Economic Sanctions in the Bipolar World of SWIFT & Upcoming BRICS Clearing System

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SIBOS 2024, the annual meeting for global banks and the SWIFT payment system, recently took place in China. 

However, the event saw less enthusiasm, largely due to rules against bringing laptops into the country, leading to lower global representation. 

Meanwhile, the spotlight was on the BRICS Summit in Moscow, attended by heads of state and delegates from member and invitee countries. Key announcements included the Bank for International Settlements' work on a payment system network for developing countries.

There's a growing desire to find an alternative to the US-centric dollar payment system, not due to anti American sentiment, but because of the complexity of adhering to US regulations for dollar transactions. The global payment infrastructure is poised for intense competition in the coming years. The evolution of new payment systems will hinge on the incentives they offer. The upcoming US elections will significantly influence which discussions from this year become global priorities.

Impact of Economic Sanctions Process 

Policymakers have long used economic sanctions to address major geopolitical challenges like terrorism and conflict. These sanctions often include travel bans, asset freezes, arms embargoes, and trade restrictions. Since most cross-border payments go through SWIFT, which adheres to FATF recommendations and sanctions from Western and supranational organizations, monitoring payments and related individuals has become easier.

However, if BRICS nations establish a parallel payment system that bypasses SWIFT and USD clearing, governed by BRICS members, they can set their own compliance standards, including economic sanctions. This could have significant repercussions on the current sanction’s regime:

1. Challenges for Western Countries in Enforcing Sanctions: Western nations may find it difficult to enforce their sanctions if a BRICS-led system operates independently of SWIFT and USD clearing.

2. Conflicting Guidelines: Countries dealing with both systems may face conflicts if guidelines from each group are not aligned, leading to compliance challenges.

3. Alternative Trade Opportunities: Countries under Western economic sanctions may find it easier to conduct global trade using alternative currencies within the BRICS framework.

4. Impact on the US Dollar: A decrease in USD-based trade could weaken the currency in the long term.

5. Financial Investment in Sanctions Compliance: The banking and financial services industry has invested billions to adhere to current sanctions. A new system could require additional investments to comply with differing standards.

Key Questions for Policymakers, Compliance Professionals  and Reg-Tech Companies

• Adaptability of Existing Processes: Are current processes and systems equipped to handle sanctions from multiple, potentially conflicting, sources?
  
  
• Managing Conflicting Policies: How can countries and institutions navigate the complexities of adhering to two different sets of sanctions guidelines?
  
  
• Evolving Role of Compliance Professionals: What new roles and responsibilities will compliance professionals need to undertake in a world with dual sanction regimes?

Policymakers, compliance professionals and reg-tech companies must consider these questions carefully to prepare for and address the evolving landscape of economic sanctions.

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