For a long time, Ukraine's current government has been following a strategy based on the good old Chinese approach: “If you wait by the river long enough, the bodies of your enemies will float by.” Chinese stratagems are applicable only to the Chinese. Sitting by the river might take thousands of years, and the Ukrainian Cabinet of Ministers has only five years.
Ukraine has no time to wait. Nevertheless, the general state strategy relies precisely on "passive assiduity." Our officials guaranteed us that the Crimean bridge would not be built, the Russians would not host the World Championship, the Nord Stream - 2 would never be launched, and the sanctions would immediately kill Russian economy, and Russian Federation would collapse soon.
One of these expectations is the topic of disconnecting the Russian Federation from the SWIFT payments system.
Recently, SWIFT issue has been widely discussed by the EU, which does not fully agree with the “hawkish” US policy against Iran and the Russian Federation.
The EU has applied the so-called blocking regulations as a preventive measure to formulate a policy independent of the United States against Iran. The extraterritorial sanctions of the United States are not applied to European companies. The EU regulation prohibits its companies to comply with the US sanctions requirements.
EU High Representative for Foreign Affairs and Security Policy Federica Mogherini announced the launch of a project to create an alternative system that could secure financial transactions with Iran, bypassing US sanctions radars. As conceived by the European functionaries, this system might become a global project. Theoretically, something similar can happen if the US sanctions against the Russian Federation are strengthened, if Europe does not want to join them. In this case, the alternative transaction program will include the Customs Union countries and, possibly, China.
Everything would be fine, and the EU’s blocking regulation could completely level the entire US sanctions package if not for one small detail. At the moment, SWIFT is an international interbank system of information transfer and making payments between banks and their customers. The bank must be a member of this system in order to use the money transfer services within the overall system. If a financial institution does not comply with the established regulations, including with regard to the control of customers' operations, it may be restricted in conducting international settlement transactions or excluded from the list of participants, as it happened with Iranian banks.
The legal status of SWIFT is a cooperative society registered in Belgium under local law; it unites more than 9,000 banks from almost two hundred countries of the world. The annual turnover of transactions is 4-5 billion payment orders. Daily financial turnover is 6 trillion USD.
Today, financial transactions are monitored by the United States using the ECHELON Global Electronic Intelligence System technology, and structures such as the National Security Agency (NSA) in the United States are connected to it. That is why the bank customers believe that payments in euros go faster and are less monitored than similar transactions in dollars.
The introduction of US sanctions against SWIFT would result cutting off 34% of its payments (that is how much dollars transactions were made in 2018).
In fact, Ukraine is on the verge of a very painful failure of its foreign policy. Something similar has already happened with the projects to bypass Russian gas pipelines. We have lost our first passing move several years ago, although at first Ukraine managed to block the Black Sea South Stream through the transit of Russian gas to Bulgaria and to the European market. As it turned out, the Bulgarians supported us idly. After all, South Stream gradually transformed into TurkStream, silently taken by Kyiv. Then, Nord Stream 2, which can completely transfer our transit potential to zero profitability, was also missed by Ukraine.
Now Ukraine practically prefers not to notice launching of a European alternative to SWIFT - the INSTEX system. Ukrainian Foreign Minister likes to repeat that the dependence of Russian gas exports on the Ukrainian GTS does not allow Russians to intensify aggressive actions against Ukraine. In fact, a universal sanctions weapon that can be compared with a financial neutron bomb is not a pipe, but an interbank currency transfer system, on which not only the currency reserves of the Central Bank of the Russian Federation depend, but also the currency assets of the entire Russian business and population. And the creation of INSTEX (if this system works in full-format mode) would be a major anti-authorization tool, helping the Russian to eliminate the basic transaction risks from the United States.
This column does not necessarily reflect the opinion of the editorial board of 112.International and its owners.