Ukraine war: Russian banks will be cut off from SWIFT international payment system, says EU chief

Russian banks will be removed from the SWIFT international payment system, EU chief Ursula von der Leyen has said.

She said the move would “prevent them from operating globally and effectively block Russian exports and imports.”

However, von der Leyen did not specify how many would be cut, saying only that a “number” of banks would be affected.

Von der Leyen, president of the European Commission, said the move was agreed in coordination with other countries, including the US, UK and Canada.

Other measures announced late Saturday night include stopping Russian oligarchs from using assets in EU financial markets.

EU leaders have already approved two rounds of sanctions that target Russia’s financial, energy and transport sectors, tighten export controls, including semiconductors, and restrict visa issuance. Sanctions also include travel bans and the freezing of assets of President Vladimir Putin’s inner circle.

Earlier Saturday, Ukrainian President Volodymyr Zelenskyy urged that Russia be removed from SWIFT and that his country be allowed to join the EU quickly.

What is SWIFT and why is it so important?

The Society for Worldwide Interbank Financial Telecommunication (SWIFT) is a high-security intermediary system that allows banks and institutions around the world to conduct financial transactions – that is, ordinary payments – with each other.

The system was founded in 1973 and is headquartered in La Hupe, Belgium.

Today, SWIFT connects more than 11,000 financial institutions in more than 200 countries and territories, making it an essential part of our rapidly changing global economy.

Basically, SWIFT is used by EU member states to pay for Russian gas and oil, two resources that represent the backbone of the Russian economy.

Given that the EU is Russia’s largest energy customer, many are now calling for the country’s expulsion from SWIFT in order to deprive Moscow of much-needed funds to support the ongoing invasion of Ukraine.

“If Russia is no longer able to participate actively in the international financial system, this has a major impact,” Fabian Zuleeg, director general of the European Policy Center (EPC), told Euronews.

“It makes it very difficult to manage financial institutions in Russia and it cuts off outside funding very effectively. So I think that’s a decision that would have helped.”

Why is Russia’s expulsion from SWIFT considered risky?

But the process is risky. A full expulsion from SWIFT would mean virtually all EU-Russia trade would suddenly come to a halt, disrupting a significant part of the bloc’s economy.

Russia is the EU’s fifth-largest trading partner: in 2020, total trade in goods between the two amounted to €174.3 billion, including €79 million in EU exports, according to the European Commission.

If this huge sum of money were to disappear overnight, Member States would feel the pain instantly and painfully. Gas prices would skyrocket, sending consumer bills to impossible heights and forcing many factories to shut down production altogether.

“[SWIFT] is always an option. But right now, that’s not the position the rest of Europe wants to take,” US President Joe Biden said when asked about the possibility.

“If Russia is disconnected from SWIFT, the economy will implode, it will be a disaster for the Russian economy. And if the main oligarchs are sanctioned, then Putin’s own wealth would be wiped out and completely inaccessible. And those are two very material things to Vladimir Putin,” said financier Bill Browder, head of the Magnitsky Global Justice Campaign, named after his former lawyer who was murdered in a Russian prison.

“Is he [Putin] stop attacking Ukraine when that happens? Surely not. But does that put him in a position where everything he has worked for over the past 20 years has been sacrificed, surely yes. And at that point, we’re then in a position where we have some leverage,” Browder told Euronews.