SWIFT (Society for World Interbank Financial Telecommunication System) platform

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  • SWIFT is global financial messaging service that enables financial institutions worldwide to send and receive information about financial transactions in secure, standardized and reliable environment.
  • It is used to transmit messages relating to cross border financial transactions.
  • It was founded in 1973 and is headquartered in La Hulpe, Belgium.
  • It is a cooperative society under Belgian law owned by its member financial institutions with offices around the world.
  • Globally over 11,000 financial institutions in more than 200 countries use services of SWIFT.
  • SWIFT does not facilitate funds transfer, rather, it sends payment orders, that must be settled by correspondent accounts that institutions have with each other.
  • On receiving this message through SWIFT, banks abroad, mostly branches of domestic banks abroad provide funds to the company.
  • Why in news? The mega PNB fraud surrounds around SWIFT technology which was misused by its branch officials to fraudulently issue LoUs (letters of undertaking), kind of Bank guarantees to diamond and jewellery importer Nirav Modi-linked companies without getting proper approvals and without making entries in CBS. The failure of SWIFT-CBS link led to Rs 11,400 crore fraud at PNB and enabled these transactions to go undetected for over seven years. 

 

Example:

  • Suppose a customer of a Bank of America of New York Branch want to send money to the ICICI bank account in Bengaluru, he can approach the Bank of America’s New York Branch with the account number of ICICI to which the money needs to be deposited and ICICI Banks Swift Code for the Bengaluru branch.
  • Bank of America’s New York Branch will send the payment message to the ICICI Bengaluru branch over the secure SWIFT network. Once ICICI ‘s Bengaluru branch receives the SWIFT message about the incoming payment, it will clear and credit the money to the account.
  • SWIFT code is used when the transfer between two banks happens internationally as we use IFSC codes for the domestic transfers i.e. financial transactions within the geographical territory of India.