EU nations, UK, USA, Canada finally impose partial SWIFT ban on Russia

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EU nations, the UK, the United States and Canada have agreed to impose the most potentially crippling financial penalties yet on Russia over its invasion of Ukraine, going after the central bank reserves that underpin the Russian economy and severing some Russian banks from a vital global financial network.

‘Finally, we will work to prohibit Russian oligarchs from using their financial assets on our markets,’ EU Commission President Ursula von der Leyen tweeted. ‘Putin embarked on a path aiming to destroy Ukraine. But what he is also doing, in fact, is destroying the future of his own country.’

The EU, United States, United Kingdom and other allies have steadily stepped up the intensity of their sanctions since Russia launched the invasion late last week.

While US and European officials made clear they still were working out the mechanics of how to implement the latest measures, and intend to spare Russia’s oil and natural gas exports, the sanctions in total potentially could amount to some of the toughest levied on a nation in modern times. If fully carried out as planned, the measures will severely damage the Russian economy and constrain its ability to import and export goods.

The US and EU allies announced the moves in a joint statement (see below) as part of a new round of financial sanctions meant to ‘hold Russia to account and collectively ensure that this war is a strategic failure for Putin’.

The central bank restrictions target access to the more than $600 billion in reserves that the Kremlin has at its disposal, and are meant to block Russia’s ability to support the ruble as it plunges in value amid tightening Western sanctions.

US officials said Saturday’s steps were framed to send the ruble into ‘free fall’ and promote soaring inflation in the Russian economy.

The decline of the ruble would likely hurt everyday Russians and not just the Russian elites who were the targets of the original sanctions. The resulting economic disruption, if Saturday’s measures are as harsh as described, could leave Putin facing political unrest at home.

Analysts predicted intensifying runs on banks by Russians, and falling government reserves as Russians scrambled to sell their targeted currency for safer assets.

The US officials noted that previously announced sanctions have already had an impact on Russia, bringing its currency to its lowest level against the dollar in history and giving its stock market the worst week on record.

Saturday’s move also includes cutting key Russian banks out of the SWIFT financial messaging system, which moves countless billions of dollars daily around more than 11,000 banks and other financial institutions around the world.

The fine print of the sanctions was still being ironed out over the weekend, officials said, as they work to limit the impact of the restrictions on other economies and European purchases of Russian energy.

Allies on both sides of the Atlantic also considered the SWIFT option in 2014, when Russia invaded and annexed Ukraine’s Crimea and backed separatist forces in eastern Ukraine. Russia declared then that kicking it out of SWIFT would be equivalent to a declaration of war. The allies – criticised ever after for responding too weakly to Russia’s 2014 aggression – shelved the idea back then. Russia since then has tried to develop its own financial transfer system, with limited success.

The US has succeeded before in persuading the Belgium-based SWIFT system to kick out a country – Iran, over its nuclear programme. But kicking Russia out of SWIFT could also hurt other economies, including those of the US and key ally Germany.

Only rarely has the West and its allies fired a full salvo of its available financial weapons on a country. Iran and North Korea, two previous targets, had far smaller roles in the world economy, while Russia, with its enormous petroleum reserves, plays a much bigger role in global trade, and parts of Europe depend on its natural gas.

The disconnection from SWIFT announced by the West on Saturday is partial, leaving Europe and the United States room to escalate penalties later. Officials said they had not fully settled on which banks would be cut off.

Announcing the measures in Brussels, the EU Commission president, von der Leyen, said she would push the bloc to ‘paralyze the assets of Russia’s Central bank’ so that its transactions would be frozen. Cutting several commercial banks from SWIFT ‘will ensure that these banks are disconnected from the international financial system and harm their ability to operate globally,’ she said.

‘Cutting banks off will stop them from conducting most of their financial transactions worldwide and effectively block Russian exports and imports,’ she added.

Germany had initially balked at the measure but Foreign Minister Annalena Baerbock said in a statement that ‘after Russia’s shameless attack … we are working hard on limiting the collateral damage of decoupling (Russia) from SWIFT so that it hits the right people. What we need are targeted, functional restrictions of SWIFT’.

As another measure, the allies also announced a commitment ‘to taking measures to limit the sale of citizenship – so-called golden passports – that let wealthy Russians connected to the Russian government become citizens of our countries and gain access to our financial systems’.

The group also announced the formation this week of a trans-Atlantic task force to ensure that these and other sanctions on Russia are implemented effectively through information sharing and asset freezes.

In coordination with 🇺🇸🇫🇷🇩🇪🇮🇹🇨🇦🇬🇧 I will now propose new measures to EU leaders to strengthen our response to Russia’s invasion of Ukraine and cripple Putin’s ability to finance his war machine. https://t.co/iU2waDzo9s
— Ursula von der Leyen (@vonderleyen) February 26, 2022