Rostec Torpedos SWIFT As Russia Rolls Out New Economic Paradigm

Rostec is a Russian state corporation established in 2007 to promote and export products for civil and defense sectors, employing around 450,000 people. It has divisions in aircraft, electronics and armaments. Sergey Chemezov, the CEO of Rostec, was barred by the Obama administration from entering the United States in 2014, whilst Rostec itself is subject to U.S. sanctions following the Ukraine coup.

Whilst the Trump administration claims to have been dealt an unfair hand in terms of international trade, Rostec has previously stated that the WTO was benefiting the US at the expense of Russia, whereby they were dictating terms to all other members in the pursuit of their own interests. Furthermore, Russia was bound by strict regulations, in terms of the supply Russian military equipment to the Middle East, by having to dealing with established governments.  However there is clear evidence that other countries do not always follow the same rules, notably that when territory has been reclaimed from Daesh in Syria, significant weapons caches have been found from Western nations.

It should therefore come as no surprise that Russian state tech giant Rostec will use a Russian payment alternative, “System For Transfer Of Financial Message (SPFS), instead of the SWIFT interbank cash transfer services. This will make payments safer by their ability to exchange data in encrypted mode, which reduces the risk of external intrusion onto their platform and reduce the risk of attacks by hacking. In addition the transition away from SWIFT will reduce their dependence on foreign services and allow them to transfer information without using foreign platform providers.

This development comes a few weeks after Rosneft, the oil giant, announced it had tested SPFS in December with the help of Gazprombank. Whilst SWIFT continues to deny that Russia could be excluded from the international payment system, Russia companies are seeking to diversify away from SWIFT because they remain concerned that such a move could be forthcoming and particularly in light of recent developments with respect to additional US sanctions and the missile attacks in Syria.

We should also recall that last year, the head of the Russian Central Bank, Elvira Nabiullina, stated that Vladimir Putin had said Russia was ready for disconnection from SWIFT. The testing and preparation for the new financial platform has been completed in preparation for the much vaunted reset. Rostec is one small example of how Russian companies are making the necessary preparations themselves.