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Venezuela mulls using Russian payment system to bypass sanctions

Weary of sanctions turns to Puttin

- Exclusion from SWIFT platform could further cripple Maduro
- Russia says banks from Belarus, Abkhazia have joined system

By Patricia Laya and Anna Andrianova / Bloomberg

Petroleumworld 07 17 2019

Venezuela's government is studying the possibility of switching to a Russian-operated international payments messaging system as an alternative to SWIFT as part of preparations for an uptick in U.S. sanctions, according to two people familiar with the matter.

Venezuelan central bank officials have requested information from their Russian counterparts to have an alternative system in place if sanctions bar them from SWIFT, a move that could further cripple the nation's fragile finances, one of the people said. Even if Venezuela decided to move its transactions onto the alternative platform, approval from Russia's central bank is required, the other person said.

Press officials for the Venezuelan and Russian central banks didn't immediately respond to requests for comment. SWIFT, the Belgium-based cross-border payment system operator, declined to comment.

U.S. sanctions against Nicolas Maduro's authoritarian regime have largely isolated Venezuela from the global financial system and hampered financing. In response, the Venezuelan government has stepped up sales of gold to firms in places such as the United Arab Emirates and Turkey and has asked contractors to open accounts in obscure banks to receive payments. The U.S. has previously considered sanctions prohibiting financial institutions such as Visa Inc. and Mastercard Inc. from processing transactions in Venezuela.

Some European governments and U.S. senators including Marco Rubio of Florida, sought to ban Russia from using SWIFT in 2014 over a conflict in Ukraine after two dozen Iranian banks were excluded in 2012. The move was ultimately ruled out to avoid a ban that would penalize companies engaged in legitimate trade with Russia.

Russia has emerged as one of Venezuela's strongest international supporters after opposition leader Juan Guaido laid his claim as the legitimate leader of the country in January and was recognized by more than 50 countries.

Some banks and large corporations are already on board with Russia's independent system, Central Bank Governor Elvira Nabiullina said last month . Even though European banks haven't joined, several foreign lenders have signed up, she said, without providing details.

While Russian officials last year said that foreign countries would soon join the system, the only banks outside of Russia include a lender from Belarus and the central banks of Abkhazia and South Ossetia, the Russian-backed breakaway regions of Georgia that are largely isolated from the international financial system. The list includes 397 users of the system, nearly all of them Russian banks.

Gazprombank conducted the first transaction using the Russian messaging system, known as SPFS, in late 2017. More than 10% of all financial messages in Russia go through the alternative system, Nabiullina said in October.

The Society for Worldwide Interbank Financial Telecommunication, known as SWIFT, has risen from a small messaging network backed by banks in 15 countries to become a core part of the world's financial plumbing. Now, it's used to move trillions of dollars between more than 10,000 institutions around the world, enabling banks to clear transactions that include wire transfers and derivatives trades.

Story by Patricia Laya and Anna Andrianova from Bloomberg. 07 16 2019


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