Following the launch of a military operation against Ukraine by the Russian Federation; EU, US, UK and several other countries began imposing broad economic sanctions against Russia. In our previous article, we elaborated on the sanctions imposed by the US. Another recent and critical sanctions is the European Council’s decision and regulation of March 2, 2022, which removes 7 Russian banks from the SWIFT system.
The European Commission President Ursula von der Leyen explained that the purpose of these decisions is to cut off key Russian banks from the SWIFT network and send a clear message to Putin and the Kremlin. Further, the European Commission noted in a press release that these decisions were adopted in coordination with the Union's international partners, UK and US.
Scope of the Council’s Regulation and Decision dated March 2, 2022
The scope of Legislation 833/2014, which was issued after Russia's annexation of Crimea, has been expanded with the latest Regulation. As a result, 7 Russian banks, namely VTB Bank, VEB Bank, Bank Otkritie, Novikombank, Promsvyazbank, Bank Rossiya, Sovcombank and their subsidiaries are excluded from the SWIFT system. Accordingly, these banks will not be able to use the system as of March 12, 2022. The sanctions will also affect all legal entities, directly or indirectly, owned 50 percent or more by the said banks.
The Society for Worldwide Interbank Financial Telecommunication, or SWIFT, connects 11,000 financial institutions in 200 countries throughout the world. The removal of 7 Russian banks from the SWIFT system means that they will no longer be able to access foreign markets or carry out cross-border fund transfers.
This ban does not apply to Sberbank or Gazprombank. The reason for this is that these two banks are the primary payment channel for Russian oil and gas imports.
The export of Euro-denominated banknotes to Russia, including the Russian Central Bank, is also prohibited by the Regulation. The only exemption to this rule is when the supply, export, sale, or transfer of Euro banknotes is required for natural persons and their families travelling to Russia and activities concerning official purposes of diplomatic missions in Russia. Another sanction implemented by the Regulation is the prohibition to invest, participate or contribute to projects co-financed by the Russian Direct Investment Fund.
Who Is Bound by EU Council Regulations and Decisions?
Council decisions are directly binding on EU Member States, while Council regulations are binding on any person or entity under EU jurisdiction. Since SWIFT cooperative society is based in Belgium and is subject to EU law, the European Council's respective decision means that the aforementioned 7 Russian banks will not be able to use the SWIFT system.