What happened on the third day of the Russian assault on Ukraine?
WASHINGTON — The Biden administration and its key allies announced on Saturday that they would remove some Russian banks from the SWIFT financial messaging system, essentially excluding them from international transactions. They also said they would impose new restrictions on Russia’s central bank to prevent it from using its large international reserves to undermine sanctions.
The actions, agreed to by the European Commission, Britain, Canada, France, Germany, Italy and the United States, represented a significant escalation in efforts to impose severe economic costs on Russia. following President Vladimir V. Putin’s decision to invade Ukraine.
“Russia’s war represents an attack on fundamental international rules and norms that have prevailed since World War II, which we pledge to uphold,” the countries said in a joint statement. “We will hold Russia to account and collectively ensure that this war is a strategic failure for Putin.”
The announcement was a remarkable change of direction for European powers, which until recent days have been reluctant to end a 30-year effort to integrate Russia into the European economy. Now, like the Biden administration, European nations appear to be heading towards a policy of containment.
But, for the sake of political self-preservation, they refrained from banning energy transactions with Russia. The result is that Germany, Italy and other European nations will continue to buy and pay for the natural gas flowing through pipelines from Russia – through Ukrainian territory which is suddenly a war zone.
Some in Europe, as well as Ukrainian President Volodymyr Zelensky, had called for all Russian institutions and individuals to be cut off from SWIFT in a bid to bring the Russian economy to its knees. About 40% of the Russian government’s budget comes from energy sales.
While Saturday’s announcement was limited in scope, Ursula von der Leyen, President of the European Commission, said that “closing the banks will prevent them from carrying out most of their financial transactions around the world and will effectively block the Russian exports and imports”.
Ms von der Leyen said the transatlantic coalition would also try to cripple Russia’s central bank by freezing its transactions and making it “impossible for the central bank to liquidate assets”.
The central bank’s targeting may ultimately turn out to be more substantial than the action on SWIFT. Russia has spent the past few years bolstering its defenses against sanctions, amassing more than $630 billion in foreign currency reserves by embezzling its oil and gas revenues. These reserves can be used to prop up the rouble, the value of which has fallen dramatically over the past rounds of sanctions.
Biden administration officials said on Saturday there would be new restrictions by the United States and its allies against selling rubles to Russia, undermining the country’s ability to back its currency in the face of new sanctions against its financial sector. That, in turn, could cause inflation — and while administration officials haven’t said so explicitly, they clearly hope it could fuel protests against Mr Putin’s regime in Russia.
“We know that Russia has taken steps since 2014 to protect its economy from sanctions, in part through the hoarding of foreign exchange reserves,” said Emily Kilcrease, senior fellow at the Center for a New American Security. “Central bank sanctions will limit their ability to leverage this asset, while limiting their ability to conduct monetary policy of any kind to manage the economic damage caused by other sanctions.”
The United States and its allies have also announced measures to pressure Russian elites, including creating a task force that says the White House “would identify, hunt down and freeze the assets of sanctioned Russian companies and oligarchs – their yachts, mansions and any other ill-gotten gains we can find and freeze under the law”.
The idea is to hit those closest to Mr. Putin and undermine their ability to live in both Russia and the West. In another new initiative, the United States and its allies have said they will seek to limit the sale of so-called golden passports that allow wealthy Russians linked to the Russian government to become citizens of Western countries and access their financial systems.
Although the measures are among the toughest taken to date, the announcement does not correspond to a general cut of Russia from SWIFT, which some officials see as a kind of nuclear option. Such a move would have essentially cut Russia off from much of the global financial system.
And some experts say that can only push Russia to expand the SWIFT alternative it created years ago when it started trying to “protect” its economy. But Russia’s equivalent system is primarily national; to make it a competitor to SWIFT, officials say, would require teaming up with China.
Saturday’s decisions came the same day German Chancellor Olaf Scholz announced his government was approving a transfer of anti-tank weapons to the Ukrainian military, ending its insistence on providing only non-lethal aid, like helmets.
At the same time, in a post on TwitterGerman Foreign Minister Annalena Baerbock and her Economy Minister Robert Habeck have acknowledged that the country is moving from opposition to a SWIFT ban to a narrowly targeted ban.
“We are working intensely on how to limit the collateral damage of a disconnection from #SWIFT so that it hits the right people,” they said. “What we need is a targeted and functional restriction of SWIFT.”
The announcement by the United States and its allies did not specify which banks would be cut from the system.
SWIFT, a Belgian messaging service formerly known as the Society for Worldwide Interbank Financial Telecommunication, connects more than 11,000 financial institutions around the world. It does not hold or transfer funds, but it allows banks and financial institutions to alert each other of transactions about to take place.
For weeks, the Biden administration has publicly downplayed the idea of cutting Russia out of the system, suggesting that while all options were on the table, such a move could create more problems than it solved.
But behind the scenes, US officials were pressing European allies to give Mr Putin some kind of indication that Europe was heading for greater economic isolation of his country.
Moreover, since SWIFT is a European organization, the United States allows European countries to take the lead on the issue. The only unilateral leverage the United States could use would be to impose sanctions, or threaten them, on the SWIFT organization itself if it continued to deliver messages for Russian institutions.
Some sanctions experts have argued that banning Russian financial institutions from SWIFT is overblown as a tool to punish Russia, saying tough sanctions against the country’s banks will have the same effect.
But others have argued that shutting Russian institutions out of the system would be a blow to the country’s financial sector and that excluding just a handful of banks doesn’t go far enough.
“A targeted cut would not achieve what is needed,” said Marshall S. Billingslea, who served as Assistant Treasury Secretary for Terrorist Financing in the Trump administration. “They’re just going to reorganize the banking industry to come up with someone else. The much simpler approach is to simply detach SWIFT from all Russian financial institutions.
David E. Sanger and Alan Rappeport reported from Washington, and Matina Stevis-Gridneff from Brussels. Christopher F. Schuetze contributed reporting from Berlin.