Brussels, Belgium: The Belgium-based Society for Worldwide Interbank Financial Communications (SWIFT) banking network, the backbone for international monetary transfers, said it has suspended several Iranian banks from its service, after the United States reimposed nuclear sanctions on Tehran.
“In keeping with our mission of supporting the resilience and integrity of the global financial system as a global and neutral service provider, SWIFT is suspending certain Iranian banks’ access to the messaging system,” it said.
“This step, while regrettable, has been taken in the interest of the stability and integrity of the wider global financial system.”
SWIFT, the Belgian-based Society for Worldwide Interbank Financial Telecommunication, provides banks with a secure messenger network to allow international transfers.
Without its services, Iranian banks will find it more difficult to do business with any client prepared to brave US sanctions to maintain ties with Tehran.
Some US sanctions on Iranian banks and oil exports had been suspended after Iran signed a landmark 2105 deal with six world powers to curtail its nuclear ambitions.
But these came back into effect Monday after President Donald Trump pulled out of the accord and demanded that the world again turn up the economic heat on Tehran.
US Secretary of State Mike Pompeo said waivers would be issued to allow eight countries to buy Iranian oil, but that otherwise the measures would be “relentless.”
This could mean European and other banks and businesses face secondary sanctions if Washington deems them in breach of sanctions, and US officials have been pressing SWIFT to act.
The network connects 11,000 banks and financial institutions in 200 countries and territories, while prising itself on taking a neutral political stance.
It does not hold or manage client funds, but allows the banks to transfer funds by sending messages across the network.
As the Trump administration reimposes sanctions on Iran, Western companies and banks face a choice: if they do business with Iran, they could lose access to the US market. The next wave of US sanctions targets financial messaging, so SWIFT is under pressure from Washington to disconnect from Iran.
US Secretary of State, Mike Pompeo announced that only eight jurisdictions would be spared from the sanctions, allowing them to keep importing oil from Iran and paying for the shipment through the SWIFT system. The European Union and its 28 member states were not among them, Pompeo said in a conference call.
US Treasury Secretary Steve Mnuchin said that the Trump administration would make clear to SWIFT officials that they were expected to disconnect all Iranian financial institutions that would be blacklisted by the U.S. as sanctions take effect on Monday. He declined to name the targeted institutions.
Meanwhile, the European Union is moving ahead with an alternative “special purpose vehicle” to facilitate transactions with Iran for the bloc’s businesses. The EU announced that it would be “symbolically” ready when US oil sanctions take effect on November 4, but its system will not be operational until next year.
What is SWIFT?
A Belgian-based messaging platform that facilitates cross-border payments.
The member-owned cooperative connects more than 11,000 banks, financial institutions and corporations in more than 200 countries and territories around the world.
It’s not a bank, it doesn’t hold money or manage it. It neither initiate transfers nor clears or settles payments.
Why is SWIFT important?
Think of SWIFT as the central nervous system of international financial transactions. The messaging platform enables financial institutions to send, receive and track information about financial transactions in a secure and standardised way that facilitates the smooth flow of funds across borders.
What happens to a country when its banks get cut off from SWIFT?
It can be crippled financially because money transfer information can’t be forwarded to its banks.
When a country’s banks are cut off from SWIFT, it can’t pay for imports and can’t receive payment for exports.
What happened to Iran when it was cut off from SWIFT in 2012?
In March 2012, SWIFT agreed to not forward messages to any Iranian bank or individual that had been blacklisted by the EU.
As a result, Iran’s oil exports plunged from around 2.5 million bpd in 2011 to around one million bpd by 2014.
The 2012 SWIFT ban was widely seen as instrumental in bringing Iran to the negotiating table which led to the 2015 Iran-nuclear deal.
When Iranian banks were reconnected to SWIFT following the 2015 Iran-nuclear deal, oil exports increased again.
How often are countries kicked out of SWIFT?
Rarely. SWIFT cut off a handful of North Korean banks last year.
Does SWIFT have to do what the U.S. wants?
No. It describes itself as “a neutral global cooperative”.
But there could be consequences if it resists US pressure to cut off Iran again. Richard Goldberg, senior adviser at the Foundation for Defense of Democracies, a think-tank, argued in this blog that in 2012, Congress authorised any president to impose sanctions on SWIFT’s board of directors (which includes executives from some of the world’s biggest banks) if it refused to disconnect Iranian banks blacklisted by Washington.