The U.S., Canada and Europe are tightening financial restrictions on Russia with a new ban that blocks seven Russian banks from using SWIFT, the global messaging system that enables bank transactions, the European Union (EU) said Wednesday. The move is aimed at disrupting Russia’s ability to do business across borders.
The new ban follows an agreement forged on Saturday between Canada, the European Union, the United Kingdom and the U.S. to disconnect “selected Russian banks” from SWIFT. The severe economic sanction drew hesitation from some European countries due to its potential to cause energy flow disruptions in Europe and because it would hinder Russia’s ability to pay its outstanding debts. Ultimately, as Russian forces waged attacks across Ukraine, the coalition decided to retaliate with a broader Russian ban on the SWIFT network.
“We will hold Russia to account and collectively ensure that this war is a strategic failure for Putin,” leaders of the EU, U.K., U.S. and Canada said in a joint statement announcing the initial SWIFT ban over the weekend.
At the time of that statement, the country leaders were not specific about how broad the ban would be and what types of financial institutions it would target. So on Wednesday, the EU released the list of seven financial institutions that won’t be able to use SWIFT, including VTB, the country’s second-largest bank. Here’s what those blocks mean for Russia and the rest of the world.
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SWIFT, formally known as the Society for Worldwide Interbank Financial Telecommunication, is a messaging system for banks and other financial institutions around the world. It doesn’t shuttle any money itself, but provides instruction messages for just how to give and receive specific funds.
Since it began in 1973, SWIFT has become an integral part of the flow of global trade. When a bank is a member of SWIFT, their instruction messages are cleared as secure immediately, so the transactions happen quickly. More than 11,000 financial institutions worldwide use SWIFT and they send around 38 million SWIFT messages daily, according to 2020 data.
So access to the system is all but necessary for conducting business overseas, and the seven Russian banks banned from SWIFT will therefore not have access to international markets. That means individuals and companies using those banks will have a harder time borrowing or investing money across national borders, receiving cash for exports and paying for imports.
There are workarounds—the banks could use other messaging systems, such as apps or email. But those transactions likely won’t be as secure, and could end up being slower and costing more. China also has an alternative to SWIFT called the Cross-Border Interbank Payment System (CIPS). But CIPS is much smaller, with roughly 1,300 financial institutions participating, most of them indirectly.
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Why these banks?
The seven banks the EU specified give insight into what the coalition of countries does, and does not, hope to affect with the sanctions.
In addition to VTB, the EU said the other affected banks are Bank Otkritie, Novikombank, Promsvyazbank, Bank Rossiya, Sovcombank and VEB. They have 10 days to cease sending SWIFT messages before they are fully blocked from the system.
Notably missing from that list are main banks that handle Russian oil and gas transactions, such as the country’s largest bank, Sberbank, or Gazprombank. President Joe Biden included Sberbank in the list of banks the U.S. sanctioned last week, but since EU countries are still buying Russian oil and gas, the current SWIFT ban does not specifically affect that.
EU officials chose the specific seven banks because of their Kremlin connections, Reuters reported. As a consequence, the SWIFT removal may frustrate state officials’ dealings with other countries.
The ban also extends to any entities for which the seven banks hold more than 50% ownership.
Read More: Why Sanctions on Russia Aren’t Targeting Oil and Gas
Why stop there?
This list of seven banks blocked from SWIFT may just be a starting point.
The countries instating the SWIFT ban are in discussions about expanding the sanctions to more financial institutions in Russia, Lithuanian Prime Minister Ingrida Simonyte said at a Wednesday news conference.
Immediately following the invasion, the Ukrainian Government requested that Russia be fully banned from SWIFT. That has been called the “nuclear” option, as it would essentially sever the country’s ties to the rest of the world—and leave the global markets reeling.
When asked about banning Russia from SWIFT last week, Biden had said it was “always an option.”
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