Russia’s SPFS Alternative Payment Network Enters International Markets

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International Transactions Commence For Alternatives To SWIFT

Russia’s System For Transfer Of Financial Messages (SPFS) has gone global this week with the introduction of the system into banks in the Eurasian Economic Union. SPFS is an alternative to the US backed SWIFT network of financial transactions, which has been used in the past to cut countries that do not follow US trade or political policy from making global transactions. Russia, Iran and several other countries have been targeted in this way to damage their ability to trade and remit money internationally. Such blocks are indiscriminate, they have also prevented Russian and Iranian expatriates sending money back to their families from overseas. Russia’s State Bank began developing the SPFS system a few years ago.

Alla Bakina, director of the Russian Central Bank’s national payment system, said on Wednesday “We have provided the opportunity for foreign banks and legal entities to connect to SPFS. Today, the system has around 400 users, including eight foreign entities. Three foreign banks are already included in the user directory and are up and running, while others, having concluded an agreement, are carrying out the technical procedures for joining, engaging in testing, etc. First off all, these banks are from the Eurasian Economic Union (EAEU)”

The EAEU includes Russia along with Armenia, Belarus, Kazakhstan and Kyrgyzstan, and is a free trade bloc including 183 million people and an annual GDP of U$5 trillion. According to Bakina, SPFS has enjoyed respectable growth over the past year, with traffic accounting for about 15 percent of that of SWIFT inside Russia, up from 10-11 percent in 2018.

The official also pointed to efforts by the Central Bank to create the opportunity to include new members in the SPFS via ‘service bureaus’ – a special entity from organisations who are already members of the system, with the latter acting as a hub. “We are currently developing this concept, because there is demand for it from markets and users, the service is in demand,” Bakina said.

Russia has previously hinted at efforts to include international partners in its SPFS network. In 2018, after SWIFT cut Iran off from access to its services after being threatened with secondary sanctions by the United States. Russian President Vladimir Putin confirmed that Moscow was working with international partners to build an international payment system that is not reliant on SWIFT.

Last month, Russian presidential aide Yuri Ushakov said that Iran was one of Russia’s partners, and that the two countries were working on ways to link Russia’s SPFS and Iran’s SEPAM, a Persian acronym for that country’s own homegrown electronic financial messaging system.

The next stage for the SPFS system is to expand its reach and begin to compete with SWIFT. How much it is able to win ground from SWIFT depends partially on future US policy and any additional actions it could make in the future to block other countries from using it. There have on occasion been some worrying actions on behalf of the United States.

One example concerns a small business transaction – Danish newspaper Berlingske reporting that US authorities have sufficient control over SWIFT to seize money being transferred between two European Union (EU) countries (Denmark and Germany), since they succeeded in seizing around US$26,000 that was being transferred from a Danish businessman to a German bank. The transaction was automatically routed through the US, possibly because of the USD currency used in the transaction, which is how the United States was able to seize the funds. The money was a payment for a batch of Cuban Cigars previously imported to Germany by a German supplier. As justification for the seizure, the U.S. Treasury stated that the Danish businessman had violated the US Embargo against Cuba. Should petty incidents like this occur again then the credibility of SWIFT could be further damaged.

The US National Security Agency is also known to monitor all SWIFT transactions, while the European Union has begun the Special Purpose Financial Vehicle to allow it to bypass US sanctions on Iran. The seven founding members of this new system are to be Iran, the European Commission, Germany, France, the UK, Russia and China – but not the United States. This initiative began after the US pulled out of the Iran Nuclear Treaty.

Then there is the EAEU itself. Eight banks from EAEU nations are now using the SPFS system, and this can be expected to increase. That is also likely to extend to EAEU Free Trade partners – Vietnam, Serbia, Iran, Singapore and China all have FTA with the EAEU with several other countries, such as India also negotiating. The BRICS nations are also considering a BRICSPay system, again as a way to avoid using SWIFT and usage of the US dollar.

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Russia Briefing is written by Dezan Shira & Associates. The firm has 27 years of operations in China and assists Russian and Foreign investors establish operations into the country. Please contact us at russia@dezshira.com or visit us at www.dezshira.com

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