A little-known company based in Belgium that facilitates many of the world's financial transactions has become central to the West's plan to prevent Iran from selling oil and other goods to raise money to fund its nuclear ambitions.
The company is called SWIFT, which stands for the Society for Worldwide Interbank Financial Telecommunication. It is a secure private network used by nearly every bank around the world to send payment messages to each other that then lead to the transfer of money across international borders.
SWIFT said Thursday it would block Iranian banks that are subject to European Union sanctions from using the service. Because global financial transactions are difficult without using SWIFT, Western governments hope the action will help isolate Iran financially.
The European Union has announced sanctions against Iranian oil starting this summer, and EU countries have already begun to slow purchases of Iranian oil. Now that Iran and many of its banks are prevented from using SWIFT, it will be more difficult for the country to get paid for its oil. A single oil tanker delivery can be worth $100 million _ far too much money to move easily across borders without electronic trading.
Below are some questions and answers about SWIFT.
Q: What is SWIFT?
A: SWIFT is a cooperative based in Belgium that allows banks and other global financial institutions to send payment messages to each other securely. It was set up by banks in 1973. Non-bank financial institutions were allowed to join in 1987 and corporate customers of banks were allowed to join in 2000. The service has more than 10,000 users in 210 countries. About 17 million messages are sent every day.
Q: How does SWIFT facilitate trade?
A: By giving banks around the world a common language and a secure, private system to send payment messages. It doesn't hold any money or even transfer the money. Once users exchange messages, funds are moved automatically either from one account to another or by wire transfer services to a party receiving money.
Q: Who oversees SWIFT?
A: The central banks of Belgium, Canada, France, Germany, Italy, Japan, The Netherlands, United Kingdom, United States, Switzerland, and Sweden, along with the European Central Bank. They make sure the service is stable and secure because it is so crucial to the global financial system. It is up to SWIFT customers to verify that the party it is doing business with is legitimate and to report suspicious activity to local governments.
Q: What do Western governments want from SWIFT?
A: They want SWIFT to enforce sanctions on Iranian banks by not allowing the banks to send or receive financial messages. Western nations hope that this will make it much more difficult for Iran to buy and sell goods and services, increasing the financial pressure on Iran.
Q: Why is this strategy being pursued now?
A: It's part of a broader effort by Western nations to tighten economic sanctions that so far have not forced Iran back to nuclear talks. High global oil prices have boosted Iran's oil income and blunted the effect of other economic sanctions. It also may help the U.S. buy time to persuade Israel not to launch a pre-emptive military strike on Iran.
Q: Will Iran be able to sell its oil without access to SWIFT?
A: Probably. But Iran could have difficulty selling as much oil as it would like and could be forced to accept below-market prices. Banks in countries such as India and China, which are still planning to buy Iranian oil, could communicate outside of the SWIFT network and use wire transfer services to send money to Iran. Iran could also accept hard assets such as gold for its oil, though that would be inefficient and risky.
Even if financial institutions can find a way to trade with Iran, they may choose not to in order to avoid being banned from doing other business with Western nations.
Q: Are there any other ways Iran might work around the sanctions?
A: SWIFT outsources some of its message processing to regional contractors. That practice could open a loophole for Iran. Iran could try to mingle some of its oil with oil that flows through international pipelines, which would help mask its origin. Iran could also accept payment for oil in a bank outside of Iran and that money could then be used to buy goods or services that then flow into Iran.
Jonathan Fahey can be reached at http://twitter.com/JonathanFahey.