Monday, 7 July 2014

Swift, a political lever?

One man's KYC regime is another man's foreign policy. Indeed, it seems to be the US's main weapon at present: the sanctions against Russian individuals and companies which were expanded by the EU and US in the last week of April have echoes of an earlier controversy about whether Iranian banks should have been expelled by Swift in 2012.  

This time, Visa and Mastercard did the US's bidding by cutting services to the Russian banks now classified as 'specially designated nationals' by the US's Office of Foreign Asset Control. One of them, Investcapitalbank, explained to its customers that they should withdraw cash from the bank's ATMs and use this for payments, rather than relying on the US-based firms' networks for POS transactions, and should avoid making currency transfers or payments through the bank since 'these can be locked'.

There have been plenty of stories about companies pulling back from Russia as a precautionary measure, before sanctions have even been applied. But judging by its previous actions, Swift, which is based in Belgium, is less willing to toe the US line. In the Iranian case, it defied US pressure to expel Iranian banks until the EU strengthened its own position. Once the EU council stated 'no specialised financial messaging shall be provided to those persons and entities subject to an asset freeze', Swift was forced into a volte face.

So far, Swift has refused to comment on whether the sanctioned Russian banks have been removed from the network, suggesting that it has not acted. But it looks like Swift is once again going to be caught up in the phoney wars between the US and its adversaries, undermining Swift's stated aim being of 'committed to maintaining its role as a neutral global financial communications network'.

Russia has responded to the sanctions by rushing through parliament a bill for the creation of a national payment system as an alternative to Mastercard and Visa, which indeed Swift is looking to help with. Russia is also urgently looking at how it can control the Swift network within its borders, and whether it can legislate to this effect, although this looks implausible.

Commentators saw the Iranian case as a reason for the building of alternative payment systems to challenge the current US-dominated landscape. One wonders what contingencies, for example, the Chinese government may now be planning as the US again looks to bend the world financial system to its goals.

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