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Was SWIFT’s governance compromised by Iran’s ejection?

I misrepresented a key issue with the discussions on the future of SWIFT in my blog entry last Friday, so thought I would write a follow up here, as it is THE key issue the network community faces.

Who owns SWIFT?

The obvious answer is the 9,700 banks who form the SWIFT community, but that’s not the answer.

Maybe it’s the few banks who most influence SWIFT that comprise the global transaction banks, but that’s not the answer either.

Maybe it’s the executive board and non-executives who comprise the corporate governance of SWIFT, but that’s also not the answer.

The answer is the lawmakers.

The lawmakers hit SWIFT where it hurts, in the legalities.

This was demonstrated by the US subpoena for the Terrorist Finance Tracking Program (TFTP) I referenced up front in my write-up last week.

And it was demonstrated again by the ejection of the Iranian banks from the SWIFT network earlier this month.

I put it that this was down to a move of the United Nations, and SWIFT picked up on this rapidly to say, “no, it was not the United Nations, it was the European Union.”

The official position regarding what happened is that SWIFT were forced to act by a decision of the European Council of the EU (member states), which prohibits provision of financial messaging services to the EU-sanctioned Iranian banks.

Because SWIFT is incorporated in Belgium, they have to comply with this new law and were instructed by the Belgian authorities to do so.

The action has no direct connection to the United Nations, USA or any other state outside the EU, but is all based on an EU decision which SWIFT had no choice about.

It is a complicated situation but I think it would be in SWIFT’s interest to behave as an instrument of the United Nations, rather than as the instrument of the USA, which is what the above demonstrates.

What the above demonstrates is that the US is learning how to control financial transactions globally in their war on the Middle East terror.

If Iran had been put before the United Nations for a vote, it is likely that the Chinese or Russians would have vetoed it.  Because the United Western Nations – America and the European Union – work in unison, America can leverage influence over Europe to achieve their objectives without the issue of the Chinese or Russian veto.

That’s what the above move demonstrated – using American influence over the European authorities to get the Iranians ejected from SWIFT.

Now SWIFT has to act under the legality of where it operates, and that’s why the US could get a subpoena on the American office of SWIFT to gain access to transactions related to terrorism under TFTP in 2006 and why they could do the same through the Belgian authorities in 2012.

So here’s the rub: if the Chinese asked for the Nepalese banks to be taken off the SWIFT network, would the Belgian authorities respond in a similar fashion?

I’m not sure.

Possibly.

But a United Nations legal structure over SWIFT would be far more neutral than the bipartisan Western alliance that dominates today.

That's why I put it that way in last week's blog – trying to be fair – and maybe that’s something SWIFT will seek to address in the future to ensure a more global neutrality.

 

p.s. some tell me that the Foreign Account Tax Compliance Act (FATCA) is another such concern about US interference in financial transactions overseas.

About Chris M Skinner

Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here...

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6 comments

  1. Incredibly naive to think that the UN is more globally neutral — it just has a different set of prejudices or interests.
    Trying to compare Iran with Nepal weakens your argument — I am not aware that Nepal threatens its neighbours or sponsors terrorism globally or threatens to destroy another member of the UN etc etc

  2. I was NOT comparing Nepal with Iran, but purely using Nepal as an illustration of a state that China might request to be blocked.
    Regarding UN neutrality – of course it’s not neutral. It is just a lot harder to get a UN mandate as evidenced with Syria recently and Iraq a decade ago, than a EU/USA mandate.
    Chris

  3. Interesting question:
    How to control transnational bodies that for sure need regulation, in a world where there is no unquestionable transnational authority ?
    It will be a very fine line between interest groups exerting “undue” regulation and organisations using the void to escape legitimate control, both cases being equally undesirable.
    Nothing really new I think and probably no satisfactory answer to Chris question.

  4. Well…SWIFT should better stay away from World politrics!!..But as in the famous Hollywood movie ‘Godfather’- one character says
    “FINANCE IS A GUN….
    AND POLITICS IS KNOWING WHEN To PULL THE TRIGGER.!!”

  5. Fritz Thomas Klein

    Please simply be aware that the Iranian banks SWIFT had to exclude by a EU mandate are solely the ones that are on the UN embargo list – not an embargo list put together by any single country.

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