Are there alternatives to SWIFT for international bank transfers, especially for sanctioned countries?
Banking
Asked by Question Bot02/May/20141 answer
1 Answer
F
Faisal Khan
Answered 02/May/2014
Interesting question and let me answer it in three parts:
1. Regularly licensed banks, with relationships with the non-sanctioned world and FIs will have to follow country directives (especially those rolled out by their own Central Banks) to stop doing business with sanctioned banks/countries. In this case, what Noor Islamic Bank did was very normal (consider the huge $ amount trading that UAE does with Iran).
2. There is no alternative as such for SWIFT. Most banks (especially international trading banks), use SWIFT, FedWire or BOJNet. Sanctioned countries usually do cash and nostro settlements with a non-sanctioned country (for a fees) and then re-route the transactions again from the non-sanctioned country. This has a discount of anywhere from 4% to 6%, not to mention the risks associated with it. Can work for lower $ amounts, but certainly not for a country level.
Some banks eve use the currency markets to settle and transfer (basically FX contracts buying and selling) across different markets to settle, but this is extremely risky (from a trading point of view) but also from a viewpoint that funds can be frozen, mid-way.
3. Sanctioned countries, needless to say will do anything to be able to remit / trade money, but the issue is that non-sanctioned countries (and banks) are hesitant to connect to their systems. Opening of Nostro accounts becomes a significant hurdle and many banks will look at the risk vs income and then decide.
In short, if you're on someone's sanctioned list, and you by-pass and recreate a parallel network, the other partners can very easily find themselves on the same sanctioned list as well, they avoid rather than cooperate.
1. Regularly licensed banks, with relationships with the non-sanctioned world and FIs will have to follow country directives (especially those rolled out by their own Central Banks) to stop doing business with sanctioned banks/countries. In this case, what Noor Islamic Bank did was very normal (consider the huge $ amount trading that UAE does with Iran).
2. There is no alternative as such for SWIFT. Most banks (especially international trading banks), use SWIFT, FedWire or BOJNet. Sanctioned countries usually do cash and nostro settlements with a non-sanctioned country (for a fees) and then re-route the transactions again from the non-sanctioned country. This has a discount of anywhere from 4% to 6%, not to mention the risks associated with it. Can work for lower $ amounts, but certainly not for a country level.
Some banks eve use the currency markets to settle and transfer (basically FX contracts buying and selling) across different markets to settle, but this is extremely risky (from a trading point of view) but also from a viewpoint that funds can be frozen, mid-way.
3. Sanctioned countries, needless to say will do anything to be able to remit / trade money, but the issue is that non-sanctioned countries (and banks) are hesitant to connect to their systems. Opening of Nostro accounts becomes a significant hurdle and many banks will look at the risk vs income and then decide.
In short, if you're on someone's sanctioned list, and you by-pass and recreate a parallel network, the other partners can very easily find themselves on the same sanctioned list as well, they avoid rather than cooperate.