, if one of these Russian banks wants to make or receive a payment with a bank outside of Russia, such as a bank in Asia, they will now need to use a telephone or a fax machine,” the official said. “And in all likelihood, most banks around the world will simply stop transacting altogether with Russia.”

As dramatic as Saturday’s move related to SWIFT is, it will not automatically go into effect, the administration official said, nor has the list of banks to be penalized been finalized.

“Ultimately, as a matter of regulation, the list of banks that will be cut off from SWIFT will be finalized by the European Union, since SWIFT is under Belgian jurisdiction,” he said. “But we are going to work very closely with our European partners, as we have throughout this process, to finalize that list.”

The new sanctions imposed by the U.S. and its allies on the Russian Central Bank are intended to counteract the Kremlin’s so-called “Fortress Russia” policy. Adopted nearly eight years ago to counter measures imposed following Russia’s annexation of Crimea in 2014, it involved raising foreign currency reserves, limiting budget deficits and reducing trading relationships, especially with Europe, thereby increasing its economy’s resilience to sanctions. 

“The steps taken today will ensure Russia cannot use its central bank reserves to support its currency and thereby undermine the impact of our sanctions,” the administration official said.

“Russia’s warchest of the $630 billion war in foreign reserves is impressive, but it’s only powerful if Putin can use it,” he continued. “That means Russia has to be able to sell those reserves and buy rubles to support its currency. And without being able to buy the Russian ruble from Western financial institutions, Putin’s central bank will lose the ability to offset the impact of our sanctions. 

“The ruble will fall even further, inflation will spike and the central bank will be left defenseless,” he said. 

The official was also asked how long it will take for Russia to feel the bite of these and other sanctions.

“I have great confidence the effects of these measures will be felt immediately in Russian financial markets,” the official said. “Market participants understand that without Russia having the ability to defend its currency, it will go into freefall.

“The actions with respect to SWIFT do require the EU to issue a directive that will then go for a vote of the SWIFT board of directors, those are the specific requirements under Belgian law, but with the decision made, I think you will see an immediate chilling effect on the Russian banking sector even beyond what’s already occurred.”

Saturday’s actions are just the latest in a series of waves of joint sanctions that have been imposed against Russia following its unprovoked attack on Ukraine last week.

On Friday evening, the United States, United Kingdom and the European Union announced sanctions imposed directly against Russian President Vladimir Putin and Russian Foreign Minister Sergey Lavrov.

In a day of fast-moving developments, the U.S. and Germany announced Saturday morning they are sending more munitions to Ukraine as the country continues to be attacked from land, sea and air by Russian forces. 

A bit earlier in the day Ukrainian President Volodymyr Zelenskyy said Kyiv had managed to repel Russian attacks overnight and that his army remained in control of the capital. 

Also on Saturday, France intercepted a Russian vessel in the English Channel. The cargo ship was transporting cars and left the port city of Rouen on the river Seine bound for St. Petersburg, Russia. 

However, because the vessel, named the “Baltic Leader,” is suspected of belonging to a Russian company that is currently on the EU’s sanctions list, French authorities redirected the vessel to the port of Boulogne-sur-Mer in northern France.

The Maritime Prefecture of the Channel released a statement saying that French sea police carry out patrols every night looking out for migrants crossing the Channel. 

This time, “they came across the Russian boat, an inspection aboard was made and the boat ordered to return to the French port.”

During the call on Saturday evening, the administration official said so far, it doesn’t appear China or anyone else is coming to Russia’s rescue.

“I think it was reported yesterday or the day before, that China was actually restricting some of its banks from providing credit to facilitate energy purchases from Russia,” he said. “That seems to reflect a long time pattern. For years and years, China has tended to respect the force of U.S. sanctions.”

He went on to say, “It really would be an unfortunate signal for China’s vision of the world if it gave tacit or explicit accommodation to Russia’s invasion of a sovereign country in the heart of Europe. It would do profound damage to China’s reputation in Europe, and really, across the world.”

“Our calculus is that we have two choices,” the official said as he brought the briefing to a close. “Either we continue to ratchet the costs higher and make this attack a strategic failure for President Putin, or there’s the alternative, which would be allowing unchecked aggression in the heart of Europe in defiance of the core principles that have kept the peace and security across the continent for 70 years. 

“In our view, that is unacceptable,” he said. “The cost of doing nothing, and allowing uncertainties to fester, and the chilling effect that would take hold, and the questions that would be asked about which country is next to be bullied and which autocrat will be next to exert a sphere of influence … As I said, those costs are just unacceptable to us.”

Dan can be reached at [email protected] and at https://twitter.com/DanMcCue