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President Trump’s “America First” foreign policy has run into an obscure obstacle at the heart of the global financial system.
The Trump administration abandoned the nuclear deal with Iran this year and is reimposing sanctions against the country. The sanctions leave Western companies and banks with a stark choice. If they do business with Iran, they lose access to the American market and financial system. Not surprisingly, businesses and banks have been cutting ties with Iran or shelving plans to invest there. But one important financial link to the country remains: the financial messaging service that plays a crucial role in moving money around the international banking system.
The messaging service is run by a Belgian cooperative called Swift. The service, which is owned and used by banks around the world, plays a central role in the flow of money across the globe. If, say, a Bank of America customer wants to send money to a client of Barclays, Bank of America will send a message over Swift’s network to Barclays, notifying it of its intention to move the money. Swift does not hold any of the money itself.
Because the next wave of United States sanctions target financial messaging, Swift now finds itself under pressure from Washington to disconnect from Iran. But it has not done so yet — and time is running out. Those sanctions take effect after Nov. 4.
The Trump administration now has to weigh some tough choices. It could take a hard-edge approach and impose penalties on Swift or the banks and people connected to the entity. But that could unsettle the major financial institutions that own and rely on Swift. The importance of the messaging service is hard to overstate. Swift connects more than 11,000 banks across more than 200 countries, and there is no other entity that could quickly step in and take its place.
But if Swift is allowed to maintain its current connections with Iran, the country’s leaders could exploit Swift to move money in and out of the country. It would also help the European Union’s efforts to keep the Iran nuclear accord afloat.
Here are some of the questions that loom over the Swift battle.
President Trump’s national security adviser, John R. Bolton, has taken a hawkish approach to Iranian sanctions. Last month, he said that executives at entities like Swift needed to ask whether doing business in Iran was “worth the risk.”
But the Treasury Department actually oversees the imposition of sanctions, and it has significant leeway in putting them into effect. When asked how it might approach Swift, the Treasury declined to comment specifically on any potential sanctions against the messaging service. In an emailed statement, the agency added, “Regardless of the mechanisms a person or entity tries to use to transact business with a sanctioned Iranian entity, Treasury intends to take action against those conducting prohibited transactions.”
Treasury Secretary Steven Mnuchin was expected to discuss Iranian sanctions and Swift with European officials at the meeting of the World Bank and the International Monetary Fund in Bali, Indonesia, which ends on Sunday.
Since large European energy companies have severed ties with Iran, saying they did not want to jeopardize their business in the United States, Swift could do the same. Or it could decide doing business in the country was too risky, perhaps citing concerns that Iran’s banks don’t comply sufficiently with international regulations and norms. Recall that Swift cut ties with Iran in 2012, when sanctions were imposed on Iran.
But to Swift’s leaders, the current situation may not be so straightforward. In 2012, both the United States and the European Union imposed penalties on Iran, and Swift, as a Belgian entity, had to comply with the bloc’s measures.
Today, the European Union is trying to maintain trade and financial connections with Iran and is actively trying to frustrate the United States’ Iran policy. Swift may fear that relations with the bloc may deteriorate if it bows to Washington. The European Union is working on its own payments system to support trade with Iran.
In a statement, Swift said it was consulting with authorities from both the United States and the European Union.
If the Trump administration takes action against Swift, it must do so with care. Placing sanctions on Swift would most likely cause banks to stop using the service, which might be enough to prompt Swift to disconnect from Iran.
But the threat of sanctions on Swift could rattle the global financial system. Agencies like the Treasury typically avoid policies that could put stress on the world’s financial architecture. The Treasury can also obtain information from Swift under the Terrorist Finance Tracking Program. If Swift stopped processing Iranian money flows, the United States might end up with less information about money moving in and out of Iran.
Richard Goldberg, a senior adviser at the Foundation for Defense of Democracies, which supports sanctions against Iran, suggested an alternative to sanctions for Swift. The United States could put members of Swift’s board on its sanctions list. Such sanctions, Mr. Goldberg said, would allow the Trump administration to apply pressure on Swift while avoiding much of the uncertainty caused by targeting Swift itself.
Some experts on sanctions said it’s important not to focus too much on Swift.
By targeting Iranian banks, the United States has already gone a long way toward isolating Iran. Any advantage gained from forcing Swift to back out of Iran might be limited and not worth the potential financial disruption and damage to relations with the European Union, says Katherine Bauer, a fellow at the Washington Institute for Near East Policy. “It’s not a silver bullet,” she said.
But Mr. Goldberg says disconnecting Swift would help fulfill President Trump’s goals on Iran. “You can have sanctions at a seven or you can have sanctions at a 10,” he said, “The president wanted a maximum pressure campaign.”