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SWIFT could slow Trump′s Iran sanctions | Business| Economy and finance news from a German perspective | DW

10. November 2018
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SWIFT could slow Trump′s Iran sanctions | Business| Economy and finance news from a German perspective | DW
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The Society for Worldwide Interbank Financial Telecommunication (SWIFT) is connected to over 10,000 banks and every second major cross-border transfer goes through its messages. It carries an average of approximately 26 million financial messages each day.

Based in Belgium, SWIFT claims political neutrality, but has bowed to US influence in the past, blocking transactions to Cuba and Iran. In the wake of the terrorist attacks of September 11, 2001, the US Treasury Department used SWIFT data to gain insight into terrorist financing and protect its citizens and their data.

US sanctions

As the Trump administration reimposes sanctions on Iran, Western companies and banks face a choice: if they do business with Iran, they could lose access to the US market. The next wave of US sanctions targets financial messaging, so SWIFT is under pressure from Washington to disconnect from Iran. 

US Secretary of State, Mike Pompeo announced that only eight jurisdictions would be spared from the sanctions, allowing them to keep importing oil from Iran and paying for the shipment through the SWIFT system. The European Union and its 28 member states were not among them, Pompeo said in a conference call.

US Treasury Secretary Steve Mnuchin said that the Trump administration would make clear to SWIFT officials that they were expected to disconnect all Iranian financial institutions that would be blacklisted by the US as sanctions take effect on Monday. He declined to name the targeted institutions.

Meanwhile, the European Union is moving ahead with an alternative “special purpose vehicle” to facilitate transactions with Iran for the bloc’s businesses. The EU announced that it would be “symbolically” ready when US oil sanctions take effect on November 4, but its system will not be operational until next year.

Read more: EU plan to sidestep Iran sanctions: How will it work?

  • US President Donald Trump signs an EO on Iran sanctions (Shealah Craighead )

    US sanctions against Iran are back in effect

    Sanctions signed off

    US President Trump signed an executive order on August 5 aimed at piling financial pressure on Tehran to force a “comprehensive and lasting solution” to Iranian threats, including its development of missiles and regional “malign” activities. Trump warned that those who don’t wind down their economic ties to Iran “risk severe consequences.”

  • Banknotes: US dollars, euros and Iranian rials (Getty Images/AFP/A. Kenare)

    US sanctions against Iran are back in effect

    Where’s the money?

    The first phase, which took effect on August 7, targets the Islamic Republic’s access to US banknotes, making transactions in a US-dollar dominated financial world difficult. A ban on Iran purchasing precious metals including gold further serves as an attempt to cut the country off from global markets.

  • IranAir passenger plane (picture alliance/AP Photo)

    US sanctions against Iran are back in effect

    Planes, cars and carpets

    Phase one also hits key industries including the purchase of commercial planes, cars and carpets. Iranian imports of graphite, aluminum, steel, coal, gold and some software are also affected. German automaker Daimler called off the production and sale of Mercedes-Benz trucks in Iran indefinitely after the sanctions came into force.

  • Iranian oil platform (Reuters/R. Homavandi)

    US sanctions against Iran are back in effect

    Fuel to the fire

    A second phase of sanctions — which is due to take effect on November 5 and will block Iran’s oil sales — is due to cause more damage. Several countries, however, including China, India and Turkey have indicated they are not willing to entirely cut their Iranian energy purchases.

  • Iranian President Hassan Rouhani (picture-alliance/AP Photo/Iranian Presidency Office)

    US sanctions against Iran are back in effect

    ‘Psychological warfare’

    Iranian President Hassan Rouhani said that the United States had launched “psychological warfare” against Iran to create division amongst its people. But he insisted that Iran still can rely on its allies China and Russia to keep its oil and banking sectors afloat. He has also demanded compensation for decades of American “intervention” in the Islamic Republic.

  • The EU's foreign policy chief, Federica Mogherini, with New Zealand foreign minister, Winston Peters (picture-alliance/AP/New Zealand Herald/M. Mitchell)

    US sanctions against Iran are back in effect

    EU protection

    European Union foreign policy chief Federica Mogherini said the bloc is encouraging small and medium enterprises to increase their business with Iran. She said Tehran has been compliant with their nuclear-related commitments. The EU issued a “blocking statute” to protect European businesses from the impact of the sanctions.

    Author: Keith Walker


How did SWIFT come about?

The SWIFT is a global member-owned cooperative. It was founded in 1973 by a group of 239 banks from 15 countries which formed a co-operative utility to develop a secure electronic messaging service and common standards to facilitate cross-border payments.  Its board is made up of 25 of the world’s largest banks, including representatives from two US banks — Citigroup’s Yawar Shah and J.P Morgan’s Emma Loftus.

Read more: Germany urges SWIFT end to US payments dominance

Prior to SWIFT, Telex was the only available means of message confirmation for international funds transfer. Telex was hampered by low speed, security concerns, and a free message format. In other words, Telex did not have a unified system of codes like SWIFT to name banks and describe transactions.

Although there are other message services like Fedwire, Ripple, and CHIPS, SWIFT continues to retain its dominant position in the market. Its success is attributed to how it continually adds new message codes to transmit different financial transactions.

Each evening at 1830 UTC, DW’s editors send out a selection of the day’s hard news and quality feature journalism. You can sign up to receive it directly here.


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