US Threatens Chinese Banks With SWIFT Disconnection
Proposed “CURB CIPS Act of 2022” Would Have Serious Global Implications And Cause China A Loss Of Economic Sovereignity
by Chris Devonshire-Ellis
US senators have introduced a new bill that prevents China from using CIPS – its SWIFT alternative – to conduct financial transactions with Russia. Chinese banks that use CIPS for cross-border payments with Russia will be removed from the SWIFT network. The bill aims to deflect a challenge from China and Russia to dedollarize global finance.
The move came just prior to a White House warning to Beijing that President Biden would question Xi about Beijing’s “rhetorical support” of Putin and an “absence of denunciation” of Russia’s invasion of Ukraine on Friday’s conversation between Biden and Xi.
U.S. Senators Marco Rubio, Rick Scott, and Todd Young introduced the Crippling Unhinged Russian Belligerence and Chinese Involvement in Putin’s Schemes (CURB CIPS) Act or the “CURB CIPS Act of 2022” to sanction Chinese financial institutions that conduct transactions with any Russian financial institutions using alternative financial messaging systems (including China’s CIPs system and Russia’s SPFS network) to the Society for Worldwide Interbank Financial Telecommunication (SWIFT). The bill would freeze or terminate any U.S.based accounts connected to Chinese financial institutions – or block the U.S.-based property of such institutions – that engage in transactions with a Russian financial institution using either CIPS or SPFS.
“We cannot allow China to become a safe haven for Russian firms seeking to avoid international sanctions,” Rubio said. “My bill would make it nearly impossible for Chinese banks to access the U.S. financial system if they choose to transact with Russian banks using Chinese or Russian financial messaging systems. It is a powerful and desperately needed disincentive to keep the Chinese Communist Party from deepening ties with the Kremlin and undermining international efforts to punish Vladimir Putin. We must pass the CURB CIPS Act to ensure Russian financial institutions are held accountable, and risk to our world economy will be mitigated.”
The proposed bill would permit the following actions:
- Direct the Secretary of the Treasury to impose sanctions on any Chinese financial institution that uses CIPS or SPFS to verify or conduct a transaction with any Russian financial institution or a financial institution in Russia-controlled territories;
- Include sanctions that would terminate or prohibit any correspondent accounts or payable-through accounts of offending Chinese financial institutions in the U.S., or block all transactions in property of such institutions in the United States or in the possession of a U.S. person;
- Require a report from Treasury outlining the scope and usage of CIPS and SPFS around the world, the risks of widespread adoption of these systems to U.S. national security, and recommendations to preserve and strengthen U.S. influence in the global financial system.
Essentially the bill would also bring all Chinese global financial transactions under the veto power of the United States, and could be later extended to include other countries who trade with Russia as well.
The decision reveals the larger conflict occuring externally from the regional Russia-Ukraine situation – a wider, global struggle between the United States, China and Russia over a reset of the global world order, and the United States desire to impose its will on other nations and bend them to its global policies and ideologies.
The proposed bill still has to become law, and to be read and voted on by both the House and Senate who need to give approval. After this, the bill is sent to the President. If the President approves of the legislation, it is signed and becomes law. If the President takes no action for ten days while Congress is in session, the bill automatically becomes law.
It remains uncertain how President Biden would view such an act, which would enrage Beijing, being called to account by US Senators over how it conducts its own international financing rather than its’ own political, National People’s Congress. It would shift the power and control of China’s global financing to votes conducted by non-Chinese, US Senators and effectively mean a loss of financial sovereignity. That could be construed as an act of war, and could also potentially hasten a Chinese move onto Taiwan to take place prior to any bill being passed into law. It would also, if carried out, seriously cause additional damage to already stressed global supply chains. Russia is a major exporter of energy and good with massive export markets. As such, we view the proposal as inherently dangerous and at major risk of widening a conflict between US foreign policy punishment, Russia and now China, over a situation that has not been of Beijing’s making. It remains unclear where this would end and which other countries could later be drawn into what is already fast becoming a new World Economic War. Intercontinetal weapons would then become far more likely to be used following economic sanctions on other sovereign nations and nuclear powers.
Chris Devonshire-Ellis is the Chairman of Dezan Shira & Associates. The firm assists British and Foreign Investment into Asia and has 28 offices throughout China, India, the ASEAN nations and Russia. For strategic and business intelligence concerning China’s Belt & Road Initiative please email firstname.lastname@example.org or visit us at www.dezshira.com