it is prepared to expel Iran as soon as the European Union gives the order.
Expelling Iran from the organization known as SWIFT could put a sudden chokehold on all Iranian exports and imports. SWIFT is a telecommunications hub for the financial world. It doesn’t move money, but it processes the paperwork for nearly all international financial transactions.
Without it, analysts say, a country must resort to such workarounds as barter trade, hawala-type transactions or carrying cash in suitcases—the last not being a serious method for conducting multi-million dollar transactions.
SWIFT—the Society for Worldwide Interbank Financial Telecommunications—announced its willingness to expel Iran in a statement last Friday. For weeks, it had resisted pressure from the United States. It could push off the Americans. But, as a European organization, it cannot ignore the EU. It said it would follow the EU’s orders. The EU has not yet framed a specific policy on SWIFT and it isn’t known when it will act. But SWIFT is no longer arguing against Iran’s expulsion.
“If SWIFT follows through on its public commitment to ban Iranian banks, it could sever the Iranian regime’s financial lifeline,” said Mark Dubowitz, an Iran sanctions expert advising the Obama administration. “It would also be a significant political embarrassment for the regime: Iran would be the first country in SWIFT’s history to be expelled from what is the financial equivalent of the United Nations.”
The expulsion of Iran holds risks ranging from huge inflation and financial hardship for ordinary Iranians to disruption and price increases on the world oil market. The latter might prompt the EU to delay Iran’s expulsion for some months or to phase in the expulsion over months, imposing restrictions for awhile before shutting the door tight.
The EU leadership has not given any public signals on what it is thinking. But SWIFT said Friday, “We understand that the European Union is now drafting new international sanctions regulations which directly affect the ability of EU-based financial communications services providers—such as SWIFT—to provide their services to Iranian financial institutions.”
SWIFT said in the statement on its website that it will comply with any EU instructions. SWIFT previously brushed off international efforts to use its network to target countries or companies, telling enforcers that it does not read or categorize transactions passing through its portals, merely forwards them on to addresses. That makes it hard to impose limited restrictions, but very easy to expel Iran totally and cease handling any telecommunications to or from Iran.
Iran is known to have been trying to set up front banks in other countries and those could help it get around the SWIFT expulsion. But any sudden jump in transactions involving a tiny bank would also set off alarm bells. Iran failed to get a front bank authorized a few years back in Bosnia. Whether it has been successful elsewhere isn’t known.
SWIFT’s statement Friday said Iran’s expulsion “reflects the extraordinary and highly exceptional circumstances of significant multilateral international support for the intensification of sanctions against Iran.”
In the five days since SWIFT’s announcement, there has been only silence from Iran, which suggests the Islamic Republic does not know what to do.
The Brussels-based organization is a little-known but essential way station for international transactions, electronically processing payment records. SWIFT handles cross-border payments for more than 10,000 financial institutions and corporations in 210 countries and territories.
More than 40 Iranian banks and institutions use SWIFT.
SWIFT was involved in a controversy in 2006 when it was revealed that it had skirted the EU’s strict privacy laws after the September 11, 2001, attacks by transferring millions of pieces of personal information from its US offices to American authorities as part of the US Terrorist Finance Tracking Program.
Established in 1973, SWIFT is overseen by 11 central banks from Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, the United Kingdom, the United States and the EU.
Proponents of expelling Iran from SWIFT say the financial network’s own bylaws require that its services not be used to facilitate illegal activities and allow it to prohibit users that are subject to sanctions.