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UKRAINE

Swift banking: How would Germany’s ban sanction Russia?

Since Germany supported a ban on Russia from the Swift global payments system, here's what that entails and how it would act as a sanction on Russia.

Swift banking: How would Germany's ban sanction Russia?
Russian forces were approaching Kyiv from the north and northeast. Photo: Sergei SUPINSKY/ AFP

In the latest round of sanctions against Russia, Germany and other Western allies agreed to cut Russia out of the Swift payments system.

The group of world powers said in a statement it was “resolved to continue imposing costs on Russia that will further isolate Russia from the international financial system and our economies.”

Exclusion from Swift, a very discreet but important cog in the machinery of international finance, is one of the most disruptive sanctions the West has deployed against Russia for its invasion of Ukraine.

READ ALSO: Germany set to shut airspace to Russian planes on Sunday

The move had been threatened in recent weeks by the European Union and other Western allies as a means of escalating punishment of Russia for its aggressions against its ex-Soviet neighbour.

As the Russian military stepped up its assault on Ukrainian cities on Saturday, Western powers sought to debilitate the country’s banking sector and currency by cutting selected banks from the international system used to transfer money, severely hamstringing Russia’s ability to trade with most of the world.

Italy and France backed the measure, with Germany shortly after also pledging its support, albeit in a slightly more cautious manner due to fears of the collateral damage such a move would create.

German leaders said they were working on excluding Russia from the Swift interbank system in a “targeted and functional” way.

The United States, Canada, the European Commission and Britain have also given their support.

EXPLAINED: How the Ukraine crisis could impact Germany

Wealthy Russians connected to President Vladimir Putin’s government will also no longer be allowed to use the so-called golden passport system to obtain European citizenship for themselves and their family members.

Ukrainian military vehicles drive through Kyiv.

Ukrainian military vehicles drive through Kyiv. (Photo by Daniel LEAL / AFP)
 
 

What is Swift?

Founded in 1973, the Society for Worldwide Interbank Financial Telecommunication, or SWIFT, actually doesn’t handle any transfers of funds itself.

But its messaging system, developed in the 1970s to replace relying upon Telex machines, provides banks the means to communicate rapidly, securely and inexpensively.

The non-listed Belgium-based firm is actually a cooperative of banks and proclaims to remain neutral.

What does Swift do?

Banks use the Swift system to send standardised messages about transfers of sums between themselves, transfers of sums for clients, and buy and sell orders for assets.

More than 11,000 financial institutions in over 200 countries use Swift, making it the backbone of the international financial transfer system.

But its preeminent role in finance has also meant that the firm has had to cooperate with authorities to prevent the financing of terrorism.

READ ALSO: Germany says EU will ‘severely’ sanction Putin

A Ukrainian serviceman holds a rocket-propelled grenade launcher

A Ukrainian serviceman holds a rocket-propelled grenade launcher on his position on the front line near Novognativka village, Donetsk region on February 20th, 2022. Anatolii STEPANOV / AFP

Who represents Swift in Russia?

According to the national association Rosswift, Russia is the second-largest country following the United States in terms of the number of users, with some 300 Russian financial institutions belonging to the system.

More than half of Russia’s financial institutions are members of Swift, it added.

Russia does have its own domestic financial infrastructure, including the SPFS system for bank transfers and the Mir system for card payments, similar to the Visa and Mastercard systems.

Are there precedents for excluding countries?

In November 2019, Swift “suspended” access to its network by certain Iranian banks.

The move followed the imposition of sanctions on Iran by the United States and threats by then-Treasury Secretary Steven Mnuchin that Swift would be targeted by US sanctions if it didn’t comply.

Iran had already been disconnected from the Swift network from 2012 to 2016.

Is it a credible threat?

Tactically, “the advantages and disadvantages are debatable,” Guntram Wolff, director of the Brussels-based Bruegel think tank, told AFP.

In practical terms, being removed from Swift means Russian banks can’t use it to make or receive payments with foreign financial institutions for trade transactions.

OPINION: This is Russia’s war, but we Europeans need to learn fast from our mistakes

“Operationally it would be a real headache,” said Wolff, especially for European countries that have considerable trade with Russia, which is their single biggest supplier of natural gas.

Western nations threatened to exclude Russia from Swift in 2014 following its annexation of Crimea.

But excluding such a major country – Russia is also a major oil exporter – could spur Moscow to accelerate the development of an alternative transfer system, with China for example.

What does Germany say about the move?

Banks hit by the new measures are “all those already sanctioned by the international community, as well as other institutions, if necessary”, said the German government’s spokesman in a statement.

“This is intended to cut off these institutions from international financial flows, which will massively restrict their global operations,” he added.

The allies also agreed to impose restrictive measures to prevent the Russian central bank from “using international financial transactions to prop up the ruble”, he said.

Germany has previously showed hesitation from backing the move – earlier this week, German Finance Minister Christian Lindner said he was “open” to including Swift in the EU’s sanctions response package, but expressed concern for the country’s heavy reliance on Russian gas.

Germany’s blocking of Russia from Swift “would mean that there is a high risk that Germany will no longer receive gas, raw material supplies from Russia,” he added.

But the authorities since reviewed their stance, agreeing to back the move in a bid to ramp up sanctions against Russia.

EU foreign ministers are due to meet on Sunday evening to discuss further sanctions.

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UKRAINE

Rapping, breakdancing Ukrainians win Eurovision in musical morale boost

Ukraine won the Eurovision Song Contest Sunday with an infectious hip-hop folk melody, boosting spirits in the embattled nation fighting off a Russian invasion that has killed thousands and displaced millions of people.

Rapping, breakdancing Ukrainians win Eurovision in musical morale boost

Riding a huge wave of public support, Kalush Orchestra beat 24 competitors in the finale of the world’s biggest live music event with “Stefania”, a rap lullaby combining Ukrainian folk and modern hip-hop rhythms.

“Please help Ukraine and Mariupol! Help Azovstal right now,” implored frontman Oleh Psiuk in English from the stage after their performance was met by a cheering audience.

In the Ukrainian capital Kyiv, the triumph was met with smiles and visible relief.

“It’s a small ray of happiness. It’s very important now for us,” said Iryna Vorobey, a 35-year-old businesswoman, adding that the support from Europe was “incredible”.

Following the win, Psiuk — whose bubblegum-pink bucket hat has made him instantly recognisable — thanked everyone who voted for his country in the contest, which is watched by millions of viewers.

“The victory is very important for Ukraine, especially this year. Thank you from the bottom of our hearts. Glory to Ukraine,” Psiuk told journalists.

Music conquers Europe

The win provided a much-needed morale boost for the embattled nation in its third month of battling much-larger Russian forces.

Mahmood & BLANCO  performing for Italy at Eurovision 2022

Mahmood & BLANCO perform on behalf of Italy during the final of the Eurovision Song contest 2022 in Turin, Italy. (Photo by Marco BERTORELLO / AFP)

“Our courage impresses the world, our music conquers Europe!” he wrote on Facebook.

“This win is so very good for our mood,” Andriy Nemkovych, a 28 year-old project manager, told AFP in Kyiv.

The victory drew praise in unlikely corners, as the deputy chief of the NATO military alliance said it showed just how much public support ex-Soviet Ukraine has in fighting off Moscow.

“I would like to congratulate Ukraine for winning the Eurovision contest,” Mircea Geoana said as he arrived in Berlin for talks that will tackle the alliance’s expansion in the wake of the Kremlin’s war.

“And this is not something I’m making in a light way because we have seen yesterday the immense public support all over Europe and Australia for the bravery of” Ukraine, Geoana said.

British Prime Minister Boris Johnson called the win “a clear reflection of not just your talent, but of the unwavering support for your fight for freedom”.

And European Council President Charles Michel said he hoped next year’s contest “can be hosted in Kyiv in a free and united Ukraine”.

‘Ready to fight’
Despite the joyous theatrics that are a hallmark of the song contest, the war in Ukraine hung heavily over the festivities this year.
 
The European Broadcasting Union, which organises the event, banned Russia on February 25, the day after Moscow invaded its neighbour.
 
“Stefania”, written by Psiuk as a tribute to his mother before the war, mixes traditional Ukrainian folk music played on flute-like instruments with an invigorating hip-hop beat. The band donned richly embroidered ethnic garb
to perform their act.
 
 
Nostalgic lyrics such as “I’ll always find my way home even if all the roads are destroyed” resonated all the more as millions of Ukrainians have been displaced by war.

Kalush Orchestra received special authorisation from Ukraine’s government to attend Eurovision, since men of fighting age are prohibited from leaving the country, but that permit expires in two days.

Psiuk said he was not sure what awaited the band as war rages back home.

“Like every Ukrainian, we are ready to fight as much as we can and go until the end.

Britain’s ‘Space Man’

Ukraine beat a host of over-the-top acts at the kitschy, quirky annual musical event, including Norway’s Subwoolfer, who sang about bananas while dressed in yellow wolf masks, and Serbia’s Konstrakta, who questioned national healthcare while meticulously scrubbing her hands onstage.

Coming in second place was Britain with Sam Ryder’s “Space Man” and its stratospheric notes, followed by Spain with the reggaeton “SloMo” from Chanel.

After a quarter-century of being shut out from the top spot, Britain had hoped to have a winner in “Space Man” and its high notes belted by the affable, long-haired Ryder.

Britain had been ahead after votes were counted from the national juries, but a jaw-dropping 439 points awarded to Ukraine from the public pushed it to the top spot.

Eurovision’s winner is chosen by a cast of music industry professionals — and members of the public — from each country, with votes for one’s home nation not allowed.

Eurovision is a hit among fans not only for the music, but for the looks on display and this year was no exception. Lithuania’s Monika Liu generated as much social media buzz for her bowl cut hairdo as her sensual and elegant
“Sentimentai”.

Other offerings included Greece’s “Die Together” by Amanda Georgiadi Tenfjord and “Brividi” (Shivers), a duet from Italy’s Mahmood and Blanco.

Italy had hoped the gay-themed love song would bring it a second consecutive Eurovision win after last year’s “Zitti e Buoni” (Shut up and Behave) from high-octane glam rockers Maneskin.

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