The Swift network, whose financial messaging system facilitates cross-border payments, has been caught in the middle of the US and EU showdown over how to handle one of the linchpins of the global financial system following Donald Trump’s decision to re-impose sanctions on Iran.
The US has declared its determination to sever Iranian banks and the Tehran central bank from foreign financial institutions as it increases sanctions in the coming months. Part of doing so will probably involve ensuring the cut off of the Iranian banking system as it did before the Joint Comprehensive Plan of Action in 2015.
Swift, which sent more than 7 billion messages last year, severed links with Iran in 2012 after the US pressured the EU to impose sanctions. Following the passage of the Iran nuclear deal in 2015, Swift reopened links. The question now is whether the EU will co-operate with any US requests for those connections to be severed again and whether Swift will find itself caught in the crossfire of a transatlantic dispute over sanctions.
Richard Nephew, a scholar at Columbia University’s Center on Global Energy Policy, told the FT: “I absolutely see this as a flashpoint between both sides. Swift has maintained it will only do what it is instructed to do from Brussels and there is no indication that the EU will bend on this point for the Trump administration.”
In a statement, Swift said US Treasury guidance suggested a ban would not come into effect until early November. “As there has been no related change to EU legislation we will naturally be consulting with and seeking clarification from both EU and US authorities. Our mission remains to be a global and neutral service provider to the financial industry,” it added. Swift connects more than 11,000 banks around the world and sent an average 28 million messages a day in 2017.
According to one person briefed on the discussions, the UK, France and Germany may try to negotiate carve-outs for their institutions and payments systems most likely to be affected by sanctions, and would also include provisions for Swift.
The US could not be more clear that they are going after Swift. “Fighting the Americans on Swift is a powerful if high-risk option for the Europeans,” said Behnam Ben Taleblu, a research fellow who focuses on Iran at the Foundation for Defense of Democracies. “America must clearly convey its intention to enforce sanctions and work to prevent Europe from contesting any of these penalties come November.
The open question is what is Swift’s tolerance for risk, and what side of the Atlantic will it follow. Legally they have to follow Brussels, but America has huge economic power in this situation.”