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The U.S. and European allies announced drastic new financial sanctions against Russia as the invasion of Ukraine showed no signs of letting up, with explosions and gunfire reported in the streets of its capital, Kyiv.

In the morning of Feb. 27 (Singapore time), the White House released a joint statement announcing that it will cut off certain Russian banks from the global payments system, SWIFT, among other measures.

"First, we commit to ensuring that selected Russian banks are removed from the SWIFT messaging system. This will ensure that these banks are disconnected from the international financial system and harm their ability to operate globally."

In addition to the European Commission, France, Germany and Italy, the UK and Canada are also signed on in this endeavour.

What is SWIFT?

The Society for Worldwide Interbank Financial Telecommunications (SWIFT) is based in Belgium.

It connects over 11,000 financial institutions around the world, according to the New York Times. It allows banks and companies to communicate across borders about financial transactions.

For example, if a company in the U.S. wants to purchase some supplies from a provider in France, the purchase order will be verified by the SWIFT messaging system.

Without SWIFT, a businessperson or bank in the sanctioned country will have to find a new way to transmit these payment instructions when engaged in international transactions.

It could affect transactions down to the individual level as well.

My hotel in Moscow asked me to settle the bill early because they aren’t sure if credit cards are going to work once SWIFT sanctions kick in.

— Raf Sanchez (@rafsanchez) February 26, 2022

In 2014, Iran was cut off from access to SWIFT over concerns about its nuclear programme.

In 2019, then Russian Prime Minister Dmitry Medvedev said losing SWIFT would be tantamount to a declaration of war against Russia.

Ukraine's foreign minister Dmytro Kuleba has been pushing for other countries to cut off Russian financial institutions from SWIFT, in a series of tweets over the past few days.

We did it. Cyprus confirmed it will not block the decision to ban Russia from SWIFT. Ukrainian diplomacy keeps working 24/7 to achieve important decisions and protect Ukraine from Russian invaders.

— Dmytro Kuleba (@DmytroKuleba) February 26, 2022

Russian Central Bank targeted

In addition to cutting Russia off from SWIFT, the Western allies announced a raft of other sanctions.

The Russian central bank has foreign exchange reserves of about US$640 billion (S$866 billion) mostly housed in cities like New York, Frankfurt and London, according to the Washington Post.

It will also be targeted from deploying its international reserves in ways that "undermine the impact" of their other sanctions.

Russian elites targeted

Two other sanctions target "people and entities who facilitate the war in Ukraine and the harmful activities of the Russian government."

Measures will be taken to limit the sale of citizenships in the committed countries, that would allow a Russian connected to the Russian government to circumvent the sanctions and gain access to the financial systems.

A transatlantic task force will also be set up to identify and freeze the assets of sanctioned individuals and companies within their jurisdictions.

The allies will also work with other governments to detect and "disrupt the movement of ill-gotten gains", and to deny them the opportunity to hide their assets in other jurisdictions across the world.

Countermeasures against disinformation campaigns and "other forms of hybrid warfare" will be stepped up.

"We stand with the Ukrainian people in this dark hour. Even beyond the measures we are announcing today, we are prepared to take further measures to hold Russia to account for its attack on Ukraine."

Top image from White House YouTube and via.

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