B2B Integration Networks are making the front pages of the newspaper again today as SWIFT faces growing pressure to block Iranian banks from using its network. An article from the Associate Press this morning provides a full background on the story stating “The United States and Europe are considering unprecedented punishment against Iran that could immediately cripple the country’s financial lifeline.” SWIFT was also mentioned in the front page headline story of today’s Wall Street Journal.
SWIFT, of course, is the world’s largest electronic banking network connecting approximately 10,000 financial institutions in over 200 countries around the world. SWIFT does not actually perform funds transfers or foreign exchange transactions. Instead, SWIFT’s role is to transport electronic messages that instruct banks to move money and exchange currencies among one another. As a result, SWIFT is the B2B integration network that connects the international financial community upon which the global economy depends.
My purpose in posting about this topic is not to be critical of SWIFT. I don’t envy the quandary SWIFT is facing. No matter what action they take SWIFT will likely be the target of criticism from some faction within the global banking community. Instead my purpose in this post is to illustrate the critical, strategic role that B2B integration technologies play in the global economy. Without the ability to share files and messages between different organizations, commerce as we know it comes to a halt.
Consider this – After years of imposing economic sanctions against Iran which have failed to deter its nuclear agenda, the two most powerful governments in the world are now considering severing B2B integration links as the most effective weapon against Iran. Why? Because Iran uses the SWIFT network to coordinate financial transactions related to its petroleum products – the country’s principle export. A Reuters article published last week stated that “Nineteen banks and 25 connected institutions from Iran sent and received some 2 million messages in 2010. They included banks the U.S. accuses of financing Iran’s nuclear programme or terrorism – Mellat, Post, Saderat and Sepah.” Loss of SWIFT connectivity could significantly impact the Iranian economy with increased inflation and currency devaluation.
SWIFT has always operated as a trusted, neutral network which does not judge the merits of the transactions it moves. However, the cooperative’s bylaws do prohibit from facilitating illegal transactions. SWIFT needs to act carefully as an action it takes could set precedent for future disputes. For example, suppose that tensions between China and Taiwan escalate in the future. Could China pressure SWIFT to cut off financial access to Taiwanese banks?
The AP article this morning stated that “Lawyers familiar with SWIFT’s operations said it could bar processing actions with any Iranian party or third parties representing Iran, though that would open the consortium to complaints of favoritism or political influence. It could permit the processing but quarantine Iranian transactions, or require warnings to those doing business with Iran. Penalties on Iran short of expulsion could allow SWIFT to preserve a greater appearance of neutrality but make business partners think twice, lawyers said.”
On February 5th, SWIFT issued the following statement on its web site in response to US Congressional pressure on Iran: “Regarding the recent legislation proposed by the US Senate Banking Committee regarding Iran, SWIFT fully understands and appreciates the gravity of the situation. We are working with US and EU authorities, as well as discussing with the G10 central banks which oversee SWIFT, to find the right multilateral legal framework which will enable SWIFT to address the issues.”
This month’s challenges with Iran are not the first time that controversy has emerged surrounding SWIFT and its financial transactions. In 2006, a front page story in the New York Times discussed how the banking network had been used to identify the money laundering activities of international terrorist organizations. The US Terrorist Finance Tracking Program to monitor SWIFT transactions led to the capture of high profile targets such as Riduan Isamuddin, known as the “Osama Bin Laden of Southeast Asia.”
2 Responses to “SWIFT Faces Tough Predicament as EU and US Pressure to Suspend Iranian Banks Rises”
[...] and multilateral action to intensify financial sanctions against Iran.” As I mentioned in my February post on this topic, I find it fascinating that one of the most powerful weapons the EU has in its warchest is to [...]
I am not sure SWIFT should be involved in any dispute between countries no matter the issue. SWIFT is intended to be neutral in all situation involving country disputes or the next thing we will see is requests asking SWIFT to block messages between Turkey and Arminia. If Countries wish to block any or all messages, for any reason, they should do this on their own through their in country screening processes (such as SDN lists). These lists normally screen in both directions so the entire process would, if required, block messages between entities in dispute. If SWIFT started this blocking then they could be relegated to keeping track of all disputes. Finally if SWIFT were to miss a message and that message flowed through an institutions business process (because that institution expected a SWIFT block), which entity would be at fault (SWIFT or the local financial institution) and how would compensation, if any, be calculated and under whose jurisdiction?