The Weaponization of Global Financial Infrastructure: SWIFT as a Tool of Economic Warfare
Sanctions are an increasingly common tool being used to apply pressure and punishment to bad actors and adversaries on the global stage. Disconnecting financial institutions from SWIFT is a relatively new lever for conducting economic warfare. First, what is SWIFT, and what role does it play in the global financial system?
What is SWIFT?
SWIFT is a member-owned cooperative based in Belgium providing secure, global financial messaging among 11,500+ financial institutions. According to SWIFT, the equivalent of the world’s GDP flows through SWIFT every three days. When money moves from the U.S. to Europe, or from Asia to South America, SWIFT is at the center.
By design, SWIFT is a fundamentally neutral, technical application. However, because it is a creation of the West, subject to EU law, and U.S. dollar dominance extends globally, U.S. and European governments can exert significant influence on its operation.
A common misconception is that SWIFT serves as a payment rail conduit for moving money. It does not. When transactional information flows between financial institutions – facilitated by SWIFT – the settlement of funds ultimately takes place between those institutions on a traditional clearing rail (wires, for example).
How SWIFT Became a Tool of Economic War
Following Russia’s 2022 invasion of Ukraine, sanctions have been the mechanism of choice for punishing Russia. Several major banks in Russia have been disconnected from SWIFT, while some were spared to allow energy transactions to take place. The ability (and in some cases, hesitation) to cut off a country’s financial institutions from participating in global markets highlights the interconnectedness of the global economy. It also emphasizes to governments and corporations around the globe the inherent systemic risks of being so connected, prompting some to take preventive action by building new financial infrastructure.
In 2012, the EU Council prohibited institutions like SWIFT from providing financial messaging services to EU-sanctioned Iranian banks. A statement by SWIFT read, “This EU decision forces Swift to take action. Disconnecting banks is an extraordinary and unprecedented step for Swift. It is a direct result of international and multilateral action to intensify financial sanctions against Iran.”
It’s worth emphasizing that disconnections from SWIFT due to sanctions remain quite rare. Sanctions come in many different forms and most of them do not involve SWIFT, which is what makes its compulsory involvement so extraordinary.
For example, in 2014, Russia was sanctioned over its occupation of Crimea with additional sanctions in 2018 for entities and individuals associated with the event. There have also been recent sanctions on Venezuela, North Korea, Belarus and Syria. While no disconnections from SWIFT took place in these cases, they serve as evidence of the growing importance of sanctions in curbing undesirable sovereign behavior.
The Future of Financial Warfare
SWIFT will continue to play a central role in global commerce. However, the ongoing development of alternative payment systems may hinder the ability of the West to conduct effective financial warfare.
As Russia, China, North Korea and others build a stronger coalition, bipolarity with the U.S., Europe and the West is growing. The future may see less interdependency and cooperation when it comes to global financial infrastructure.
Editor’s Note: While Swift now refers to itself in the lowercase, “SWIFT” is being used throughout this article to align with industry usage of the term.
