The SWIFT system has quietly become the backbone of international finance, as its role in the re-imposition of US sanctions on Iran demonstrates.
On Monday, it announced it had suspended several Iranian banks from its service, after the United States re-imposed nuclear sanctions on Tehran.
The Belgian company is largely unknown to the general public and it rarely makes headlines, but its secure messaging system is key to banks transferring money among themselves, thus giving it a crucial position in the international financial system.
Without its services, Iranian banks will find it more difficult to do business with any client prepared to brave US sanctions to maintain ties with Tehran.
Founded in 1973, the Society for Worldwide Interbank Financial Telecommunication or SWIFT, actually doesn’t handle any transfers of funds itself.
But its messaging system, developed in the 1970s to replace relying upon Telex machines, provides banks the means to communicate rapidly, confidently and inexpensively.
Banks use SWIFT system to send standardized messages about transfers of sums between themselves, transfers of sums for clients, and buy and sell orders for assets.
Institutions get what is alternatively called a SWIFT code or a Business Identifier Code (BIC), a unique eight to 11 digit code that includes its name and country of origin.
“SWIFT’s messaging services are used and trusted by more than 11,000 financial institutions in more than 200 countries and territories around the world,” the company says on its website.
“Together with our role in standardization, SWIFT enables secure, seamless and automated financial communication between users,” it added.
“It is the only really global network for transferring information between banks across the world, it is a telecommunications service that allows payments to reach the right bank,” said Guntram Wolff, director of the Brussels-based Bruegel think tank.
“There have been several attempts to create new rival or alternative networks, but that remains very difficult to do,” as everyone is on SWIFT, making it close to a de facto monopoly, Wolff said.