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SWIFT: the challenges of being multi-national

Confidentiality vs law

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Comment The recent disclosure in a US newspaper that, post 9/11, SWIFT responded to compulsory subpoenas from the Office of Foreign Assets Control of the United States Department of the Treasury by "providing limited sets of data" is embarrassing for both SWIFT and the US Government.

This is, principally, because, although SWIFT negotiated with the US Treasury over the scope and oversight of the subpoenas, it was a secret agreement. The incident places in focus the difficulties which multi-national organisations encounter in conducting their business in compliance with the laws of the countries in which they operate.

SWIFT (Society for Worldwide Interbank Financial Telecommunication), to quote its own press statement, is "the industry owned co-operative supplying secure, standardised messaging services and interface software to over 7,800 financial institutions worldwide.

SWIFT is solely a messaging intermediary for transmitting secure and confidential financial messages between financial institutions. SWIFT is not a bank, nor does it hold accounts of any customers. SWIFT is solely a carrier of messages between financial institutions. The information in these messages is issued and controlled exclusively by the sending and receiving institutions".

Rightly, SWIFT states in its policy that its services should not be used to facilitate illegal activities. Users are urged to take all reasonable steps to prevent any misuse of the SWIFT system. Equally, SWIFT understandably contends that its fundamental principle has been to preserve the confidentiality of users' data while complying with the lawful obligations in countries where they operate. Striking that balance has guided SWIFT through this process with the United States Department of the Treasury.

SWIFT's "error of judgement", if it may be so termed, lies not in submitting to the legal pressures of the US Government but rather in making no communication on the issue to its membership. SWIFT is a mutual organisation owned, managed and run for the benefit of its membership.

It would appear that the Belgian government (SWIFT is headquartered in Brussels) knew nothing about this confidential agreement. Neither, for that matter, did the Belgium Central Bank, which is the home country regulator but somewhat pusillanimously claims it only has limited regulatory supervisory powers over SWIFT.

This episode may engender a lack of trust in a minority of the SWIFT membership, especially the membership from countries which do not enjoy strong and cordial relations with the USA. Would SWIFT respond in the same way to requests from countries in political opposition to the USA they may ask?

Unsurprisingly, the US headquartered financial institutions, as a constituency, provide the largest volume of message traffic through SWIFT and would understandably be more concerned that SWIFT complies with the US government request than some other constituent groups within SWIFT.

SWIFT should address some specific issues for maintenance of its own reputation and greater transparency of its governance regime:

  • Indicate how many such agreements it has in operation and with which countries and how long they have been in operation.
  • While SWIFT cannot disclose the details of "the requested data sets" it should try to give some indication of the types of data.
  • SWIFT should set out the reasoning how it addresses the conflicts which arise between the duty of confidentiality which its users, the financial institutions, owe to their clients and its own duty to operate by the laws of the country in which it operates.
  • SWIFT should set out the broad principles by which it would reconcile any conflict of laws, which may arise in separate countries in which it operates.
  • Establish some process to advise at least the most senior representative of each member organisation of the outline about any secret agreements into which it may be obliged to enter in future.
  • Establish criteria from which it would not deviate in answer to requests for information by government in countries where SWIFT operates and which would precipitate SWIFT's exit from operation under that governmental regime.

Unfortunately, most of these matters are the territorial matters of politicians and diplomats but in a sense those are the practical skills and experience which globally operating companies increasingly require, rather than skills in addressing the legal conflicts arising from the national legal and political aspirations of each national governmental regime.

Copyright © 2006, IT-Analysis.com

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