Kremlin: Russia is preparing to be disconnected from SWIFT
uawire.orgSWIFT had it all. They had the monopoly on international inter-bank transfers. They were 'the only game in town'. Then they blew it by disconnecting Iran from the international banking scene.
Suddenly people saw that SWIFT were not the reliable, neutral entity that people thought they were. I actually emailed their public-relations office way back then stating this fact. Of course, I was disregarded. "What would I know?" I was a nameless nobody after all.
Fast forward a decade or so, and there are now at least three more interbank tranfers entities available. Already they are taking business away from SWIFT. In years to come, SWIFT will decline further and further as The East becomes more and more financially important.
They had it all. They lost it.
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Anyone knows the significance of this?
SWIFT is essentially a system for structured authenticated bank-to-bank messages in which pretty much every worldwide financial institution participates - in some ways a glorified email (though with structured fields), but with sufficient security assurances that if you get a message claiming to be from the First Bank of Nigeria (FBNINGLA) "pls do XYZ with USD 100 million kthxbye" then you would actually consider it to be sufficient authorization to execute that request. You still might wait until actually getting that money from them though before passing it on, counterparty risk is a thing, but you can assume that it's actually from them and whoever is sending has the authority to act on their behalf for huge amounts of money.
If Russian institutions can't participate, it means a disconnection for the majority of international financial communications, preventing Russian banks from directly interfacing with all the thousands of banks worldwide - they will have to establish a bilateral communications protocol with some specific partners/correspondent banks (perhaps they have something arranged already) and have someone else handle the international transactions on their behalf. That's not totally devastating, but a pain in the butt, extra expenses, extra delays and extra risk for all those transactions.
>you can assume that it's actually from them and whoever is sending has the authority to act on their behalf for huge amounts of money
Google "epic bangladesh swift fraud"...I believe they got away with over $80M.
Yes, that particular case was one of what I had in mind as one of many valid examples, it's the largest one but there are many others.
The receiving instutition(s) could safely assume that the message is actually from Bangladesh Bank and whoever was sending them has the authority to act on their behalf even if it was not true. If Bangladesh Bank allowed hackers to send messages in their name, they are still fully responsible for their content, the recipient does not have necessarily to verify anything (for a counterexample, consider the legal risks involved with not verifying who has the authority to sign for a large international contract) unless a specific bilateral contract specifies that - like in the Bangladesh 80M case, there's no blame or risk placed on the message recipient/executor (Federal Reserve Bank of New York), they had the rights to assume that the orders were from Bangladesh bank, and all the losses from that case were solely on the Bangladesh bank. In all the major cases there have been lawsuits or threats of them - because why not try - but the general precedent is that those lawsuits fail and the recipient is reasonably safe to make that assumption.
In a similar manner, if the SWIFT infrastructure itself was hacked and fraudulent messages inserted (this has not ever happened AFAIK), you still can assume that the messages are valid, and that in that case the liability (insured!) for any losses would be on SWIFT.
Russia has also been working on a plan to run their internet disconnected from the global Internet if necessary. It sounds like they are anticipating various actions that would cause international sanctions and preparing ways to survive them.
SWIFT disconnection is discussed alongside with oil embargo and freezing a ~$1T on the US/EU accounts of Russian elite. Taken for the face value it's pretty significant; however given the history of West generally letting Russian government doing whatever, the stakes could appear to be lower.
Its significant because the US has a virtual monopoly over global banking with the SWIFT system, which is used to impose sanctions and punish our perceived geopolitical foes. The use of the SWIFT system as a cudgel has led other countries to develop their own, competing SWIFT-like systems that would not be controlled by the US. Russia, China and India have been signaling their future adoption of this system for several years.
https://finance.yahoo.com/news/china-russia-india-push-forwa...
SWIFT is a Belgian company, not American. They are subject to European law, not the US. However, the US has pressured SWIFT to eject Iranian banks from their system or risk being sanctioned from doing business with the US banking system. SWIFT is not some magic sword that the US can wave around to do their bidding and that the US would be crippled without. Rather, the US banking system is significant enough that they can pressure not just SWIFT but any entity with significant financial ties to the US to enforce sanctions on America's behalf.
SWIFT is owned by member banks all over the world, and in any case they are not particularly important in terms of the power politics at play here. SWIFT provides infrastructure services as it's good for international banks to agree on a specific protocol. The protocol itself is not noteworthy and can be replaced with another. Technologically, SWIFT is neither advanced, nor interesting, nor hard to duplicate. The cooperation is hard to duplicate.
The real issue is the cooperation of banks centered around the dollar system, and the US as the world's custodian and monopoly issuer of dollars, is going to dominate any such system, regardless of which protocol is chosen for communication, or where the headquarters are located of whatever technology company has been selected to create the protocol. It is not a SWIFT system, it is a dollar-system. When you obtain dollars by selling goods to the U.S., you may think you have those dollars, but they are held in custodial accounts in U.S. banks, and subject to US law, regardless of whether you believe they are "your" money. This makes you subject to US law. You can't really withdraw dollars from the United States (or from any country in a fiat system). We don't live in a world of specie flows, we live in a world of custodial accounts.
That statement causes a lot of consternation, particularly in the eurozone, which is desperately trying to position the euro as a rival to the dollar, but as the Eurozone has discovered, what matters is not the nationality of the account holder, but the nationality of the custodial bank. It's impossible for any system which is a net exporter to become a big player in the international system. But everyone holds dollar claims - everyone has custodial accounts in US banks, and so the US can even disrupt transfers that only happen within the EU, because so much international trade is conducted with dollars, even trade between two EMU member nations, and this is an endless source of agitation for those claiming that SWIFT is independent of the US. It's not. Russia realizes that, and for a long time has been complaining about being forced into the global dollar system in order to conduct trade. It means the US can seize whatever Russian funds are used for international purchases and Russia can't do anything about it. And the US has not been shy at using it's control over the international currency markets to seize funds from nations it doesn't like, such as Iran, or lock out/or seize funds from others.
So there are a lot of reasons for Russia to want to separate itself from this system that have nothing to do with the specific type of legal structure used by the main subcontractor for this international dollar system. For Russia, it's all about trying to gain autonomy from the US -- Belgium or the EMU is not a factor.
They could use ripple, or stellar
So replace a system used by all banks in all countries with a system used by no banks in any country?
That’s like having your car engine break down and replacing it with a chair. Sure, you could do that, but what would be the purpose?