The European Union’s jurisdiction over the SWIFT messaging service is a major obstacle to bilateral US-Russian proposals to lift sanctions on Russia’s Rosselkhozbank, Yuliia Pavytska, head of the sanctions programme at the Kyiv School of Economics Institute, told bne IntelliNews on March 28.

“If the US seeks to fulfil Russia’s demands to lift sanctions, it cannot act independently,” says Pavsytska 

Following negotiations in Riyadh on March 26, the Trump administration appears to have agreed to remove financial sanctions on Russia’s state-owned agricultural bank Rosselkhozbank as part of a new Black Sea grain deal.

The rift between the EU and America could lead to a situation where the US unilaterally lifts sanctions on Rosselkhozbank, whilst the European leaders made it clear at meeting in Paris on March 27 that the EU will keep all its sanctions in place until Russian forces quit Ukraine entirely. In particular, the EU made it clear that it will not lift sanctions on Rosselkhozbank or restore its access to SWIFT.

"The end of the Russian unprovoked and unjustified aggression in Ukraine and unconditional withdrawal of all Russian military forces from the entire territory of Ukraine would be one of the main preconditions to amend or lift sanctions," a European Commission spokesperson said at the Paris meeting.

Without access to SWIFT, Rosselkhozbank will remain severely limited in conducting transactions with foreign banks irrespective of whether the US stops enforcing secondary sanctions against the bank’s counterparties – its main enforcement tool.

"In a hypothetical scenario where only the US lifts sanctions on Rosselkhozbank but it remains excluded from SWIFT and sanctioned by other jurisdictions, the benefits for the bank under such a scenario would still be questionable,” says Pavytska.

“To carry out international transactions without SWIFT, US banks would need to resort to cumbersome alternatives such as using SPFS (Russia’s homegrown SWIFT alternative). Such manoeuvres are complex and risky, and it’s unlikely US financial institutions would be eager to engage,” Pavystky adds.

According to experts at the KSE Institute, removal of access to SWIFT means that Rosselkhozbank cannot send or receive messages via the system, and any attempt to use the system to transact with the bank can be easily detected and prevented.

SWIFT (the Society for Worldwide Interbank Financial Telecommunication) is based in Belgium and governed by European law, giving the EU the final say over whether Rosselkhozbank is reconnected to the service. The institution provides a secure messaging service for financial transactions that is essential for international banking operations.

Following Russia’s full-scale invasion of Ukraine, SWIFT sanctions were introduced in the first days of the war and ten of the largest Russian banks representing 85% of Russian banking assets had their access to the system revoked.

In addition to direct sanctioning of Russian financial institutions, at the end of 2023 the Biden administration also introduced the so called strangulation sanctions, powerful secondary sanctions targeting foreign banks that facilitated transactions with sanctioned entities. That led to Chinese and Turkish banks cutting ties with their Russian clients, afraid of ending up in the US Office of Foreign Assets Control (OFAC)’s crosshairs, which supervises the sanctions regime.

Russia has developed its own alternative to SWIFT, the System for Transfer of Financial Messages (SPFS). In November 2024 OFAC announced that it was upgrading its offensive and aggressively target financial institutions using the Russian service.

Given the EU’s jurisdictional authority over SWIFT, any attempt to enact the lifting of sanctions would require the US to place political pressure on the EU. Pavytksa notes that the US has used similar tactics in the past.

On March 27, Secretary of State Marco Rubio admitted that any sanctions relief would have to be coordinated with America’s EU partners.

In 2018, the US threatened to sanction SWIFT if it continued to provide services to sanctioned Iranian banks. SWIFT promptly blacklisted the Iranian institutions in question.

This is not the first time that Russia has sought to restore Rosselkhozbank’s access to the messaging service. A previous Black Sea deal collapsed in 2023 after the EU declined to reconnect the agribank to SWIFT.

Pavytska describes the latest Russian demands as a “foot in the door” approach, by which Russia is testing the waters to see if it can weaken the broader Western sanctions regime. By securing an exemption for one bank, Russia could establish a precedent that might make it easier to obtain further rollbacks in the future.

The Ukrainian position is that no sanctions should be lifted until Russia has taken concrete steps to end hostilities in Ukraine.

The Kremlin however has made it explicit that signing up to the new Black Sea grain deal is conditional on their list of demands being met, which includes restoring Rosselkhozbank’s access to SWIFT. Like the previous 30-day ceasefire deal agreed between Trump and Putin in a 1.5 hour phone call, Russia’s headline-making compliance turns out to be provisional and conditional.  

The US’s apparent willingness to soften the sanctions regime has been met with dismay in Kyiv, London and Paris. Ukraine’s officials working on sanctions were hoping for the opposite.

According to Pavytska, the US still has several sanctions “nuclear options”, such as amending the current oil price cap sanctions so that the price is measured at destination ports rather than at Russian export points. Indeed, the recent rounds of US financial sanctions and new tough US oil sanctions imposed in December by the out-going Biden administration have proven to be some of the most effective sanctions to date.

The nuclear option sanctions could close loopholes where Russia sells oil at artificially low prices at its ports to comply with the cap, but then uses shadow fleets and other mechanisms to effectively receive higher payments later.

The EU’s sanctions package against Russia requires EU member states to give their unanimous approval every six months and are due for renewal in July 2025. Hungary is a weak link in the EU’s otherwise united front and could cause problems later in the year by vetoing the renewal.

"The last EU sanctions on individuals were maintained because Rubio pressured Hungary to keep the measures in place. If there is no such pressure, the EU sanctions regime is in great danger," Maria Shagina, a senior fellow at the International Institute for Strategic Studies, told Euronews.