March 16, 2017: The US Justice Department has announced charges against four people, including two Russian security officials, over hacks that affected millions of Yahoo users.

Two of the defendants — Dmitry Dokuchaev and his superior Igor Sushchin — are officers of the Russian Federal Security Service (FSB). The court documents said the duo ‘protected, directed, facilitated and paid’ two criminal hackers, Alexsey Belan and Karim Baratov, to access information that has intelligence value.

“The criminal conduct at issue, carried out and otherwise facilitated by officers from an FSB unit that serves as the FBI’s point of contact in Moscow on cybercrime matters, is beyond the pale,” acting assistant attorney General Mary McCord said. US investigators believe that Dokuchaev and Sushchin were working in their official capacity as FSB agents at the time.

Belan is one of the world’s most notorious hackers. There is an Interpol ‘Red Notice’ for his arrest, and he has been listed as one of the FBI’s most wanted hackers since 2012.

The massive hack against at least 500 million Yahoo user accounts happened in 2014. The company publicly acknowledged the breach last September. The disclosure prompted an investigation by US authorities.

The court documents state that Belan ‘provided his FSB conspirators … with the unauthorised access to Yahoo’s network’. He is also accused of using the access to the network for personal financial gain. For example, he allegedly stole financial and gift card information from the Yahoo accounts, and implemented a spam marketing scheme that impacted millions of users, according to the documents.

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September 2, 2014: The UK will press EU leaders to consider blocking Russian access to the SWIFT (Society for Worldwide Interbank Financial Telecommunications) banking transaction system under an expansion of sanctions over the conflict in Ukraine, Bloomberg reported on Friday, August 29, citing an unnamed British government official. Although no other media provided any further colour or detail on the story, we consider this news as an important milestone in the history of sanctions against Russia.

SWIFT is crucial for cross-border interbank payments. Headquartered in Belgium, SWIFT works under Belgium law and follows EU regulation. It is a member-owned cooperative that includes members throughout the globe. Its members include Syrian Arab Republic (5 shareholders and 17 connections), Iran (Islamic Republic of) with 10 shareholders and 15 members, and Cuba (6/10), with 216 countries in total. According to its website, SWIFT is only a messaging service provider and has no involvement in or control over the underlying financial transactions that are mentioned by its financial institutional customers in their messages.

Russia was the 15th largest SWIFT member with 73.7m messages traffic and a 1.5% share in the global traffic of all users, but had the highest 42.7% YoY growth in 2013 among the top-25 countries with a share in global SWIFT starting from 0.7% to 17.2% (US) and 19.2% (UK share), according to the SWIFT report. There were 602 Russian institutions connected to SWIFT, including 108 Russian-based SWIFT shareholders compared with 10,565 connected institutions throughout the globe and 2,389 members.

SWIFT statistics do not reflect the share of local and cross-border operations of Russian banks with the SWIFT system. According to the CBR report, during 2011, two-thirds of all SWIFT traffic in Russia referred to interaction with Russian correspondents and only one- third with foreign banks.

Expulsion of Russian banks from SWIFT is technically possible. SWIFT disconnected some Iranian banks in March 2012 after EU Regulation 267/2012 was passed. The regulation prohibits specialised financial messaging providers from providing services to certain EU-sanctioned Iranian banks. SWIFT is incorporated under Belgian law and has to comply with this decision as confirmed by its home country government. SWIFT implemented the regulatory obligation by disconnecting the related EU-sanctioned banks.

ING views SWIFT as a crucial real-time gross payment system for cross-border transactions of Russian banks with foreign counterparties and vice versa. In other words, it is a crucial link for the Russian financial system to the global financial system. Hypothetically, Russian banks/banking system isolation from the SWIFT in the short-term may bring turmoil for international payments and securities settlements (with USD/EUR). The outcome of such isolation may be very sensitive and have a negative impact not only on Russian banks and corporates, but also on international partners, counterparties, creditors and investors creating artificial obstacles for international transactions, payments and settlements. Long-term outcomes will depend on the scale of sanctions. Full isolation of the Russian banking system from SWIFT seems politically impossible.

No impact on local system

Russian local interbank payment system will be unaffected by isolation from global SWIFT. Russian large-value payment system is represented by the Bank of Russia payment system (BRPS), which in turn comprises the system for intraregional electronic payments (VER) and the system for interregional electronic payments (MER).

According to BIS statistics, there were 932.3m transactions via VER and 333.9m transactions via MER during 2012 with a total value of RUB599.2 trillion for VER and RUB103.5 trillion for MER. This compares with 51.6m messages sent through SWIFT in 2012 and 73.7m of messages sent through SWIFT in 2013.

ING

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