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What is SWIFT and why it matters in the US-Iran spat

Belgium-based SWIFT financial messaging service said it was suspending access for some Iranian banks after US sanctions.

Worldwide Interbank Financial Communications

The Belgium-based Society for Worldwide Interbank Financial Communications (SWIFT) financial messaging service announced on Wednesday it was suspending access for some Iranian banks "in the interest of the stability and integrity of the wider global financial system".

The move came after the United States reimposed oil and financial sanctions against Iran, significantly turning up the pressure on Tehran in order to curb its alleged missile and nuclear programmes.

Last week, US Treasury Secretary Steven Mnuchin told reporters that SWIFT could get slapped with sanctions if it provides services to Iranian banks blacklisted by Washington.

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.

 What is it not?

  • 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?

Does SWIFT have to do what the US 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 advisor 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.

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