Sanctions will slow down the payment traffic of the aggressor country

On March 2, 2022, the European Commission announced the decision to disconnect 7 more Russian banks from SWIFT. The decision was made in connection with Russian aggression against Ukraine. The United States, Canada and Japan also joined the sanctions. The list of Russian banks sanctioned includes: Vneshtorgbank (VTB), Novikombank, Rossiya Bank, Vnesheconombank (VEB), Promsvyazbank, Sovcombank and Otkritie. Once disconnected from SWIFT, technical security controls between banks will be disabled. It is also impossible to pay with letters of credit through banks that are disconnected from the SWIFT system. The sanction entered into force on March 12, 2022.

What is SWIFT and how does this system work?

The abbreviation SWIFT stands for Society for Worldwide Interbank Financial Telecommunications. The organization was established in 1973 by American and European banks. SWIFT is designed to speed up and facilitate international payments through the use of a special communication system between banks.

Prior to the introduction of the SWIFT system, any international payment between two banks necessarily required the participation of a third intermediary bank. The use of the SWIFT system made it possible to exclude this element of the payment scheme and significantly speed up the execution of payments.

The SWIFT system itself does not make payments. Due to the information provided by the system, banks receive guarantees of the transaction. Technically, this is implemented in the form of providing tables with the details of a foreign, for example, Russian, account in the recipient bank. It is worth deleting the table of bank details from the SWIFT system, and the connection in the system will become impossible. It will not be possible to automatically receive guarantees for the transaction.

Is it possible to transfer money to Russia and receive it from it?

It is technically possible to conduct transactions between banks in Russia and other countries. To do this, you need to use the old scheme with an intermediary bank and confirm the possibility of making a payment not automatically, but using telephones, faxes, letters, etc. All this significantly slows down the process of transactions and increases the risks.

It should be taken into account that many banks, commercial and non-commercial organizations and even individuals resident in Russia are under international sanctions. Violation of these sanctions will result in secondary sanctions against individuals or entities violating them. The Dutch Payments Association (Betaalvereniging Nederland) and the Dutch Banking Association (Nederlandse Vereniging van Banken) currently advise not to conduct payment transactions with any companies, organizations and individuals in Russia.

Learn more about the impact of sanctions against Russia and Belarus on business on our Online.