EU expels seven Russian banks from Swift but not Sberbank

The European Union (EU) published the rule that expels seven Russian banks from the Swift financial messaging system, as a result of Russia’s invasion of Ukraine, but the list does not include Sberbank, the country’s largest entity, nor Gazprombank, because they process a large part of the energy operations with the bloc.

Specifically, the list of entities that will be expelled from the system are Bank Otkritie, Novikombank, Promsvyazbank, Bank Rossiya, Sovcombank, Vnesheconombank (EBV) and VTBthe latter the second largest in the Russian financial system, according to the Official Journal of the EU.

The disconnection – agreed with the G7 powers this weekend – will be effective within ten days and will also apply to any person, entity and body established in Russia and whose property rights belong directly or indirectly in more than 50% to a entity of those affected, specifies the Council of the EU in a statement.

In addition, the EU also prohibits in this sanctions package investing in future projects co-financed by the Russian Direct Investment Fund, as well as selling, supplying, transferring or exporting euro-denominated banknotes to Russia, including the Government and the Central Bank of Russia.

With regard to the star measure, demanded since the beginning of the conflict by the Ukrainian government, the community bloc finally decided to leave out of those sanctioned with its disconnection from Swift the main Russian bank, Sberbank, and Gazprombank, so as not to hinder purchase operations of gas and oil by European countries.

According to community sources, these two entities process the vast majority of energy payments with the EU, so their inclusion on the list would have harmed the Member States and European companies.

“We would have liked to turn off specific transactions, but Swift doesn’t work like that. The different types of transactions cannot be discriminated, so we had to leave them off the list”, justify the same sources, who highlight that 25% of the Russian financial system is affected by the disconnection of Swift and that without counting VEB, which is a development bank.

Swiftbased in Belgium, is a platform that connects some 11,000 financial institutions around the world and works as a messaging system to report financial transactions, making it a fundamental pillar of the international financial system.

The possibility of sanctioning Russia by disconnecting it from the Swift was already on the table in 2014 as a result of the illegal annexation of Crimea and then Moscow calculated that its Gross Domestic Product (GDP) would fall by 5% as a consequence. The warning led him to create his own financial messaging system at the domestic level, although at the moment this is only used in 20% of internal transactions.

In this context, community sources ask to be “realistic” because “being disconnected from Swift doesn’t mean you can’t make payments” because they can always search “alternative methods”, like using email or fax, although the problem will be that the transactions will be much slower and more expensive.

“People want to be in Swift, it’s a problem not to be in Swift”, they claim, to later point out that for million-dollar transactions it may be profitable to assume the additional cost or wait longer to carry out the operations, but the costs for smaller payments will become “prohibitive”.

In any case, from Brussels it is emphasized that it is a first list that will be under constant “revision” and that it is subject to possible extensions depending on how the conflict in Ukraine evolves.