(Bloomberg) — Some of Wall Street’s largest banks told lawmakers and the Biden administration that kicking Russia off the SWIFT financial-messaging system would have far-reaching fallout that could hurt the global economy and undermine the purpose of the penalties, people familiar with the matter said.
Firms including JPMorgan Chase & Co. and Citigroup Inc. suggested Washington stick with other types of sanctions to punish Russia for invading Ukraine, the people said, asking not to be identified discussing private talks. Other banks with less international exposure were more receptive to the idea, telling officials that it would be a manageable step. Representatives from the banks declined to comment.
Opponents of the idea passed along a warning: Booting Russia from the critical global system — which handles 42 million messages a day and serves as a lifeline to some of the world’s biggest financial institutions — could backfire, sending inflation higher, pushing Russia closer to China and shielding financial transactions from scrutiny by the West. It might also encourage the development of a SWIFT alternative that could eventually damage the supremacy of the U.S. dollar.
While refusing to rule out even the most drastic financial penalties, Biden administration officials privately concede that they aren’t seriously considering the SWIFT option for now because doing so would choke off all trade with Russia, including energy sales that are allowed under current sanctions. Such a move could also have much wider ramifications, possibly causing an energy crisis in Europe and ruining the livelihoods of ordinary Russians, a scenario officials say they want to avoid.
Members of Congress started calling for the U.S. to take the almost unprecedented step of unplugging Russia from the system — something the Biden administration has said the U.S. cannot do unilaterally — after previous measures failed to deter Russian President Vladimir Putin from carrying out the invasion. SWIFT has only blocked one nation in its history: Iran in 2012 as part of measures aimed at containing the Islamic Republic’s nuclear program.
The debate has split Democrats and Republicans on the Senate Foreign Relations Committee, who have offered competing measures to sanction Russia for its aggression. The Democratic bill, introduced by Chairman Bob Menendez, authorizes the president to impose sanctions on financial-messaging systems including SWIFT. The Republican bill, introduced by Senator Jim Risch, includes secondary sanctions on banks but doesn’t touch SWIFT.
In a call with reporters Thursday, Risch said the U.S. doesn’t have the authority to remove Russia from SWIFT on its own. Imposing secondary sanctions on Russian banks — effectively penalizing any other institution that does business with them — would achieve the intended effect and “shut down the Russian economy,” the Idaho Republican said.
“SWIFT does not belong to the United States,” Risch said. However, “if you impose secondary sanctions, SWIFT is going to have to recognize those.”
Menendez, along with Senators Bob Casey, Chris Van Hollen and House Intelligence Committee Chairman Adam Schiff, has pressed the administration to remove Russia from SWIFT, something Biden has said cannot be done without the help of European allies.
“Congress and the Biden administration must not shy away from any options — including sanctioning the Russian Central Bank, removing Russian banks from the SWIFT payment system, crippling Russia’s key industries, sanctioning Putin personally, and taking all steps to deprive Putin and his inner circle of their assets,” Menendez, a New Jersey Democrat, said in a statement.
SWIFT representatives sought a meeting with Menendez in recent weeks as he put together his sanctions package, but he turned them down, according to a person familiar with the matter. Republicans on the relevant committees have had conversations with the financial industry and SWIFT to ensure that secondary sanctions would cut off Russian banks and therefore the Russian economy, according to a second person.
A representative for SWIFT couldn’t immediately confirm the outreach, citing the late hour in Belgium, where the service is headquartered.
Daniel Fried, who was ambassador to Poland during the Clinton administration, praised Biden’s moves Thursday and said in a tweet that kicking Russia out of SWIFT was “overrated” as a deterrent. However, he said in an email exchange Friday that while the move would be largely symbolic, “at this point, symbols count,” and that he would favor removing the country from the service.
Read more: Biden’s Inner Circle Feared Sanctions Wouldn’t Stop Putin
Dutch Prime Minister Mark Rutte said Friday that the Netherlands supports barring Russia from SWIFT. The EU “took a big step forward concerning SWIFT,” Rutte said at a press briefing in The Hague. “We drew a clear picture based on a proposal from the French on what the pros and cons are to make sure we can decide to add it at a later stage.”
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