The G7 and the EU are formulating a new package of sanctions against Russia, focusing on banks that utilise the Bank of Russia's financial message transmission system (SPFS), a local equivalent of SWIFT, according to sources cited by Bloomberg on June 2.
The EU is revving up to impose a fourteenth sanctions package as it continues to attempt to turn the screws on the Russian economy, without much effect.
As bne IntelliNews reported, Russia economy is amongst the fastest growing of all the major economies in the world and the Central Bank of Russia (CBR) predicts at least 2.2% of growth this year in its latest macroeconomic survey, while the International Financial Institutions (IFIs) are predicting even stronger growth of above 3% this year. The Economy grew by 5.4% in the first quarter of this year, but an overheating economy and persistent high inflation remain major headaches.
In order to slow Russia’s growth Western nations are currently discussing potential measures, which may include sanctions on banks that use SPFS to bypass existing restrictions.
Russia has managed to dodge oil sanctions which are increasingly a spent cannon, and technology sanctions have also largely failed thanks largely to China’s help, but the financial sanctions that were imposed in December as part of Office of Foreign Assets Control (OFAC) smart sanctions have been amongst the most effective. For example, major Turkish and Chinese banks have pulled out of Russia this year due to fears of being hit by US secondary sanctions.
Bloomberg reports that the use of SPFS tripled in 2023 compared to 2022, and the system is now employed by over 150 foreign banks across 20 countries, including China, Belarus, Armenia, Tajikistan, and Kazakhstan.
The EU is also reportedly considering a ban on SPFS within its territory. However, some member states are opposing a complete ban, fearing it might impact 'illegal transactions' and strain relations with third countries, Bloomberg noted.
Additionally, there are discussions about imposing restrictions on banks from third countries that 'assist Russia in circumventing sanctions'. Stricter requirements for companies to scrutinise their subsidiaries and supply chains are also being considered.
The SPFS was launched in test mode in 2014 following Russia’s annexation of the Crimea and in anticipation of extreme sanctions. It became fully operational in 2017 and has grown since then as Russia pushed its partners to adopt the system to bypass the widespread use of SWIFT. As of March 2024, the central bank reported that the system had 556 participants from 20 countries. Sanctions banning Russia's use of SWIFT were imposed only days after Russia’s invasion of Ukraine in February 2022.
