Sanctions against russia: swift exclusion easy to circumvent

Sanctions against Russia: SWIFT exclusion easy to circumvent

Above all, the exclusion of Russian banks from the SWIFT payment system is intended to weaken Putin’s regime economically. But massive consequences have so far failed to materialize. Research by WDR and SZ shows how the system is circumvented.

Hitting the Russian economy where it hurts – that was the stated goal of the Western sanctions packages from the U.S., EU or even the U.K. that were enacted against Russian super-rich, banks and even the central bank after the invasion of Ukraine.

In particular, the exclusion of Russian banks from the SWIFT cross-border payment system should deal a serious blow to the Putin regime. But especially the SWIFT sanctions are easy to circumvent. Too many helpers offer to transfer or hide money from Russian companies, banks and customers.

How German lawyers help Russian clients

Experts have been pointing out the role of the so-called “enabler” industry for decades now. This usually means lawyers, but also accountants or so-called wealth managers, who earn a lot of money by transferring and hiding suspicious assets.

These activities are often only revealed by international leaks such as the Panama Papers or the Pandora Papers. Now German law firms are coming under the spotlight: according to research by WDR and SZ, security authorities in this country have now gathered initial findings about how dodgy lawyers from Germany are helping rich Russians to get their money to safety.

Lawyers get paid well

The easiest way: you park it on attorney trust clients, for whom the attorneys are the account holders, not the Russian clients. This is where the money of clients, such as sanctioned persons, can be transferred, often without investigators becoming aware of the trail.

The problem of SWIFT sanctions against Russian banks can also be circumvented in this way, as the lawyers use Western banks and the money can thus easily move through the SWIFT system. Russian money is safe in the trust accounts of lawyers for the time being. Lawyers like to invoke their duty of confidentiality, should investigators want to investigate.

“It was almost to be expected that the sanctions would increase the use of such accounts,” says Christoph Trautvetter, an expert at Netzwerk Steuergerechtigkeit: “Money from many different sources flows into such lawyers’ accounts, and it goes to many different recipients – making it almost impossible for investigators to trace where the money came from and whether sanctions were violated.”

It’s a method that law firms have already used successfully during the Iran sanctions, according to the authorities’ findings, and which lawyers do, however, pay well for: “Such constructs with intermediary lawyer accounts are expensive – it’s only worth it if large sums are to be moved,” says Christoph Trautvetter.

How dependence on energy supplies helps Gazprombank

A second loophole hampers the sanctions: The fact that one of Russia’s largest banks, Gazprombank, is still able to operate largely without restriction. “As long as Russia’s Gazprombank remains in the SWIFT system and is not subject to severe sanctions, the sanctions package against Russia’s economy will have limited effect,” says Robert Greene, an expert with Carnegie’s Endowment for International Peace’s Technology and International Affairs program.

Gazprombank has been spared so far so that energy shipments from Russia to the West can continue to be paid for. But this is increasingly one of the Archilles verses the sanctions package. This is because energy deliveries and payments to Gazprom allow euro and dollar payments to continue to flow through Russian channels and support the country’s economy, which the West actually wanted to severely weaken with the sanctions.

Countries like China are developing alternatives to Swift

A third gateway is Chinese banks. “Chinese banks, which now have their own subsidiaries in Russia, handle trade between Russia and China in a straightforward manner,” Greene says. This has increased dramatically since the start of the war. That’s why concerns are also mounting in the West that cutting off Russian banks from Western payment systems like SWIFT might actually just accelerate China’s efforts to provide Russia with alternatives.

VTB, which was supposed to be hit hard by the sanctions, is already a member of the Chinese payment system CNAPS, which is becoming more and more of an alternative. “That means VTB can simply avoid SWIFT when payments are being processed between Russia and China,” Greene said. Russia itself has built up its own SPFS payment system in recent years, to which banks in many neighboring countries are also connected.

Overall, experts are seeing a growing number of ways in which sanctions against the Russian banking system can be circumvented, so that their effect often fizzles out. The “nuclear catastrophe” that the SWIFT exclusion was supposed to be has so far failed to materialize.

At the same time, German authorities are still struggling to freeze assets covered by the sanctions, as required by EU regulation. German Finance Minister Christian Lindner puts assets of sanctioned Russians and companies frozen in Germany at 4.5 billion euros. According to Gerhard Schick, chairman of the citizens’ movement Finanzwende, one should expect much more: “If you put this amount in relation to the more than 200 billion euros that have flowed from Russia to the Western world via Danske Bank alone, you realize: Germany has not achieved much.”

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