FINANCIAL GEOPOLITICS MAY 2026: Defence Banks – Moscow Miliband – Crypto Kingdom

Hello, people. Welcome to the May 2026 edition of Financial Geopolitics Chungus, dubbed recently by a well-known investigative reporter over drinks as “the PopBitch of geoeconomics.” It’s our privilege. 

This edition dives deep into the tensions between Europe and the US as both allies seek to ramp up defence investment. We also have analysis on the UK’s ongoing crypto crackdown, the country’s ruinous energy policy inadvertently helping Russia, growing nat-sec concerns around Chinese business, a rundown of the latest Iran-related financial scandals and sanctions, and a fascinating legal battle in the crypto world which could cause serious trouble for some key companies in the market.

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THE BROAD VIEW WITH EDWARD LUCAS

Edward Lucas, a top international affairs expert and Times columnist based in London, is one of the leading voices advocating for increased defence spending in the West, and has proposed a number of eye-catching solutions including a multilateral defence bank, which is now taking shape. He “came up with this idea together with two friends, Guy de Selliers and [ex-general] Nick Carter, in January 2025,” he told reporter.london over the phone. This was amid shock in Europe and the UK at the Trump administration taking issue with Europe’s ambivalence on China while being itself ambivalent on Russia to the point the NATO treaties were called into question. These tensions in the transatlantic relationship have not disappeared since. Lucas says a state-backed Rearmament Bank would enable Europe (without the US) to increase military spending more efficiently than through politically-controlled structures.

“We also feel that it’s important to spend the money better; the risk is that we throw money into a basically broken defence procurement system, which doesn’t deliver either the innovation or the quantities that we need.”

After “meetings with the [NATO] Secretary General” in Brussels, the idea took off with the announcement of a “multilateral defence mechanism” between the UK, Finland and the Netherlands in March 2026, Lucas said.

Now, Lucas told this newsletter exclusively, other countries are set to announce joining. “This is the embryo bank. There are other countries that are actively involved in this, but I think it’s for them to say, rather than for me.”

The mechanics are based on the time-tested model of the European Bank for Reconstruction and Development or the Nordic Investment Bank. The founding countries supply paid-in capital to the institution, which then borrows the rest at a good rate thanks to what is hoped to be a high credit rating from the major agencies. Then the mission will be to invest productively in the types of defence startups which a commercial bank or government is not prepared to work with.

As ever, there is competition and Europe is slow off the mark. “We should have done this in 18 weeks, not 18 months,” Lucas said. “But I think it will be easy to do that once they’ve got a few more countries fully signed up.” 

Bros before IPOs: Controversially for some in Europe, including Lucas, the two main rivals include American backing: the Defence, Security and Resilience Bank, based in Cananda and cofounded by top global lenders such as Deutsche Bank and JP Morgan, and Erebor, a Peter Thiel-backed firm which gained regulatory approval in October last year. Other Thiel-backed defence firms such as Palantir and Anduril already do significant business in Europe. All are named after elements in the Lord of the Rings books, and all led by “tech bros” with a ruthlessly can-do attitude and political opinions that in Europe would be considered rightwing. Anduril also just posted a valuation of $61 billion which would make it more valuable than Europe’s top defence companies such as BAE Systems or Rheinmetall.

This is probably as much due to the depth of US capital markets as to the company’s own merits, but it nevertheless irks culturally. The American CEOs of these firms are outspoken, flamboyant and aggressively philosophical, not to say ideological supporters of Western civilisation, which could not make a starker contrast to their buttoned-up corporatised DEI-infused counterparts in Europe. In this context, it is no surprise, we think, that Palantir and its cousins are getting such hateful media (and social media) coverage this side of the Atlantic.

Lucas sees things as a matter of realpolitik. “We are very clear that we’re European or European plus Canada, but we are not an American bank. And we don’t want American shareholders, at least every suggestion we’ve made to the Treasury has been we don’t want American shareholders, because that starts putting you into American domestic and American foreign policy,” he said, pointing to recent “upsets” where US defence equipment paid for by Europe arrived late or not at all.

“If you pay for something, then you’re told you can’t have it, that’s a problem. There are also worries that American weapons may not work the way they’re intended to or may not work at all.”

How much defence spending Europe needs to do depends on a now unpredictable US, Lucas noted. “If the United States is fully engaged in European defence, then we’re doing pretty well. If we have to cope with the United States’ withdrawal within 10 years, we’re going to have to sweat a bit. If we have a United States withdrawal right now, we sweat a great deal more. If we have the United States not as an ally, but really trying to sabotage things, then we’re in an extremely difficult position.”

Asked if he agrees the tensions with the US and the war in Ukraine have created a certain “buzz” in the European defence sector, Lucas said: “I like bang, not buzz.”

“We can do this. The problem is not of means. It’s a problem of political organisation.”

TOP LINES

1. MOSCOW MILIBAND: For the British government, and especially Energy Secretary Ed Miliband, the path to environmental sustainability runs through Moscow. While vehemently refusing energy development in the North Sea and jacking up green taxes to suffocate refineries and heavy industry, London has been forced to issue a waiver to sanctions on Russian oil products against the backdrop of the closure of the Strait of Hormuz. Naturally, the move was widely criticised and although we strive for balancing voices in this newsletter, we could not find any defenders of this particular policy. Responding to the outrage, the Foreign Office issued a statement saying that sanctions are not in fact being eased, but merely staggered over a period of months to ensure market stability. The statement was contradicted by Bloomberg’s Javier Blas who noted in a deadpan way that the text of the law which the government says is temporary, in fact says the exemptions come with an “indefinite duration.” Our friend Dr Aura Sabadus, energy and cross-commodity expert at ICIS (a global energy news and data publisher), warned the UK flake-out could lead to a broader European trend. “The UK was expected to close this loophole which had existed until recently. However while the UK is understandably worried about the soaring cost of living, this latest decision may send the wrong signal to western allies and Ukraine,” she said via WhatsApp. “Some European countries which continue to be keen on importing Russian oil or oil products might see this as carte blanche to press the EU to dilute its own oil sanctions.” This story brings together multiple strategic weaknesses that the West and the UK in particular have been trying to ignore for years: it’s simply not sustainable to contemplate war with Russia, which Russia has been threatening for years, while being in hock to them for our energy. Also unrealistic is the drive to ramp up our military capacities in the west without ramping up our heavy industries, which in turn require an energy policy that allows the use of hydrocarbons and produces and distributes cheap electricity domestically. As members of His Majesty’s opposition have not tired of pointing out, it is the current position of the UK government, wedded to an extremist degrowth environmentalist ideology, to close our refineries, ban domestic oil extraction, and buy it instead from Russia, while also helping Ukraine fight Russia. Therefore British people end up paying both for the missiles hitting Ukrainian children and the air defence protecting them. Something’s gotta give here.
2. UK CRYPTO CRACKDOWN: The Brits are developing new ways to tackle crypto crime. Law enforcement raided high street shops suspected of conducting illegal crypto-to-cash exchanges, some of which are suspected of having links to Iran, according to people with knowledge of the investigation speaking anonymously to this newsletter. “Unregistered and unregulated peer‑to‑peer cryptoasset traders play a significant role in enabling criminals to convert illicit proceeds, frequently originating from scams and frauds that harm members of the public,” Adrian Morris, Associate Director, Digital Asset Recovery Team, at Grant Thornton UK, told reporter.london. Morris is a former civil servant in the crypto team at HM Revenue and Customs. “Such behaviour places additional strain on law enforcement resources and deprives the Exchequer of tax revenues needed for essential public services.” More measures: The UK has gone further than other countries in chasing down A7, Russia’s crypto-trading and sanctions evasion network, which we covered closely with ace correspondent Tom Rowley. On May 26 the government announced new sanctions including against one of the world’s biggest crypto exchanges, HTX, for allegedly collaborating with A7, sending shockwaves through the industry. Star trader: Tom had a world-beating Russian-language scoop at the tail end of April, published with colleagues from Proekt Media, an independent Russian outlet. The story speaks for itself but among multiple jaw-droppers is a suggestion that this publication’s oldest subject, Russo-Moldovan oligarch Mr Ilan Shor, who controls A7, has made it so big in Moscow since the advent of the Ukraine war and global sanctions, that he is now on equal footing with some of the Kremlin’s most prominent money men.

3. CRYPTO TURF WARS: An ongoing appeal to a case of crypto money laundering in the US has broader implications for the crypto analytics industry and poses a huge question: who analyses the analysts? Apparently, other analysts. Competing “amicus briefs” have been filed alongside the appeal of Roman Sterlingov, convicted to 12 years for his role in a crypto- mixer business. The argument made by one of the companies behind the first amicus brief, Chainargos, is explosive: that the so-called “tracing” methodologies used by a majority of the industry to establish connections between wallets transacting on the blockchain, are unreliable. If Chainargos are correct, and we aren’t saying they are, there will be upheaval not just in the crypto world, but also in the legal world, due to the influence that these methodologies have had on court decisions, including confiscations and custodial sentences. Patrick Tan, legal director and co-founder at Chainargos, told reporter.london: “I think these analytics tools are useful for finding leads but they’ve been elevated undeservedly to the level of being used to secure convictions or seize property.” Because the tools aren’t tested independently or peer reviewed, and their error rate is not public, Tan argued that “they just don’t meet the forensic standards necessary.” Additionally, he says, most tools do not rely on an industry-standard operating procedure and aren’t “independently and objectively reproducible.”

4. DIFFERENT DIRECTION: Despite the major problems in the industry, the US is continuing to create the space for crypto growth, most recently with the CLARITY Act. At the same time top Wall Street banks are hiring legions of digital asset experts, further increasing the linkage between traditional banking and crypto. The reasons for the choice the US is making on crypto, as we discussed in last month’s edition, could be based on trying to maintain strategic dollar dominance globally. But there is no question that in the short term at least there is a steep price to pay in terms of allowing dirty money to flow. 
5. CHINESE COMMERCE: A flurry of news regarding Chinese geopolitics and finance suggests that the West is hardening its positions on Beijing, especially regarding commercial competition and espionage. This is taking place amid broader talk of de-dollarization, which so far seems overblown and tainted by motivated reasoning to do with anti-Americanism, here’s a brilliant analysis of China’s shifting around its USD holdings to make them less transparent. New law: The UK’s Kings Speech on May 13 contained what national security campaigner Luke De Pulford called “a China Bill,” aimed at strengthening the British response to interference and dark arts from less than friendly foreign countries. The expert said that once the draft law is published it is likely to cover banks and financial services companies. “Beijing is able to exercise considerable influence in the City of London, through leverage it has built up over decades,” De Pulford told reporter.london. “There is no such thing as a truly private company in China, certainly not in the western understanding, and all significant bodies remain subject to sweeping new Chinese laws which permit state interference, with attendant security risks.” The screws have been tightening for a while around the world of banking and finance where it touches on China, and it seems that the more difficult the economy is domestically, the more ruthless the Communist Party becomes in its mercantilism abroad, up to and including collusion with organised crime globally. Quant leap: Quant analysts for leading US firms in Hong Kong are being told to “relocate or resign” over growing intelligence pressure on strategic companies from Beijing, according to the FT. Meanwhile, Morgan Stanley issued “China-only” mobile devices to bankers there, over fears of spying, the FT also reported. This trend is only accelerating and it points to pressure around global capital markets as we have come to know them – in a few years it could be that we’ll think of the hyper-open model of the 90s and 2000s as a blip, as the world reverts to the mean of nationalism, conflict and contest.

6. BROTHERLY BUDAPEST: As we reported in the previous issue, Ukraine was contemplating taking Hungary to court over the nutty “geopolitical bank robbery” of a valuables transport on behalf of Kyiv-based Oschadbank, in the dying days of the Orban government. But as soon as the new broom took over, the goods were returned, as a gesture of friendship, Zelensky confirmed on his social media account.
7. SHERIFF IN TOWN: This doozy came out in the Romanian language a few days after the last chungus – it’s a detailed investigation by our friends at Rise Moldova, documenting the businesses held in Germany by the Sheriff Group of Transnistria. It’s well worth your time, to understand the financial motivations of Transnistria’s leaders, as the Russia-occupied enclave in Moldova is distancing from Russia and slowly being reintegrated under the legitimate administration in Chisinau. 
8. KREMLIN COUP? Agitation in Kremlin-watching media as two well-sourced reporters, Roman Anin at iStories and Max Seddon at the FT, report the possibility of an impending coup. Things began going downhill suddenly (they have been going downhill gradually for a long time) when Putin’ securocrats started briefing out the idea that Russian oligarchs will be tapped to finance the war, the oil companies and the banks, all of which are facing liquidity problems. Sure enough, wealth seizures from the oligarchs are now in the news.
9. OILY SWAP: In the previous issue we highlighted that the United Arab Emirates, under attack by Iran and pressure from the West to align more closely with the US and NATO countries, has opened discussions about a central bank swap line with the US Treasury, that would improve investor confidence. On April 28 the UAE announced it was leaving OPEC, the oil cartel created to keep the US at bay in the 70s. Speculation naturally arose that leaving OPEC was a price the UAE paid for the swap line – which, if true, suggests the UAE wanted that swap line more than it let on publicly.  The UAE is undertaking a broader geopolitical repositioning, with closer ties sought to Israel and Western countries amid the conflict. And that is being met with suspicion in London, due to some longstanding unresolved issues between the UK and UAE. As we reported exclusively last week on reporter.london, City of London insiders are taking the opportunity to push for more transparent and straightforward civil recovery processes, as examples abound of individuals who have been found liable for financial misappropriation (some might call it fraud) taking shelter in the sunny kingdom. One example in particular is significant both for the uncompromising facts as described by the British judge and the blunt refusal of the UAE to take on the case. Full story here. Reading between the swap lines: As everything else that the US does, the swap line announcement got politicised fast, with some experts calling it “a geopolitical slush fund for Scott Bessent.” Other experts accept the premise that the swap lines point to the geopolitics of finance, as Bessent has explicitly stated, but suggest that shows the dollar isn’t as powerful as it used to be, hence the added political inducements. This, however, is an academic, chicken-egg debate. The world, especially the loose anti-Western coalition of China, Russia and others, have been working hard to push against the dollar for years. Now the dollar is pushing back. Raising the rahbar: Bessent has also pursued Iran’s financial networks tenaciously over the past few weeks including once again targeting UK shell companies used by the regime. The presence of Iran in the UK is bound to cause geopolitical tensions as London remains one of the few countries not to ban the IRGC. See below.
10. GEOPOLITICAL GANGSTERS: It doesn’t get more cyberpunk than a bunch of international drug traffickers carrying out violent attacks in a country at the behest of a hostile regime, as the National reports in this detailed story. (It is notable that the UAE-based newspaper has started doing serious deep dive investigations into Iran, exposing UK links that the British media has missed.) The news comes at a time when two Romanians are on trial for stabbing a dissident journalist in London at the behest of the Iran regime. The TV channel where the stabbe djournalist works received debt relief from its Saudi backers worth $650 million, the FT reported May 28. Iran is probably the world’s most sophisticated users of crypto to evade sanctions. Three exceptional pieces of reporting from the last month prove it – and a lot of these operations are ongoing. Speaking of statecraft: The US is also being accused of forcing Middle Eastern central banks to work closely with K2 Integrity, a private intelligence company, at the behest of the US Treasury, according to a story in the New Arab.
11. GILT TRIP: The Bank of England is catching a lot (and we do mean A LOT) of flak from commentators and politicians of all stripes because it has been unwinding the holdings of national debt it accumulated in the pandemic. In the process it dealt a severe blow to the government’s ability to borrow by crowding out supply of UK bonds. However, the effect of this unwinding has been to impose some discipline on government spending (hard to believe, but it has happened, compared to recent times) and also to buy itself, as the controller of the money supply, more flexibility in case of need. Moreover, should an intervention not occur, the Bank will have built up its credibility (and the credibility of the pound sterling) by countering rumours about monetary financing – a big no-no in a world where bond vigilantes are constantly on the prowl. There has been pressure to do some monetary financing to replenish the army but in truth, as some analysts have said, it’s welfare spending that should be used to plug that hole, not “money printer go brr”. One of the very few economists to defend the Bank’s strategy was Stanford’s Hanno Lustig, who posted on X that the BoE’s reason for pushing ahead with quantitative tightening was “to try and avoid ending up like the [Bank of Japan] with a huge balance sheet that’s a permanent warehouse for government bonds, thus distorting yields, asset returns, incentives for fiscal policymakers etc., oh, and engineering large wealth transfers within and across generations.”
12. SO LONG SOFT POWER: The EU and UK are a few years behind the US on this but slowly coming round to the realisation that soft power, a concept closely tied to unconditional foreign aid, ain’t what it used to be. In the latest example, Brussels has said it would start cutting foreign aid to countries aligned with adversaries in their foreign policy, our friends at Euractiv are reporting. The news comes at a time when the EU is not only becoming more assertive on Russia, but also China, due to trade disputes. China is itself taking a hard stance on the issue by banning its companies from co-operating with an EU probe into state subsidies offered to Chinese companies to undercut international competition. “It means that Beijing enters open regulatory warfare against the EU,” said Reinhard Bütikofer, an ex-German politician and MEP. 
13. PRONTO, SIGNORE: Just as the US leadership considers launching $250 bills with the face of President Donald Trump on them… An important debate is being stirred by the upcoming launch of “Everybody loves our dollars,” a new book by Oliver Bullough criticising the role of physical cash in the global money laundering industry. Bullough argues that central banks are effectively complicit in the crime because of “seignorage” – the value added to the country’s economy by the distribution of high-denomination banknotes, even when these fall into the wrong hands. The London Review of Books has a good report which also includes coverage of a book on money laundering from convicted felon and British political insider George Cottrell. Some experts have countered the cash thesis. The news comes as an NGO estimates that £325 billion in dirty money is flowing through the British economy each year, exceeding 10 percent of GDP.

Alright, that’s it. We’ll be with you again next payday. Enjoy the rest of your Friday!

Special thanks as always to BM who helped edit this edition between sips of gin tonic during his beach holiday.