The head of the US Treasury Steven Mnuchin has announced that Washington wants the world-wide payment network to cut off its services to the entities that were affected by Iran sanctions and warned that otherwise SWIFT might be sanctioned as well.
The US will reintroduce sanctions against Tehran that were earlier lifted under the Iran nuclear deal, on November 5. These sanctions will affect the country’s energy, banking, and shipping sectors.
What is SWIFT?
The SWIFT is a global member-owned cooperative that is headquartered in Brussels, Belgium. It was founded in 1973 by a group of 239 banks from 15 countries which formed a co-operative utility to develop a secure electronic messaging service and common standards to facilitate cross-border payments. It carries an average of approximately 26 million financial messages each day. In order to use its messaging services, customers need to connect to the SWIFT environment.
SWIFT does not facilitate funds transfer: rather, it sends payment orders, which must be settled by correspondent accounts that the institutions have with each other.
The SWIFT is a secure financial message carrier — in other words, it transports messages from one bank to its intended bank recipient.
Its core role is to provide a secure transmission channel so that Bank A knows that its message to Bank B goes to Bank B and no one else. Bank B, in turn, knows that Bank A, and no one other than Bank A, sent, read or altered the message en route. Banks, of course, need to have checks in place before actually sending messages.
Significance of SWIFT:
Messages sent by SWIFT’s customers are authenticated using its specialised security and identification technology. Encryption is added as the messages leave the customer environment and enter the SWIFT Environment. Messages remain in the protected SWIFT environment, subject to all its confidentiality and integrity commitments, throughout the transmission process while they are transmitted to the operating centres (OPCs) where they are processed — until they are safely delivered to the receiver.