September 22, 2019
Russia to help Iran in circumventing new U. S. sanctions
By Abdus Sattar Ghazali
Russia and Iran will transfer payments using an alternative system to the internationally recognized SWIFT money transfer network, the governor of the Iranian central bank, Abdolnaser Hemmati, announced on Sept 17.
Instead of SWIFT, a system that facilitates cross-border payments between 11,000 financial institutions in more than 200 countries worldwide, the two countries will use their own domestically developed financial messaging systems – Iran’s SEPAM and Russia’s SPFS.
“Using this system for trade and business exchanges between EAEU [Eurasian Economic Union] member states can help develop and expand trade exchanges between the member states as well,” Abdolnaser Hemmati said, as cited by Mehr News Agency.
Tehran is set to officially join the Russia-led free-trade zone, the EAEU, next month. The document on Iran’s participation was ratified in June by the nation’s parliament (Majlis) and President Hassan Rouhani has already ordered that the free trade zone agreement be implemented.
SWIFT-free system
Earlier this month, Russian presidential aide Yury Ushakov said that Tehran and Moscow are developing an alternative to SWIFT.
Russia began development of SPFS in 2014 amid Washington’s threats to disconnect the country from SWIFT.
The first transaction on the SPFS network involving a non-bank enterprise was made in December 2017. Around 500 participants, including major Russian financial institutions and companies, have already joined the payment channel, while some foreign banks have shown interest in joining.
Last year, Belgium-based SWIFT cut off some Iranian banks from its messaging system. It came after US President Donald Trump abandoned the landmark nuclear deal with the Islamic Republic and resumed US sanctions against Tehran.
Russia Launches Own ‘SWIFT’ Service
Almost 91 domestic credit institutions have been incorporated in 2014 into the new Russian financial system, the analogous of SWIFT, an international banking network.
The new service, will allow Russian banks to communicate seamlessly through the Central Bank of Russia. It should be noted that Russia’s Central Bank initiated the development of the country’s own messaging system in response to repeated threats voiced by Moscow’s western partners to disconnect Russia from SWIFT, Sputnik reported in February 2015.
SWIFT (The Society for Worldwide Interbank Financial Telecommunication) is a Belgium-based international organization that provides services and a standardized environment for global banking communicating that allows financial institutions to send and receive messages about their transactions.
Russian experts point to the fact that western businesses would face severe losses if they expelled Russia from the international SWIFT system. On the other hand, the alternative system launched by Russia might reduce the negative impacts caused by measures imposed by the West, including possible disconnection from SWIFT, and diminish western financial dominance over Russia.
SWIFT Refuses to Suspend Russia
SWIFT will not bow to pressure to disconnect Russia from international transactions as it has "no authority" to make unilateral sanctions decisions, the Belgium-based group said in October 2014.
"SWIFT regrets the pressure, as well as the surrounding media speculation, both of which risk undermining the systemic character of the services that SWIFT provides its customers around the world. As a utility with a systemic global character, it has no authority to make sanctions decisions," RT quoted the group statement as saying.
In August 2014 it was reported that EU leaders were discussing disconnecting Russia from using SWIFT as a form of sanctions for its alleged role in the Ukraine conflict.
Many are calling on SWIFT to shut off services in Israel to quickly isolate the economy from international trade in order to encourage Israeli troops to withdraw from occupied Palestinian lands, according to Financial Tribune.
It was pointed out that transactions in South Africa were blocked to help overturn apartheid rule in the 1980s.
Also in the works is a national payment system, after US-based Visa and MasterCard cut off Russian clients associated with banks sanctioned by the US. In response, the Russian government will now require these companies to pay a security deposit to the Central Bank.
In August 2014, Russia debuted its China UnionPay credit card system, an alternative to Visa and MasterCard. Some of the countries' top bankers, like Andrey Kostin, the head at VTB, Russia's second largest bank, is even talking about completely switching Russia from dollar payments.
Germany urges SWIFT end to US payments dominance
Work on creating a European payment system independent of the dominant existing international system SWIFT has already begun, Germany's Foreign Minister Heiko Maas said at the opening of an ambassadors' conference at the foreign ministry in Berlin on August 26.
"We must increase Europe's autonomy and sovereignty in trade, economic and financial policies," he said. "It will not be easy, but we have already begun to do it."
Christopher Bovis, professor of international business law at the University of Hull in the UK, said that this was already happening. "The European Commission has been developing a system, a parallel system to SWIFT which will allow Iran to interface with European financial systems, European clearing systems, using the nominations supported and created by the European Investment Bank based on the euro," he told DW.
The Society for Worldwide Interbank Financial Telecommunication (SWIFT) is connected to over 10,000 banks, and every second major cross-border transfer goes through its messages.
Based in Belgium, SWIFT claims political neutrality, but has bowed to US influence in the past, blocking transactions to Cuba and Iran.
Unless it wins an exemption from sanctions, SWIFT will be required by the US to cut off targeted Iranian banks from its network by November 4 or face countermeasures against both its board members and the financial institutions that employ them.
Some see the new development potentially opening possibilities for the crypto-currency market, according to the German News agency Deutsche Welle. The Iranian government this year did in fact switch to digital assets — despite previous attempts by Tehran itself to ban crypto trading — so it can trade with allied countries.
Mohammad Reza Pourebrahimi, Iran's Parliamentary Commission of Economic Affairs head, said Russia had agreed to use decentralized financial networks such as cryptocurrencies to transact with Iran.
But more old school methods are likely to prevail.
"The current issues with Iranian financial institutions accessing SWIFT is not a new development of economic diplomacy malfunctioning. Disputes between the USA administration and SWIFT arose in 2006 and 2012 respectively, with their resolutions not being satisfactory for both parties," Bovis went on.
"It is also highly likely that the EU will develop a system which mirrors the SWIFT functions but without the interference of the US administration," Bovis said.
Furthermore, SWIFT's board is made up of 25 of the world's largest banks, including representatives from two US banks — Citigroup's Yawar Shah and J.P Morgan's Emma Loftus — which makes it unlikely Trump would ban any of the two US SWIFT banks from doing business, Deutsche Welle said.
The Journal of America Team:
Editor in chief:
Abdus Sattar Ghazali
Senior Editor:
Prof. Arthur Scott
Special Correspondent
Maryam Turab
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