Filenews 2 March 2022
By Leonidas Stergiou
The exclusion of Russia from the global SWIFT network was only the beginning or in fact, the warning of "closing" SWIFT for Russian banks was the beginning of a well-planned strategic plan. Russia's lack of clarifications and trading windows with the rest of the world were also part of this plan. Like the clarifications and new directives arriving at banks, central banks and guardianship companies of the Western world, every hour, they are part of this. Greek banks are also on all this canvas, from day one, with the freezing of bank accounts and assets of specific persons, from yesterday noon, but with non-acceptance of Russian cards.
The aim of the delays and instructions in instalments seems to have been twofold: to identify Russia's alternative ways of dealing across borders with legal and natural persons and, above all, to document the linking of companies, banks and individuals - even of other ethnic groups with accounts, for example in euros or dollars - linked to the Putin regime or to Russian interests. The second objective was to limit the effects of the Western world, in relation to those aimed at Russia.
The delay in decisions on sanctions, swift directives, the details of the exclusion of specific banks and the publication of the list of natural persons (confidentially to those involved in the financial system) and other details, gave the beginning the impression that behind a general decision on SWIFT arise practical problems, which were not foreseen. As well as theoretical solutions to Russia's alternatives to bypass SWIFT.
The design so far leaves (until the moment these lines were published) main stakeholders, such as banks - and the Greek ones - with questions. The banks, at national level, with their associations, with the central banks, but also at a pan-European level, in cooperation with the USA and Britain, are constantly in meetings these days, sending questions to the competent authorities to deal with the practical problems caused by the general directive to exclude Russia from SWIFT.
Indeed, almost every hour come clarifications, more details, lists of names, instructions for each case, but also for compliance with European law on the observance of human rights, the presumption of innocence and the avoidance of unilateral decisions of a horizontal nature.
Solutions and new problems
To a certain extent, the clarifications provided solutions, on some other practical and everyday issues they caused more confusion. For example, how is a transaction that took place before the penalties, but is cleared and settled after the penalties, treated? Does it stay in the air? Another example: What should a Greek bank that has a Russian customer that holds an account in euros and sends a remittance to another company in Europe or to another bank do? Is the origin or currency of an account held that makes a transaction suspicious? Or it falls under the directives on the total freezing of accounts and assets, when another directive makes national, European and international law clear and does not make a bank a 'judge' to judge and decide.
As the hours go by, the directives become stricter and more restrictive, while the lists of names (individuals, companies and banks) increase, with banks now asking for solutions for even temporary and legal solutions, as the directives, at the same time, provide for sanctions on banks that did not follow the rules or did not take timely preventive measures on suspicious transactions.
Capital.gr's research
The Capital.gr in order to shed more light on the issue of both technically and legally complexly, as well as the strategies of the West, contacted European authorities, custodian companies, business associations and banks and other stakeholders, such as investment firms and investment banks operated on behalf of Western investors investing in roubles or Russian bonds and shares.
The main conclusions, briefly and as long as they are valid until the time these lines are published, as new directives are constantly coming, with the aim of tightening the ring around Russia are as follows:
1. The exclusion of Russia from SWIFT was only the beginning that caused only practical difficulties in terms of speed and cost. SWIFT is something like the old wrapper that announces when, by whom and to whom a remittance or transaction is moving. It does not carry out transactions, clearing and settlement. Therefore, in theory, Russian banks could make transactions with others outside the borders especially if they have agreements and the last available in rubles. However, as always, the theory is far from reality. This solution is time-consuming and expensive, while it is difficult to identify a "correspondent" bank or other company with cash in rubles that can make the transactions. Moreover, this practice is detectable, while those known for links with Russian banks risked a bank run - an outflow of deposits out of fear from their customers - in the face of sanctions. One such case existed with Sberbank Europe AG.
2. Exclusion of banks and legal entities outside Russia related to Russia. In addition to avoiding the bank run, as in Sberbank, the main issue was the exclusion of the case of transactions between Russia and abroad with correspondent banks or legal entities based in Europe or other Western countries. In other words, there is a case that a European bank, based in a European country, with available rubles can be used as an intermediary for transactions with Russia. These cases were identified and excluded, with some exceptions. The issue of exceptions and why the list of exemptions involving banks, legal persons and individuals is constantly becoming stricter is another part of the plan.
3. Exclusion of natural persons, i.e. freezing of bank accounts and assets directly or indirectly linked to the Putin regime. This list, until the time these lines were published, was not clear. And that was no accident. The directive also concerned Greek banks. This restriction even concerned natural persons (Russians or other nationalities) who are somehow related to Russia (e.g. transactions, assets, entrepreneurship in Russia, etc.) even if the accounts and assets are located in a Western country and are kept in euros. Here, the problem of the banks was how to distinguish, for example, a simple Russian or a Russian or a Greek woman of Russian origin who works or operates in Greece, with deposits in euros from a so-called "Russian tycoon" and a suspect who falls under the sanctions list. The reason for the delay was that the authorities involved (European, British and American) had an initial list, but they wanted to identify cases of shop windows, e.g. depositors or investors of Western states and customers of European banks with assets in European states, but who operated or could or were willing to act as a way of circumventing sanctions. For this reason, as the hours went by, banks received more specific instructions (stricter) and the list of "excluded" banks, companies, investors, and individuals grew.
4. However, as the hours went by and as the instructions became stricter and more specific in terms of compliance with the rules, but no detailed lists and corresponding instructions were given, the practical problems began to increase. On the one hand the banks, for example, could not freeze by their own decision accounts and assets of all Russian customers or any others they suspected might be related to support for the Putin regime, on the other hand they were responsible if they did not take timely measures and did not inform the competent authorities. Thus, began an endless list of questions and clarifications that finally, until yesterday afternoon, led, with the permission of the competent authorities to the following instructions: Freezing all accounts and assets of known Russians and non-Russians included in the lists and hold all the rest that may be related. Thus, for example, the banks stopped accepting any card issued by a Russian bank while they froze or temporarily put on ice or monitored all the accounts and assets of Russians or other nationalities that they knew were related to Russia.
5. The ring around Russia was strengthened when it was decided to freeze all assets of Russia (e.g. the central bank of Russia in foreign exchange, bonds, gold, etc.) in other central banks or commercial banks. So, as of yesterday afternoon, every Russian account of a natural or legal person or every Russian asset has been frozen in the Western world and in Greece.
6. Since yesterday afternoon, transactions with banks located outside Russia, but which may be considered European, but found to be related to russian commercial banks or the Russian central bank, or to have a contract of a correspondent bank of Russian banks or to be related to anything with Russia, except for energy payments, have also been "frozen".
7. Switzerland also entered the blockade of bank accounts outside Russian territory, where it was found that the management of energy receipts (natural gas, etc.) from Europe was carried out in a Swiss bank. Only the deposit of money for energy was allowed there and any other transaction was prohibited.
8. There have also been limitations and exceptions in the money and capital markets. Any foreign exchange transaction with a ruble or Russian bond, stock, etc. that are traded within Russia were stopped. This means that if someone, e.g. an American investor or an investment bank, had bought a Russian bond, paid in dollars, the dollars were converted into rubles and became foreign exchange reserves for the Russian central bank, and with the rubles, for example, the bonds were bought. If these expired, their value in rubles should be converted into dollars and the amount to dollars should be returned to the foreign investor. This process is no longer being done because Russia cannot do business directly with the Western world. Therefore, this investor cannot be paid.
9. There are, however, rubles, Russian bonds and Russian shares that are traded on foreign markets, outside Russia. Here, too, such transactions are prohibited unless the counterparty is connected to Russia's energy sector, for the time being.
10. Russian companies or companies of Russian interests and Russian companies have subsidiaries or even parent companies outside Russia. Here, too, transactions with them are frozen, unless they are linked to energy payments to Russia, for the time being.
11. Under the microscope are the exceptions relating to energy, because they can be used as vehicles for other purposes.
12. Russia's economic and banking blockade is controlled and can reach an absolute blockade. Any "holes" or "windows" that exist remain for reasons of non-interruption of energy and for other strategic reasons of pressure or gradual pressure.
13. Some harvesting bypasses of Russia, such as through cryptocurrencies or the Mir system through China or Through India, work well in theory, but not in practice. Also, these channels are also monitored when it comes to cryptocurrencies, as long as they remain cryptocurrencies they are not controlled. However, these matter and serve a purpose when they are converted into a currency or a commercial transaction, where they will be located. As far as the Mir or Indian systems are concerned, apart from being time-consuming, they are also difficult in practice. For example, in order for a European trader from Russia to multiply via China or India he will have to find a bank that is a correspondent with a Russian one, has rubles, open an account there and carry out the transaction, with a long delay and high cost. Also, Mir is a system in which mainly card payment systems are involved, so the bank to be found should also be a member of Mir, while in any case the exchange rate difference and variance should be taken into account during the transfer of rouble money with the Chinese or Indian currency and the currency of the Western merchant.
14. There was a sharp fall in the rouble exchange rate and a decision to raise interest rates on the Russian currency, along with capital controls. Since there are no transactions outside Russia, one may wonder about how rouble outflows took place and the exchange rate fell. The answer is that there were no outflows outside the country, but the pressure on the hetomy was created by deposit withdrawals within Russia and the demand to convert the local currency (ruble) into foreign exchange. That is, the Russians made withdrawals from their accounts and at the same time converted the rubles into foreign exchange. This created the fall in the rouble exchange rate but also the decision to increase interest rates (to keep rubles on deposits) and capital controls, as well as to suspend the stock market (sales of shares, bonds in rubles and demand for conversion to foreign exchange). Conversion to foreign exchange would lead to the depletion of foreign reserves that are not dealt with by printing a rouble, while assets of Russia's central bank (foreign exchange, gold, etc.) located outside its borders are already frozen.
15. The "opening up" to foreign exchange obligations and claims to foreigners and investments in Russia that could not be paid due to the sanctions is the second part of the impact on Russia when it is decided to lift this blockade.
16. Western investors and businesses not involved with the Putin regime face losses and defaults, such as a trader who sold furniture to Russia or made an import and payments are not possible. Or the foreign investor whose Russian bond expired or wanted to sell Russian shares or take his money from Russia and can't. Indeed, in some cases, the fall in the rouble exchange rate can exacerbate the damage. For this reason, the moves are being made gradually and carefully, in order to limit any losses in the West (this is why payments to Russia for energy are allowed to all banks) and to maximize pressure on Putin, in such a way that any impact at the individual level is manageable and justifies the public and international interest. Moreover, the directives, in addition to the recommendation on the protection of human rights, the freedom of movement of capital, the presumption of innocence, etc., state that this rule applies to all persons regardless of nationality, origin and state of residence and activity. However, the decisions to put pressure on Russia are, unfortunately, difficult and the collateral damage, rather, is a given, however much there is an attempt to minimise the short term.
