How SWIFT Makes Money Move

SWIFT–the Society for Worldwide Interbank Financial Telecommunications–has been in the news recently. SWIFT is an encrypted messaging system that lets banks talk to each other. The goal is to avoid miscommunication through a common language.

Before we see how it works, let’s take a look at when it did not.

A SWIFT Heist

During February 2016, a cybersecurity expert got a call from the central bank of Bangladesh. Saying the matter was too sensitive for the phone or email, they wanted him in Dhaka immediately.

He went.

In Dhaka, at the bank, he was taken to a small room with several SWIFT terminals. Using SWIFT, thieves had tried to transfer a billion dollars to a bank in the Philippines. At first the central bank checked its security cameras but saw no one.

That took them to a hack and the FBI.

Because the billion dollars was actually at the Federal Reserve Bank of New York, it would have gone from there to the hackers’ Philippine accounts. Skipping lots of details, we can just say that a cybersecurity team traced the heist to North Korea (they denied it). They entered the bank’s computer system through an email that an employee had opened from someone looking for a job. Having accessed the bank’s system, the hackers eventually found a path to SWIFT.

At this point, SWIFT’s safeguards should have kicked in but the hackers figured out how to temporarily disable them. Their timing also was clever because they began just before the weekend at 8 pm with everyone, at home, detecting nothing. Meanwhile, when they do discover something is not right, it’s Sunday and no one is at the NY Fed. And, contacting the Philippines on Monday, it’s Lunar New Year. Yes, you guessed it. No one is there.

Finally, we have another twist. The NY Fed stopped the heist at $81 million when, after six transfers, they thought something was fishy. Since then, they’ve  improved SWIFT terminal security.

Swift History

SWIFT was established to prevent the mistakes that a variety of languages, locations, and systems can create. Imagine, for example, that you have money paid to a bank in Russia for some oil. That bank then has commercial customers who need to pay for imported iPhones, The involved parties need to know which bank branches, which accounts, which currencies. You get the picture.

Before SWIFT, it was too easy to input the wrong information. SWIFT solved all of that when it started operating in 1977. Based in Belgium, the system is owned by more than 2,000 financial institutions. Through SWIFT banks exchange as many as 40 million messages a day that move massive amounts of money. (Any sanctions that remove a bank from SWIFT disrupt its ability to function.)

Our Bottom Line: Transaction Costs

Defined as the hassle connected to accomplishing a task, the transaction cost for global banking had been unwieldy and prone to error. Through standardization of a universal “language,” SWIFT minimized those problems.

Like a heart keeps nutrient-laden blood flowing around our bodies, banks and other financial institutions pump money around the global economy. Whether talking about a healthy body or a healthy economy, the heartbeat is crucial.

SWIFT helps make that heartbeat work.

My sources and more: Two good stories of the heist were at NPR’s Planet Money and the NY Times. From there, I leaned about SWIFT at The Atlantic. and also the BBC. In addition, you might enjoy listening to “The Lazarus Heist” from the BBC (I plan to).