The U.K. will press European Union (EU) leaders to consider blocking Russian access to the SWIFT banking transaction system under an expansion of sanctions over the conflict in Ukraine, a British government official said.
The Society for Worldwide Interbank Financial Telecommunication, known as SWIFT, is one of Russia’s main connections to the international financial system. Prime Minister David Cameron’s government plans to put the topic on the agenda for a meeting of EU leaders in Brussels tomorrow, according to the official, who asked not to be named because the discussions are private.
“Blocking Russia from the SWIFT system would be a very serious escalation in sanctions against Russia and would most certainly result in equally tough retaliatory actions by Russia,” said Chris Weafer, a senior partner at Moscow-based consulting firm Macro Advisory. “An exclusion from SWIFT would not block major trade deals but would cause problems in cross-border banking, and that would disrupt trade flows.”
The move underscores Europe’s growing concern at Russia’s latest incursion into Ukraine, with casualties mounting amid the threat that conflict descends into an all-out war on the EU’s eastern flank. The U.K. wants the EU to respond by ratcheting up sanctions against Russia to bring them more into alignment with those imposed by the U.S., said the official.
The EU enrolled SWIFT as part of sanctions imposed on Iran in March 2012, prohibiting financial messaging providers from providing services to Iranian banks. SWIFT, based in Belgium, has to comply with EU decisions because the organization is incorporated under Belgian law. No one was immediately available for comment from SWIFT’s press office when contacted by phone today.
Faced with the risk of losing access to the network, Russia’s government has already drafted a bill to create a new Russian system for domestic bank transfers, Deputy Finance Minister Alexey Moiseev said on Aug. 27, according to the Itar-Tass news service.
The system transmitted more than 21 million financial messages a day last month, facilitating payments between more than 10,500 financial institutions and corporations in 215 countries, the organization said on its website.
“There’s no doubt that in the short term restricting Russian usage of SWIFT would be extremely disruptive to Russian financial and commercial activities,” said Richard Reid, a research fellow for finance and regulation at the University of Dundee in Scotland. “However, it may carry a longer-term downside—namely, the likelihood that large chunks of Russian international payments flows would move to much less well monitored and measured financial channels and thus be beyond sanctions at any future point.”
EU governments widened sanctions on Russia to banks financing and advanced technology in July. Since then, fighting in eastern Ukraine has intensified.
Leaders including German Chancellor Angela Merkel and French President Francois Hollande are due to meet to try to forge a joint response after NATO reported a surge of Russian troops and advanced military equipment into eastern Ukraine.