The United States and its allies have removed certain Russian banks from the main international payment system. SWIFT
The nations said in a joint statement that the measures, which will include restrictions on the Russian central bank's international reserves, will be implemented in the coming days and that more action will be taken.
"We will hold Russia accountable and work together to ensure that this war is a strategic failure for Putin," wrote the leaders of the European Commission, France, Germany, Italy, the United Kingdom, Canada, and the United States.
"We are determined to continue imposing massive costs on Russia as Russian forces launch an assault on Kyiv and other Ukrainian cities. The costs of further isolating Russia from the international financial system and our economies, "said Ursula von der Leyen, president of the European Commission, the executive branch of the European Union.
The actions are intended to prevent Putin from using $630 billion in central bank foreign currency reserves in the invasion of Ukraine and to defend the rouble, which is in free fall.
Excluding Russian banks from the SWIFT system, the world's main international payments network, harms Russian trade and makes it more difficult for Russian companies to do business.
"Putin's government is being kicked out of the international financial system," according to a senior US administration official.
SWIFT, or the "Society for Worldwide Interbank Financial Telecommunication," is a secure messaging system that enables rapid cross-border payments, facilitating international trade and transferring trillions of dollars each year in what has become the primary mechanism for financing international trade.
"We are collaborating with European authorities to understand the specifics of the entities that will be subject to the new measures, and we are preparing to comply upon legal instruction," SWIFT said in a statement.
According to the US official, if one of the banks cut off from SWIFT wants to make a payment with a bank outside of Russia, it will most likely have to use a phone or fax machine. However, the official stated that most banks around the world would most likely halt all transactions with Russian banks that were removed from the network.
The US and its allies will finalise the list of banks that will be cut off from SWIFT, the official said, adding that banks already sanctioned by the US and Europe would be the first to be considered.
On Thursday, US President Joe Biden announced sanctions aimed at limiting Russia's ability to conduct business in dollars, euros, pounds, and yen.
Five major Russian banks were targeted, including the state-backed Sberbank and VTB, the country's two largest lenders.
At the time, Biden stated that there was no agreement to take action on SWIFT, implying that the view of holdout allies had since shifted heavily against Putin.
The new measures will prevent Russia from "using its war chest," according to von der Leyen, by paralysing its central bank's assets, freezing its transactions, and making it impossible for the central bank to liquidate its assets.
"By taking this action, we are disarming fortress Russia," the US official said, adding that other actions targeting the central bank could be finalised over the weekend.
The US imposed sanctions on Iran's central bank in 2019 in response to attacks on Saudi oil facilities claimed by the Iran-aligned Houthi movement in Yemen.
The moves, aimed at cutting off Iran's remaining funding sources, were described at the time as the "highest sanctions ever imposed on a country" by then-US President Donald Trump.
"Sanctioning the central bank has got to be the biggest hammer left in the tool shed," said Paul Marquardt, a Washington-based lawyer who advises clients on US sanctions.
On Saturday, the allies also pledged to limit the sale of citizenship through so-called golden passports, which are used by some wealthy Russians to gain residency in Western countries and access to their financial systems.
The partners will also form a task force to "identify, hunt down, and freeze the assets of sanctioned Russian companies and oligarchs, including their yachts and mansions, as well as any ill-gotten gains that we can find and freeze."
The EU foreign ministers will meet virtually on Sunday evening to discuss the sanctions package, the fourth time in a week.
The measures announced on Saturday, according to Edward Fishman, an Atlantic Council fellow who worked on Russia sanctions at the State Department during the Obama administration, are a significant escalation.
According to Fishman, by signalling their joint commitment to the moves, the West is "giving Putin one more chance to back down before unleashing the full range of the economic arsenal on Russia."
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