ANZ Bank says it will continue as a full member of a cross-border interbank payments platform controlled by the Peoples Bank of China, despite concerns that Russian banks might be using the service to circumvent international sanctions.
Since the Russian invasion of Ukraine in February, at least seven Russian banks and the Russian Central Bank have been excluded from participating in the Belgian-based SWIFT messaging system.
SWIFT – the Society for Worldwide Interbank Financial Telecommunication - is the world’s leading payments messaging system that facilitates transactions between more than 11,000 financial institutions in 200 countries.
Following the imposition in March of sanctions constraining the access of Russian banks to SWIFT, Reuters has published several reports indicating that Russian banks might be trying to increase their use of China’s Cross-Border Interbank Payments System (CIPS) to blunt the impact of international sanctions.
In an interview with Reuters in March, a senior Russian politician Anatoly Aksakov said the Russian central bank was working closely with the People’s Bank of China to improve Russian access to CIPS.
“To get rid of risks associated with maintaining trade turnover, establishing cooperation between the Russian and Chinese financial messaging systems is needed,” Aksakov told Reuters.
“I know that such work is taking place - our central bank is cooperating with the People’s Bank of China and I believe that the current situation will stimulate the
relevant processes.”
The Peoples Bank of China established the CIPS platform in 2015 to support international trade in the Chinese currency.
ANZ is the only Australian bank to act as a direct participant in the system.
Dr John-Paul Monck, a banking academic at the University of NSW and a former prudential supervisor at APRA, said there was potential for ANZ and other CIPS participants to unwittingly facilitate transactions that might breach international sanctions.
He said the absence of English language messaging in some text fields on the CIPS platform presented a challenge for foreign banks in China such as ANZ being able to monitor transactions they are parties to.
"The task of sanctions monitoring on cross border payments is challenging because it is not always easy to identify the beneficiaries of a transaction,” Monck said.
"In the case of the CIPS system, names and other fields can be entered in Chinese but it is the sending agent, not CIPS, that is responsible for ensuring the integrity of this information.
"If a messaging translation capability is not built into ANZ's proprietary platform then there is a chance that the bank's system is going to miss some types of suspicious transactions."
ANZ says it applies “business as usual” risk management for monitoring transactions it executes through CIPS.
“ANZ’s group-wide risk management approach includes rigorous screening of all incoming and outgoing payments across the bank to ensure they are not connected to specific entities or countries that may be sanctioned,” an ANZ spokesperson said.
“This is a business-as-usual risk management process which occurs before any payment is approved via a payment platform, including the CIPS and SWIFT platforms.”
The spokesperson said ANZ had no exposure across its international network to Russia because the country was not a strategic focus for the bank.
“ANZ’s strategy is to support trade and capital flows around the Asia region into its home markets of Australia and New Zealand,” the bank spokesperson said.
“All licensed banking operations in China are required to be a member of the CIPS platform by default.
“Transactions processed through the CIPS platform equate to around six per cent of ANZ China’s total cross-border payments.”
Monck said the difference in sanctions postures across jurisdictions was creating ethical dilemmas for banks operating in multiple geographies and currencies.
“From a governance perspective, regulators expect supervised entities to comply with the more stringent of rules whenever there is such an inconsistency, and this can be hard to ensure at an individual transactional level.”
"The level of residual risk would depend on how well-calibrated ANZ's transaction monitoring is,” he said.
"It raises a question as to whether the bank is able to manage the risks of conducting transactions through the CIPS platform to the same standard it does more broadly."
Apart from ANZ, many other Western banks participate directly in CIPS including HSBC, Standard Chartered, Citi, Deutsche Bank, BNP Paribas and JP Morgan Chase.