Founders face a Russia without SWIFT
After Russia invaded Ukraine, sanctions — including the EU’s decision to disconnect several banks from SWIFT — were imposed to limit the country's power, forcing business owners to make difficult decisions.
Written by Masha Borak
Illustrations by Kensuke Koike
A few weeks after Russia invaded Ukraine on February 24, 2022, Svetlana Golovchun, a Russian YouTuber who makes videos showcasing Russia’s popular tourist spots, food, and culture, discovered that she could no longer add music to her videos. Epidemic Sound, the Sweden-based company that provided music for her channel Svetlana from Russia, could no longer receive her payments.
“I tried absolutely everything I possibly could,” Golovchun said. “It was very painful because my videos relate to music a lot. Not being able to use music was a big failure.”
Golovchun, who had 105,000 followers as of July 2022, was one of countless people dealing with the March 12 decision made by the EU Council to disconnect seven Russian banks from SWIFT (Society for Worldwide Interbank Financial Communication), a Belgium-based organization that runs an encrypted messaging service for 11,000 financial institutions to communicate about international payments, securities, and other data.
The disconnection, which included VTB, Russia’s second-largest bank, was an attempt to limit Russia’s power after the invasion. While there are alternatives, SWIFT has often been described as the “plumbing” of international financial services — it’s the most popular way for banks to communicate information about money transfers. But while the SWIFT ban was not as impactful as expected, it led to a cocktail of other sanctions that have dragged Russian businesses down.
Golovchun was hit hard. Most of her videos consist of music and she couldn’t send or receive international payments. She could not buy goods or services from anywhere outside of Russia. She didn’t upload any videos to YouTube for an entire month until her U.S. fiancé was able to pay for a new video music subscription with a new platform.
By May, SWIFT cut off Sberbank, Russia’s largest bank. By then, some had found workarounds to the sanctions, including working with smaller Russian banks that didn’t have sanctions on them and transacting on alternative currencies like crypto. However, Golovchun wasn’t part of that cohort — and she had several factors working against her.
Russia had started cracking down on independent media, blocking Western social media platforms like YouTube. Golovchun began to worry about what she could say. “It was [a] very sad situation. And it was very sensitive,” said the YouTuber. She switched her music provider to Artlist, but isn’t sure when her work will be interrupted again.
The SWIFT bans have been among the first in a series of moves that have attempted to shut down Russia’s economy and stand against its invasion of Ukraine. However, as surging energy prices pad the country’s reserves, Russian citizens, including entrepreneurs, have been left to bear the brunt of the repercussions. De-SWIFTing and other sanctions have primarily brought payment issues for those using foreign platforms, from YouTube to Twitch to OnlyFans.
According to George Voloshin, head of the Paris Branch at political risk and management consultancy Aperio Intelligence, delays in international payments are now common in Russia; some transactions are rejected without justification. Payments that previously took three to four days to process may now take up to two to three weeks. And ordinary citizens deal with constant unpredictability and powerlessness.
The SWIFT ban left Ekaterina Kozyreva without access to services that her digital marketing company Soyka Agency relies on, like Zoom, Adobe Stock, and Grammarly. Additionally, by the end of February, many Western banks and payment institutions had ceased working with Russia of their own volition, including Visa, Mastercard, Amex, Paypal, and Revolut, citing opposition to the country’s decision to invade Ukraine. Her international clients started emailing her digital marketing company, stating that they could no longer send any payments.
Eventually, she joined the hundreds of thousands of professional workers who left Russia after the invasion, driven by opposition to the war, fear of getting drafted, or the weight of the sanctions, moving to neighboring countries such as Kazakhstan, Georgia, Turkey, and Armenia.
At the same time, the record fall of the ruble was pulverizing profits for their business. Kozyreva decided to follow the path of other Russian entrepreneurs and headed abroad to re-register her business. Less than two weeks after the invasion, the pair left their two small daughters at their parents and boarded a hastily-booked flight from Moscow to Yerevan, the capital of Armenia.
“I've never seen more startup founders than in a plane to Yerevan,” she said. “It was like an IT conference.”
As the war waged on, more of Kozyreva’s clients stopped paying to her company’s Russian account. The ban also meant that the agency, which hires professionals across Europe, could not pay employees working outside of Russia.
The couple spent two and a half months in Armenia registering their business and obtaining local passports for their children. Kozyreva remembers waiting five hours to open her new account in an Armenian bank.
“The flood of people was so heavy that the banks refused to register people after midday because their system could not cope,” she said.
Kozyreva is in Moscow now, gathering her belongings. She hopes to move with her family to Armenia this fall. But she doesn’t have any concrete plans. She explains that it’s difficult to plan anything with the uncertainty.
SWIFT, which is set to celebrate its 50th birthday in May next year, is headquartered in La Hulpe, Belgium near Brussels and is run by a not-for-profit co-operative. It is controlled by its member banks, which include the central banks of the G10 countries (including the U.K, U.S., Japan, and France), the European Central Bank, and the National Bank of Belgium.
Before SWIFT launched, sending money abroad required using clunky machines known as telex. These machines resembled faxes and were notoriously slow — messages had to be authenticated manually, a labor-intensive process that was prone to errors and unexpected delays. International transactions often required passing along more than ten telex messages.
A common anecdote is of a Citibank London office in the 1960s, where staff had to type out handwritten payment instructions to send international payments. These were then folded, put into a canister, and sent through a vacuum tube to the authorization department one floor above. After a particularly busy morning, the vacuum tube between the two floors was jammed, blocking all payment processing in Europe for that day.
A chimney sweep was called in to save the day.
As an “internet for financial services,” SWIFT was meant to be the opposite of telex: Affordable, reliable, and easy. It was also meant to be open and shared, created by a consortium of banks that did not want a single institution developing its own system and having a monopoly; according to The Pay Off, this single institution was likely Citibank.
SWIFT launched in 1973 and sent its first message in 1977. By 1987, SWIFT’s membership had voted to include broker dealers, central repositories, exchanges, and clearing houses, which expanded the types of messages the system was sending. As of today, it serves as the standard for banks to communicate international payment information.
In recent years, however, alarms have been raised about SWIFT’s neutrality. Policymakers have taken to branding it as a “financial nuclear weapon” because it is used to sway the outcomes of political events.
On March 20, due to additional sanctions led by the EU, SWIFT disconnected three Belarussian banks. And by June 3, after the EU introduced additional sanctions and de-SWIFTed three more Russian banks, including Sberbank, the blockage became the largest on an economy of this size to date.
And Russia is not the first country that has experienced de-SWIFTing. In 2012, the organization disconnected Iranian banks from its network following an EU Council decision.
Iran’s de-SWIFTing sparked concern about the loss of neutrality. Then-CEO of SWIFT Lázaro Campos described the move as “extraordinary and unprecedented,” insinuating that it would not happen again. Since then, SWIFT has obliged international sanction decisions by disconnecting institutions from Venezuela and North Korea.
The decision to exclude Russian and Belarussian banks after the Ukraine invasion has created much less fanfare — there was international unity around the approach to Russia. In its decision, the EU described de-SWIFTed banks as “critical for the Russian financial system and Putin's ability to further wage war.” According to the message, a SWIFT ban — and all the repercussions that came with it — was a crucial part of beating Russia.
However, Voloshin emphasizes that banning SWIFT doesn’t actually stop money movement in Russia; banning it is merely a signal. “For the ban to be effective, it would need to extend to a significant chunk of the Russian banking system,” said Voloshin.
By the end of February, many Western banks and payment institutions had ceased working with Russia of their own volition, including Visa, Mastercard, Amex, Paypal, and Revolut.
Russia has encouraged banks to join its own alternative to SWIFT called the System for Transfer of Financial Messages (SPFS), which it created in 2014 when Russia suffered a wave of sanctions after its invasion of Crimea. However, SFPS lacks international connectivity and only a handful of countries participate in the system. Other alternatives such as the Chinese Cross-Border Interbank Payment System (CIPS) rely on SWIFT and are out of reach for Russian banks.
And though many companies have started coming up with their own alternatives — including blockchain-backed projects like Ripple that allow people to send and exchange cryptocurrencies — nothing has gained the traction or network effects to become a real alternative to SWIFT.
In the first weeks of the sanctions, Russians stood in long lines at ATMs trying to withdraw their rubles and dollars. Russians can no longer buy goods online from abroad or use any foreign online services that require payment. At least 1,000 companies so far have stopped or limited their activities in Russia, including Visa, Mastercard, and PayPal.
Many of these decisions were out of protest against the Russian government’s actions; but even if these companies had decided to stay, they would face difficulties due to the many banks that were sanctioned by SWIFT.
Foreign players leaving the local market has resulted in demand for local providers of IT and bank infrastructure, according to Roman Buzko, partner at Buzko Krasnov, an international law firm. One example are Russian ATMS, which are currently working but will be forced to find alternatives for future software updates.
Life goes on. Russians have found ways to live with the sanctions and the freezing of their foreign reserves. Many have switched banks or moved their accounts abroad. According to Voloshin, others have continued international transactions in old-fashioned ways such as email, telephone, and fax.
The IMF predicts an 8.5% decline in Russia’s GDP this year. The World Bank has given a more pessimistic rate of 11.2%. Financial sanctions, including de-SWIFTing, the ban on imported euros and dollars, and measures against Russia’s Central Bank and other banks, coupled with the government’s constant change of rules in payment and banking, have made running a business in Russia difficult for many. For some, it has made it impossible.
Others have turned to cryptocurrencies. Interest in crypto and more specifically in stablecoins, such as USDC and USDT has been rising with many small companies, such as design agencies and consultants, are readily accepting stablecoins, said Buzko.
One business owner, who spoke under the condition of anonymity due to potential legal issues, said that they had to resort to paying some of their workers in Tether, a stablecoin. According to the business owner, many had opened crypto wallets to avoid the government-imposed US$10,000 cap for taking money abroad or to find a safe place to keep foreign currencies.
“Even our civil servants say that no one can stop you from taking a crypto wallet on a USB stick abroad to move money,” the business owner said.
In May, Industry and Trade Minister Denis Manturov said that Russia plans to eventually legalize cryptocurrency as a means of payment. The country has made fintech-friendly decisions in the past: At the start of 2022, it allowed non-banking financial organizations to provide payment services for the first time.
But the impacts that Russian entrepreneurs have felt are far beyond the finances. Sergey Katargin, a serial entrepreneur who’s launched several health insurance and wellness companies,, has lost one of his businesses since the war started — not due to de-SWIFTing but because its’ U.S. partner decided to pull out, citing government sanctions. He was forced to let go of at least 10 employees.
Katargin’s other business lost its foreign investors due to the war, while his clients — many of which are international companies — have either closed offices in Russia or cut down spending on employee benefits such as insurance.
Katargin no longer sees a place for himself in Russia. He moved to Armenia in March to restart one of his companies, HealthPulse. He chose the country because it is one of the few that accepts Russian citizens without a visa and because it is not excluded from the world financial system.
“In Russia, every period — the 1990s, 1998, 2008, 2014, and now 2022 — there were very strong financial shocks in the country, the ruble would fall, the economic processes would slow down,” he said. “We had to start from zero every time. That’s the reason that I want to try building an international business so that these risks are avoided.”
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