Ukraine war: Swift sanction - "The toughest weapon we have"

Created: 02/25/2022, 11:49 am

By: Rolf Obertreis

In Munich, numerous people are protesting in front of the Russian Consulate General: The catalog of sanctions against Russia also includes an exclusion of the country from the Swift international payment system.

© Matthias Balk/dpa

The catalog of sanctions against Russia also includes an exclusion of the country from the Swift international payment system.

What such a step would mean. 

Frankfurt – La Hulpe is a small town with around 7500 inhabitants and a pretty castle around 20 kilometers south-east of Brussels.

However, it is also the headquarters of Swift and is therefore of immense importance for the functionality of international trade and payment transactions.

Russia's Swift ban: 'The toughest weapon we have'

Swift stands for "Society for Worldwide Interbank Financial Telecommunications".

Swift is used to exchange information on invoices for imports and exports, for cross-border deliveries of goods and services, for payments with a gigantic volume of around five trillion dollars a day.

Russia is also involved in Swift.

Now, with the Russian attack on Ukraine*, there is a threat of exclusion from the important financial information system.

It would be fatal, not only for Russia, but also for Germany, which needs important raw materials from there - and has to pay for them.

"Any intervention affecting the Swift payment system would have the greatest impact," said Andrea Enria, head of the European Banking Authority based at the European Central Bank (ECB).

For Gabriel Felbermayr, head of the Austrian research institute Wifom, it would be the "hardest weapon we have" with a view to sanctions against Russia.

Jörg Krämer, chief economist at Commerzbank, sees it similarly.

Excluding Russia from making payments to western banks would be one of the key sanctions.

Swift: an important part of international payments

Transfers can be processed quickly and securely using the information transmitted via Swift.

The system was set up in 1973 and a company incorporated under Belgian law.

It is supported by around 3,500 financial companies and has 11,000 banks from 200 countries and regions worldwide.

This makes Swift the world's most important system for exchanging electronic financial information and thus an important part of international payment transactions.

The company is managed by a 25-strong board headed by US banker Yawar Shah.

One banker each from Deutsche Bank and one from Commerzbank will be there from Germany.

A representative of Russia is also a member of the panel.

The principle of Swift is comparatively simple: If a company from Germany wants to transfer money to a customer in a non-EU country (or vice versa), its bank sends a Swift message to the customer's bank with the name of the sender, notes the amount and account number and the bank's eleven-digit swift code.

The customer's bank credits the amount to his account.

This usually happens within a day, sometimes it can take longer.

Swift exclusion would also have consequences for the German economy

However, Swift is considered a secure system.

Swift is therefore important for German companies that do business with countries outside the EU.

Even if the payment service provider describes itself as neutral, it is always part of political disputes.

Iran has been excluded from Swift's nuclear dispute since 2012 - with massive consequences.

The country reportedly lost almost 50 percent of its oil revenues and suffered a 30 percent drop in foreign trade.

After the Taliban took power and the financial system collapsed, transfers via Swift to Afghanistan are currently not possible either.

There is little doubt that a Swift exclusion would also have consequences for the German economy.

According to the Eastern Committee of German Business, in 2020 Russia ranked 15th among all countries to which goods were delivered from Germany in terms of exports with a volume of 23 billion euros.

The volume of imports from Russia was 22 billion euros – primarily oil, gas, petrochemicals and metals.

In general, however, German companies emphasize that sanctions against Russia would not have a major impact on their business because it is manageable.

Deutsche Bank boss Christian Sewing also emphasized at the end of January that he saw no risks* in the Russian business and had no concerns. 

*Merkur.de is an offer from IPPEN.MEDIA