If Swift sanctions on Russia go ahead, this might do less to thwart Russian trade and more to inconvenience those who trade with Russia, pushing payments underground and possibly even leaving Europeans out in the cold with winter approaching, writes Anna Milne
There are parts of the world that are not fully on Swift and for these the cost of payment transactions is higher and security measures lower. It’s a high risk, high cost affair.
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The removal of balance controls that Swift provides on transactions means any money in and out of Russia and anyone dealing with Russia will be thrown into this expensive, unsafe trading environment.
Payments will likely go through so-called triangulated channels, ie via Russian subsidiaries, for example Belarus or Kazakhstan, in a long-winded, unsecure and therefore unstable fashion.
It would have a massive impact on Russian companies and banks, for sure, but clearly also anybody who is dealing with Russia.
Not one to hang around, Russia has already drafted a bill to develop an alternative infrastructure to Swift. This kind of thing takes a long time, is very complex and expensive to develop and therefore is likely to stay in place permanently- do we really want to push Russian trade underground?
If Russia develops this, alarm bells will ring in other countries, eg China, to perhaps develop their own alternative to Swift. Then what are we dealing with? Can of worms doesn’t quite cut it.
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By GlobalDataNow it’s true most of the big banks outside Russia would be reluctant to help it bypass Swift for fear of resultant consequences from Swift, since the cooperative’s bylaws forbid members from participating in activities that could harm it. It could even lead to expulsion from Swift.
However, once direct trade between countries falls down, moving toward this triangulated or dare I say spaghetti system, the difficulty of tracing the transaction trail becomes too big a job and one unlikely to be done by Swift or anyone else.
Russia has made a concerted effort to combat commercial crime of late. A Swift expulsion will basically mean the payments network suddenly becomes unmonitored and ripe for launderers and illicit activity-favouring types, you know the ones. That’s annoying for Russia, but also the rest of us.
Blocking Putin’s credit card, as was done in March, had certain consequences; blocking much of the country’s payment channels is tough measures indeed. What will he deem a fitting response- in the world’s spotlight? Putin is powerful- he’ll shapeshift any attempts on sanctioning this payments business. Trade won’t be stymied, it’ll go ahead, just in a roundabout, underground and more expensive way. It’ll inconvenience other countries arguably more than Russia. And then some.
Which leads me to the approaching winter. Germany may have five months of gas supply autonomy but the rest of us don’t and with the majority of Europe relying on Russian gas, political fragmentation within the EU could also be a consequence. Not least chilly evenings for the rest of us. Perhaps Swift needs a better plan for Russian trade sanctions, something as complex as it is unfathomable.
