US, EU and UK to remove some Russian banks from SWIFT

The United States, the European Union and the United Kingdom agreed on Saturday to put in place crippling sanctions against Russia’s financial sector, including a blockage of its access to the global financial system and, for the first time, restrictions on its central bank in retaliation for its invasion of Ukraine.

The measures were jointly announced as part of a new round of financial sanctions intended to “hold Russia to account and collectively ensure that this war is a strategic failure for (Russian President Vladimir) Putin”. The central bank restrictions target the more than $600 billion in reserves the Kremlin has, intended to limit Russia’s ability to support the ruble amid tougher Western sanctions.

Cumulatively, the measures taken by the West since Russia began the invasion would potentially amount to some of the toughest sanctions against any country in modern times, and could severely harm the Russian economy and significantly limit its ability to import and export goods.

U.S. officials said Saturday’s moves were aimed at sending the ruble into a “free fall” and fueling soaring inflation in the Russian economy. They noted that previously announced sanctions had already impacted Russia, taking its currency to its lowest level against the dollar in history and giving its stock market the worst week on record.

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Saturday’s decision includes removing major Russian banks from the SWIFT financial messaging system, which moves countless billions of dollars daily through more than 11,000 banks and other financial institutions around the world. The fine print of the sanctions was still being ironed out over the weekend, officials said, as they work to limit the impact of the restrictions on other economies and European energy purchases Russian.

Allies on both sides of the Atlantic also considered the SWIFT option in 2014, when Russia invaded and annexed Ukrainian Crimea and backed separatist forces in eastern Ukraine. Russia then declared that kicking him out of SWIFT would amount to a declaration of war. The allies – since criticized for responding too weakly to Russia’s 2014 aggression – dropped the idea. Since then, Russia has tried to develop its own financial transfer system, with limited success.

KYIV, UKRAINE – FEBRUARY 26: Smoke rises from buildings on February 26, 2022 in Kyiv, Ukraine. Explosions and gunfire were reported around Kiev on the second night of Russia’s invasion of Ukraine, which killed dozens and prompted widespread

The United States has already succeeded in persuading the Belgian-based SWIFT system to expel a country – Iran, because of its nuclear program. But kicking Russia out of SWIFT could also hurt other economies, including those of the United States and key ally Germany.

The disconnection of SWIFT announced by the West on Saturday is partial, leaving Europe and the United States the option of further tightening sanctions later.

Announcing the measures in Brussels, European Commission President Ursula von der Leyen said she would also push the bloc to “cripple the assets of the Central Bank of Russia” so that its transactions are frozen. Cutting several commercial banks from SWIFT “will ensure that these banks are disconnected from the international financial system and will harm their ability to operate globally”, she added.

“Closing the banks will prevent them from carrying out most of their financial transactions around the world and will effectively block Russian exports and imports,” she added. “Putin has embarked on a course to destroy Ukraine, but what he is also doing, in effect, is destroying the future of his own country.”

Getting the EU on board to sanction Russia via SWIFT was a difficult process as EU trade with Russia amounted to 80 billion euros, around 10 times more than the US, which had been one of the first proponents of such measures.

Germany had specifically balked at the measure because it might hit them hard. But Foreign Minister Annalena Baerbock said in a statement that “after Russia’s brazen attack…we are working hard to limit the collateral damage of the (Russia) decoupling of SWIFT so that it affects the right people. What we need is a focused and functional SWIFT restrictions.”

As a further step, the allies announced a commitment “to take steps to limit the sale of citizenship – the so-called golden passports – which allow wealthy Russians linked to the Russian government to become citizens of our countries and access our financial systems”.

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The group also announced the formation this week of a transatlantic task force to ensure these and other sanctions against Russia are implemented effectively through information sharing and asset freezing.

“These new sanctions, which include the withdrawal of several Russian banks from SWIFT and the sanction of the Russian central bank, are likely to cause serious damage to the Russian economy and its banking system,” said Clay Lowery, vice-president Executive Chairman of the Institute of International Finance. “While details of how the new sanctions affect energy are still emerging, we know that sanctions against its central bank will make it harder for Russia to export energy and other materials. firsts.”

Rachel Ziemba, deputy principal researcher at the Center for a New American Security, said that despite a complete ban on SWIFT, “these measures will still be painful for the Russian economy. They reinforce the measures already taken earlier this week by making transactions more complicated and difficult.”

Ziemba says the pain the sanctions will inflict on the Russian economy will depend on which banks have been restricted and what steps are taken to restrict the central bank’s ability to operate.

“Anyway, this kind of increasing sanctions, removing banks from SWIFT, restricting the Central Bank, all of this will make it more difficult to get raw materials from Russia and will increase the pressure on the market. financial.”

Meanwhile, the U.S. Embassy in Russia is alerting Americans to several reports of non-Russian credit and debit cards being declined in Russia. In a tweet on Saturday evening, the US Embassy said the issue appears to be related to recent sanctions imposed on Russian banks following the Russian invasion of Ukraine. The embassy said US citizens in Russia should be prepared with alternative payment methods if cards are declined. He also reminded US citizens that the State Department advises against travel to Russia.

Christi C. Elwood