As a result of a decision by the European Commission and leaders of the world's leading nations, the disconnection of several banks from the SWIFT system has become one of the most widely discussed and severe sanctions imposed on Russia in connection with the hostilities in Ukraine.
What does this mean, and what impact does it have on citizens, entrepreneurs, and banks?
As a result of the sanctions imposed against Russia, seven Russian banks will be disconnected from the SWIFT system on 12 March, including Bank Rossiya, VTB, Novikombank, and Sovcombank.
SWIFT, or the Society for Worldwide Interbank Financial Telecommunication, is an interbank financial telecommunications organisation registered in Belgium, which was founded in 1973 through the cooperation of 239 banks across 15 countries. It began being used as a tool for exchanging payment messages four years later, involving more than 500 financial institutions from 22 countries. Currently, more than 11,000 organisations from 200 countries operate within this system.
The SWIFT system can be compared to a postcode system for international payments. When making a payment abroad, both businesses and private individuals must enter the relevant codes, such as BIC and IBAN. Once a payment is made, it reaches the exchange and the SWIFT system, which uses the corresponding codes to send the payment to the correct country and bank account. In simple terms, it is an international communication platform for financial institutions. If you are disconnected from it, you must consider alternative communication channels – developing or connecting to them requires time and additional costs.
By excluding several Russian banks from SWIFT, the goal is to make it as difficult as possible for Russia to receive and execute payments outside its own borders. As this ban does not currently apply to all Russian banks—in order to ensure the continuity of gas and other resource supplies to Europe—it is currently difficult to judge exactly what impact this step will have on Russia's economic landscape, both now and in the long term. However, it is clear that this type of sanction comprehensively hinders any kind of economic activity within Russian territory.
Citizens should know that following the disconnection from SWIFT, it may be problematic to pay with foreign bank cards in Russia, as well as to withdraw cash from ATMs there. Regarding companies that cooperate with partners in Russia and Belarus, it is very important to continuously monitor current events. Given that circumstances are changing by the hour, it would be valuable for a company to have one person dedicated to tracking the latest news and adopted sanctions who is also competent in the company's core business. This will help the company navigate the changing environment of sanctions more easily.