Opinion: Crypto is out of control. FTX is just the latest example | CNN

Editor’s note: Casey Michel is an investigative writer and journalist covering kleptocracy and black money networks around the world. He is the author of “American Kleptocracy: How the US Created the World’s Greatest Money Laundering Scheme in History” and is working on a book investigating foreign lobbying in Washington. The opinions expressed in this article are his own. Lily more reviews on


As investigators and authorities continue to sort through the fallout from the cryptocurrency exchange’s collapse FTX, the contours of the implosion are becoming clearer. It will likely take many more months to unravel the web of corporate greed and financial malfeasance at the heart of FTX’s bankruptcy. But we can say with certainty that the company owes billions of dollars to creditors and, according to sources, at least $1 billion for clientsin what appears to be the biggest crypto meltdown to date.

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Friendly lawmakers, regulators and celebrities legitimized former FTX CEO Sam Bankman-Fried, but all the while he reportedly shifted client funds to support his relationship exchange house, allowing him and the company to rise so high and fall so quickly. And it was smoke and mirrors that hid how quickly the crypto industry had become part of the offshoring economy, and how easily traditional offshore havens made this possible.

If anything, the prodigious collapse of FTX highlights just how symbiotic the entire crypto industry is now with the world of offshore finance – and how the entire industry is open to scammers and scammers, with offshore havens rushing to offer scammers the kinds of allowances, and lack of regulation, they need to thrive.

During a virtual interview at the New York Times DealBook Summit on Wednesday, Bankman Fried said he had “screwed up” and accepted responsibility for the failure of his business, but denied trying to defraud investors and customers. But the Bankman-Fried and FTX implosion is something the crypto industry, and even those familiar with the financial world, could have – and probably should have – foreseen. Not only were there all kinds of red flags on the background of FTX, but Bankman-Fried also decided to base its operations in the Bahamianone of the most notorious offshore paradises in the world.

An “offshore paradise” may be a nebulous term, but, in short, it’s any jurisdiction that offers its clients enough anonymity that they can freely hide their wealth or create entire financial transactions that are not subject to to monitoring. The Bahamas emerged in the early 20th century as a place where wealthy Westerners could hide their finances – and financial fraud – from anyone investigating. And although it may not be the center of the world of relocation that he was oncehe recently reappeared as a Fiscal paradise. More importantly, “offshore” doesn’t just mean banking — instead, as we saw when Bankman-Fried said it moved its headquarters to the Bahamas because of its crypto-friendly reputation, this can also extend to other industries.

So when crypto became a major player in its own right, it was the Bahamas that stepped up. The Bahamas government has made a conscious choice to recruit as much of the rising crypto industry as possible, with Prime Minister Philip Davis hoping to make the Bahamas an “ideal destination for [crypto] operations. Davis landed his biggest client last year when FTX announced it would be headquartered in the Bahamas, assisting the islands in their efforts to recruit crypto business.

Now the Bahamas is in shock – and many surely have questions about the country’s regulatory oversight, or lack thereof. In a national speech late last month, the Attorney General defended its regulatory practices and noted the government’s shock at “the ignorance of those who say FTX came to the Bahamas because they didn’t want to submit to regulatory scrutiny.”

And finally, questions are also being asked about the relationship between crypto and the broader world of offshore finance itself. It’s a relationship that has received surprisingly little attention compared to things like immovable, luxury yachts and masterpieces – thanks in large part to the oligarchs surrounding Russian President Vladimir Putin, and how they used these offshore services to hide their wealth. And there’s actually been fantastic progress in trying to shut down some of these relocation services over the past year, from the United States passing legislation prohibit anonymity front companies to UK finally moving to target the kleptocrats who park their wealth in London property.

But crypto, oddly enough, hasn’t received as much attention – or as much concern. Maybe it was all the excitement surrounding the new technology. Perhaps that was all the get-rich-quick promise associated with early crypto entrepreneurs. Perhaps it was simply the fact that various celebrities FTX approved.

Either way, investigators and lawmakers apparently missed the fact that crypto has become as intertwined with the world of offshore finance as any other industry. Amid its meteoric rise, the crypto market has been something of a financial free trade. A complete shortage of regulation relative to the rest of the financial world has allowed the industry to spin out of control, ending up in the kind of Ponzi schemes exemplified by FTX.

This is why the FTX affair will not be seen as just a turning point in finally connecting crypto to the world of offshore finance, but for what ultimately brought the regulation hammer down on the whole industry. It remains to be seen what form these regulations will take, but figures like Treasury Secretary Janet Yellen have already called for greater regulatory oversight.

But now the billion-dollar bill is coming due — a bill that Bankman-Fried depositors, still scrambling for their money, won’t be able to pay.


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