Nato has threatened to cut off Russia from the international Swift payment network if Russia were to invade Ukraine, as the Russian troop build-up on their border suggests it might.
Prior to 1973, when the Swift network was created, international money transfer instructions were exchanged by clunky telex machines. The Society for Worldwide Interbank Financial Telecommunications (Swift) was launched as a vast messaging network to send and receive instructions on international money transfers accurately and securely. Today, this network is used by 11,000 financial institutions in 200 countries and members message on another nearly 50 million times a day. Swift itself does not hold securities or cash; it provides the messaging platform. Each week, transfer instructions for about $100 trillion are issued on Swift. To put that in perspective, the world’s economic output in 2022 is expected to reach the same number.
Swift claims to be neutral. Its 3,500 shareholders elect a 25-member governance board. Its lead regulator is the National Bank of Belgium. Russia and China are represented on the governance board, but India is not. Despite protests by some European countries, the access of Iran’s banks to Swift was revoked. North Korea’s banks were removed in 2014. The use of Swift snap-offs as a tool of economic sanctions has resulted in the network itself becoming a target for cyberterrorist attacks.
The Swift network was involved in one of the largest bank heists in world history. In 2016, an outfit from North Korea called the Lazarus Group initiated 35 transactions worth over $1 billion from the account of Bangladesh Bank held at the Federal Reserve Bank of New York (FRBNY). The North Korean hackers had infiltrated the network of Bangladesh Bank using malware tied to the resume of a fictitious candidate, taken control of Swift terminals within the bank and initiated those transfers to multiple locations in the Philippines just before a long weekend. The FRBNY allowed five of the transfers, worth over $150 million, but halted the rest because the address of one of the banks on Jupiter Street in Manila happened to be the name of a sanctioned shipping line with connections to Iran. Of the total heist, $81 million has not yet been recovered. The Lazarus Group is the same one that hacked the emails of Sony Pictures in retaliation for the release of the 2014 spoof called The Interview that portrayed North Korea in bad light. The BBC podcast series ‘The Lazarus Heist’ is an entertaining listen that talks about this group of hackers and their exploits.
Since the West has explicitly wielded Swift-denial as a threat, China and Russia have been building their own international payment systems. China’s Cross-Border International Payment Systems (CIPS) was launched in 2019. In 2014, just around the time Russia annexed Crimea and was first threatened with being exiled from Swift, it launched a messaging system, the System for Transfer of Financial Messages (SPFS). Russia and China are in advanced stages of linking the two systems and several independent countries like Turkey and India have indicated a willingness to join. CIPS and SPFS do not have the depth or robustness of Swift, but these are attempts at creating infrastructure designed for a world order where the US, China and Russia would have distinct ‘spheres of influence’ and none would be the global hegemon. In a recent war-game exercise conducted at Harvard Kennedy School, bad actors stole $3 billion dollars using Swift to push countries towards acceptance of China’s new digital currency and North Korea was able to evade sanctions and buy materials for its nuclear quest.
To mix metaphors, Swift will itself need to make rapid changes to survive. Block-chain technology promises faster, less costly and more decentralized operations for a new global payments architecture. Ultimately, though, Swift is not only a technology platform for the exchange of messages, it is also a set of rules and standards that its user-members have accepted for the greater good. When trust among members breaks down and its governance lies with human beings, then the network itself gets put to a test, as we can see happening now. If governance is fully decentralized or subject to artificial intelligence, then that system is at risk of not only being hacked but also going rogue. North Korean hackers have hacked several cryptocurrency exchanges and stolen from their ‘hot wallets’ in recent years.
The conflict over Swift access is symptomatic of the world’s search for a different order than the one that has prevailed since World War II. The collapse of the conflict resolution system of the World Trade Organization (WTO), the polarization into blocs of some technologies ,particularly related to 5G telecom systems, and the vaccine nationalism of recent times are further examples of stress within the existing world order.
The more brazenly the West breaks ‘rules’ to facilitate military or strategic objectives, the more it sows the seeds of other alternatives. America’s President Joseph Biden recently said that the US will not send troops and military hardware to Ukraine because “that’s a World War if Americans and Russians start firing at one another”. As tanks roll up in eastern Ukraine, the control of access to Swift is a hair trigger on a bazooka that could fire from both sides.
P.S: “Mastering others is strength, mastering yourself is true power,” said Lao Tzu.
Narayan Ramachandran is chairman, InKlude Labs. Read Narayan’s Mint columns at www.livemint.com/avisiblehand
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