Sanctions may affect banks of friendly countries
The European Union continues to gush with ideas regarding various options for anti-Russian sanctions. This time, Brussels decided to ban the use of the financial messaging system (SPFS), the Russian analogue of SWIFT. According to Bloomberg, the measure will presumably be included in the 14th package of EU restrictions. It is unclear, however, how it will be implemented technically, given the closed functionality of the SPFS, which was originally created by the Central Bank of the Russian Federation for internal use. However, banks from those jurisdictions with which Moscow actively trades using SPFS — China, the UAE, Turkey, and CIS countries — may be subject to persecution.
The brainchild of the regulator appeared in 2014 on the crest of the first wave of sanctions, when there was talk about the possible disconnection of Russia from SWIFT. Just like its venerable international counterpart, SPFS is intended for the exchange of financial information when conducting both domestic and cross-border settlements on correspondent accounts. To date, more than 160 non-residents from 20 countries have been connected to SPFS. According to the Central Bank, over the three quarters of 2023, 180 million financial messages passed through it (2.7 times more than in January–September 2022), 98% of which were domestic.
The relevance of the system increased sharply after February 2022, when over 50 Russian banks came under Western sanctions, and some of the major players were disconnected from SWIFT. Under these conditions, the SPFS ensured “the uninterrupted transmission of financial messages both within the country and abroad” — exactly in accordance with the Central Bank’s guarantees. But what will happen if the European Union implements its idea of banning SPFS itself? How is this even possible?
“Although technically Western central banks will not be able to block SPFS — since they are not the issuer — in general, the idea is quite workable,” says financial analyst Fedor Sidorov. – It is impossible to “disable” Russia, as was the case with SWIFT, but it is possible to impose secondary sanctions on those who will use the Russian system “at the other end.” Most likely, the collective West will put pressure on users from 20 countries. However, the Central Bank will certainly find a way out, as it has done more than once in a similar situation.”
The next announced measure is directed not so much against Russia as against the countries with which it conducts active trade — China, the UAE, Turkey, the CIS republics, says Alexander Shneiderman, head of the sales and customer support department at Alfa-Forex. The goal is to make this interaction extremely difficult, which is already happening, if we recall the problems with payment for transactions with Chinese suppliers and customers: banks refuse to conduct transactions under the threat of blockages from the United States. The “cancellation” of SPFS completes the picture.
“Of course, the European Union cannot block the SPFS,” notes Shneiderman. – Perhaps Western regulators will identify cases of use of the system through requests to banks, and they, in turn, will “reveal their cards” under pressure. However, SPFS has a working alternative that has not yet been subject to sanctions — BRICS Pay. This is not a purely Russian, but an international (created within the BRICS economic association) mechanism for the exchange of financial information, and it will be more difficult to do something with it.”
Most likely, the measure will affect branches of banks of states friendly to the Russian Federation located on the territory of any EU country, believes economist and director of communications at BitRiver Andrei Loboda. Financial messaging transactions are easily monitored by regulators or even intelligence agencies. Accordingly, Russia may have additional difficulties with making payments through credit structures of China and Turkey, as well as EAEU countries operating in Europe. However, those banks that do not have branches in the EU will still be able to interact with the Russian system.
“Sanctions regarding SPFS will primarily hit migrants (who transfer money to their families in other countries), as well as their employers,” says financial expert, author of the Economism project Alexey Krichevsky. “The migrants themselves, having realized the extent of the personnel shortage in a number of industries, now want salaries twice as high as before. And if the SPFS comes under pressure, their appetites will grow even more — due to the lengthening of the cache delivery chain.”
On the other hand, inside Russia this will not be reflected in the word “at all.” Another thing is foreign markets, especially those where the sanctioned “Mir” cards are still in use. With Cuba and Korea, everything is quite transparent — this story will not affect them, but for the countries of Southeast Asia it may become a cause for concern, Krichevsky notes. The most unpleasant and contradictory thing in the entire sanctions process is that 95% of the restrictions hit the ordinary population, who are forced to adapt to these realities again and again without receiving tangible help from the state.