Sam Bankman-Fried's Trial May Be Over, but The Bahamas Is Living Its Own Trial

Nassau, The Bahamas — In early 2022, Ryan Austin was part of a non-profit foundation devoted to teaching people in The Bahamas how to code. One of the early donations it received was from FTX, Sam Bankman-Fried's now-defunct cryptocurrency exchange that operated from the nation. The $30,000 contribution was made to train public school teachers in coding. About 90 teachers were shown how to teach public school kids to code during the summer in a kind of boot camp.

Austin went back to the FTX team with statistics reflecting the program's success with a request: Let's do this again.

"I think they were quite impressed and thought of using our data to boost their CSR [Corporate Social Responsibility]," he told CoinDesk. FTX gave Austin and his team a pat on the back and the kind of goodbye that said, "We'll be in touch." That didn't happen.

Instead, in November 2022, the FTX empire dramatically and rapidly collapsed into bankruptcy after a chain of events triggered by a CoinDesk report that raised questions about FTX's financials. On Nov. 2, 2023, a jury found FTX founder Bankman-Fried guilty of seven counts of fraud and conspiracy tied to the exchange's operation.

Many decisions that led to "one of the biggest financial frauds in American history" took place outside the U.S., in The Bahamas, where FTX's leadership set up shop in 2021.

"There was a wave, an excitement about FTX in the air," a nostalgic Austin told CoinDesk. "Businesses got a boost from their existence here. Employees were paid well and there was a lot of excitement around crypto and then suddenly, everyone was trying to figure out what the hell happened."

Pre-collapse

In October 2023, as Bankman-Fried fought for his innocence in a Manhattan courthouse, downtown Nassau, the capital city of The Bahamas, appeared to be "a ghost town," though that wasn't entirely reflective of its economy.

"There's no Bahamas without tourism. It's the slow season. No cruise ship today. On Wednesday we had six (so it was different). Things pick back up around December," said Mike Larry, a taxi driver. On days when cruise ships don't arrive, shopkeepers often shut shops to enjoy a day off, in the "laid back" spirit of the Caribbean nation.

Economic activity, primarily tourism, has suffered in The Bahamas since the double whammy of Hurricane Dorian in 2019 and the COVID-19 pandemic, costing the nation a loss of $9.5 billion. Together with construction and manufacturing, tourism accounts for 60% of the developing nation's GDP, which was $12.9 billion in 2022.

But when FTX made The Bahamas its base in September 2021, moving from the uncertainty of Hong Kong to the warmer shores of the archipelago, a funky cocktail of hope and skepticism hit the stands.

"If you came here last year everyone was talking about crypto. That ain't make no sense," said Larry as he drove through Nassau. "I don't know [about cryptocurrency]. They say, 'Put money you are willing to lose,' but the only thing I am willing to lose is my girlfriend."

CoinDesk spoke to more than a dozen locals to gauge their interest in cryptocurrency or FTX before its collapse. Around half of them said they had little knowledge about crypto or showed a lack of risk-taking appetite. But almost all of the individuals holding white-collar jobs who spoke to CoinDesk invested in crypto in some form or the other.

"People here don't trust crypto because we love to feel the money," said Mario Young, technology manager at ST Global Markets, a crypto broker registered in The Bahamas. "But FTX invested a lot in the economy, donating to schools and the main shelter. So it seemed legitimate, as the government seemed to be on board with everything."

'The red carpet'

Young said he did not know much about FTX's relationship with The Bahamas government, and he still doesn't. But hints emerged during Bankman-Fried's trial this past October.

While testifying, Bankman-Fried told prosecutor Danielle Sassoon he didn't remember making an offer to pay off The Bahamas' $11.6 billion national debt to the nation's Prime Minister Philip Davis in 2021. The offer was made, according to Michael Lewis' recent book about Bankman-Fried. Prosecutors also shared an email purportedly from Davis' personal Gmail account, asking Bankman-Fried to speak to Davis' son about a non-fungible token project the younger Davis was part of.

Larry claimed he knew "a lot of big people who are in government and they got what they needed from" Bankman-Fried, without providing evidence. "He bought $300 million worth of property, right? I didn't even see him." Nearly $300 million was spent on real estate, largely homes and vacation properties for senior staff, an FTX attorney told a Delaware court days after the bankruptcy was filed.

In October 2021, Davis cut a ribbon with Bankman-Fried to officially open the FTX office. A few months later, in April 2022, FTX broke ground on a $60 million headquarters in The Bahamas, which Davis said would rival Google's headquarters. Construction never began, and the worksite remains abandoned in what looks like a mini-jungle fenced from all sides.

The Bahamas government or its Securities Commission did not return requests for an interview.

Last month, Prime Minister Davis' message at a pre-conference dinner was emblematic of the strategy the Bahamas had adopted: "no risk, no reward." The next day, in his opening address at the conference, he expanded on it.

"Last night at dinner after my toast, I was reminded by a guest at my table that The Bahamas is a pioneer in the digital asset space, and history has proven that pioneers did not succeed without overcoming many obstacles or, as he put it, 'without taking licks,'" Davis said without mentioning FTX.

(Disclaimer: The Bahamas government provided travel and accommodation for this reporter to attend this conference in the nation held on Oct. 12 and 13, but wasn't involved with this article.)

The Bahamas, living its own trial

Bankman-Fried's trial may be over but The Bahamas appears to still be living through its own trial, hit by the stigma of rolling out a red carpet for FTX.

The local residents CoinDesk spoke to said they were not closely following Bankman-Fried's trial, but they did question whether Bahamian authorities handled FTX and its unraveling appropriately.

On Nov. 9, 2022, FTX halted all crypto withdrawals. But a day later, the company tweeted that it had "begun to facilitate withdrawals of Bahamian funds," citing "our Bahamian HQ's regulation and regulators."

Read more: Crypto Exchange FTX Reopens Bahamian Withdrawals: Nansen

On Nov. 12, 2022, the Securities Commission of The Bahamas issued a statement citing that tweet, saying that it had not told FTX to prioritize Bahamian withdrawals. "The Commission does not condone the preferential treatment of any investor or client of FTX."

However, prosecutors at Bankman-Fried's trial showed the jury an email in which he offered to reopen Bahamian withdrawals:

We are deeply grateful for what The Bahamas has done for us, and deeply committed to it. We are also deeply sorry about this mess.

Bahamian regulators managed to exert some control over FTX, freezing FTX assets and suspending its registration. On Nov. 11, FTX, a Bahamian entity, filed for bankruptcy protection in a U.S. court. On Nov. 13, Bahamian authorities opened a criminal investigation into FTX.

"It was a powerful event, especially for the financial sector," Young said. "Everyone was just in disbelief because FTX was the next big thing, it bought up a bunch of property and they were spending a lot of money."

Exactly one month later, after U.S. authorities filed criminal charges against Bankman-Fried, the Royal Bahamas Police Force arrested the FTX founder.

Young appeared to give the Bahamian authorities the benefit of the doubt while pointing to the news report that stated Bankman-Fried had offered to pay off the nation's debt. "We just don't know (about the involvement of the government), but now people will always associate Bahamas with FTX."

Larry's distrust for crypto and the government were in equal parts. "I didn't have the time to do my own research and I don't just go with what the government says."

Austin believed the arrival of FTX and its collapse were both watershed moments.

"I had friends working in the space, people studying, excited about worthwhile careers," he said. "Young people were investing, buying land and getting mortgages. The bringing up of young people happened as quickly as it did because of FTX. And its collapse is also a watershed moment because it highlighted so many of the issues with crypto, for the better."

But he did have questions: "Who's involved from the government? Why wasn't there oversight? Was there oversight? Were they too close to the regulators? How does it impact us when they resume regulatory perspective?"

The Bahamas resumed regulatory updates five months after FTX's collapse by stating a desire to tighten its crypto laws, but not before facing a barrage of hits to its credibility as an innovative pioneer in financial services – FTX's new leadership responsible for restructuring called its Bahamas arm a "shell setup" to further Bankman-Fried's fraud. It also accused Bahamian authorities of aiding Bankman-Fried's attempts to escape justice and of directing unauthorized access to FTX's systems in order to withdraw assets.

Since then, the nation has been fighting a crisis of confidence, a referendum on its credibility as a hub for financial services, which is the Caribbean nation's second-largest industry after tourism, accounting for 15% of its GDP.

Its strategy seemingly borrows a page from Harry Potter, making FTX the equivalent of Lord Voldemort, adopting the strategy of not ever naming "He-Who-Must-Not-Be-Named" – FTX.

"I believe from a PR perspective, The Bahamas is doing a good job," Austin said. "Just trying to stay out of it as much as possible, by not saying much and that's what I think it is. We're trying to navigate this without causing too much damage."

Simultaneously, the government oversaw over 10 new companies registering in The Bahamas as a digital asset business over the past year and has promised new measures to its crypto regulatory framework, the Digital Assets and Registered Exchanges Act (DARE Act).

"DARE Act will include – among other things – measures to clarify the regulation of stablecoins, and the introduction of more robust investor and consumer protection mechanisms, including new provisions for a single framework for the registration and oversight of digital assets custodians and the provision of custodial wallet services and requirements for the segregation of assets," Prime Minister Davis announced during last month's conference.

The amendments are expected to be passed in Parliament by the end of the year, Davis said, and they also include a framework for the staking of clients' digital assets and the operation or management of a staking pool as a business.

Digital assets and The Bahamas, here to stay?

A short stop at Nassau's Margaritaville Beach Resort, a lounging haunt of Bankman-Fried, who was known as SBF, and the friends who turned on him, didn't reveal any remnants of the FTX culture.

On the other side of the island from where Ernst & Young, Citibank and others have offices is where the luxury Albany complex where SBF and friends lived in a penthouse sits perched by the ocean. The gated community made tête-à-tête's with SBF's neighbors or sneak peeks nearly impossible.

As the sun set, a stunt biker rode by in an apparent rush to join a favorite weekend pastime of the locals. The next stop was Cocoplum, a restaurant Bankman-Fried and FTX used to good measure.

A waiter, who asked for anonymity as he was not allowed to speak publicly, told CoinDesk that Bankman-Fried had drawn other patrons' eyes in the past.

"It was another guest who turned around and asked, 'Do you know who that guy is?'" the waiter said. "He is very rich. [Bankman-Fried] looked like an ordinary Joe. I served him. Seemed nice. I wouldn't say he did any big tipping. Our restaurant gets millionaires all the time."

The waiter insisted that the restaurant wasn't affected by the collapse of FTX, even though it supplied food to FTX's cafeteria. "I don't know about the nation's economy, but as a restaurant, FTX's collapse hasn't affected us."

Exact data showing FTX's impact on The Bahamas doesn't exist, but the nation's GDP hints that it didn't suffer as much as may have been expected from a company which once offered to pay off the entire nation's national debt. GDP dropped from $13.06 billion in 2019 to $9.76 billion in 2020, but has been rising since. The GDP grew to $11.53 billion in 2021, $12.9 billion in 2022 and is projected to rise to $13.88 billion in 2023. This is in line with a study in February 2022 that said the Bahamian economy will return to pre-pandemic size in 2023.​

Still, the loss of the opportunity FTX promised and the damage as a result of the perceived red-carpet association with FTX remains incalculable.

"I believe we're still OK because our finance industry is a strong financial product and people are coming here, investing and holding large accounts and family accounts every single day," Austin said.

In fact, the nation's leadership has resolved to regain credibility. At the conference, Prime Minister Davis said, "The Bahamas will continue to be a pioneer in the digital asset space" and touted the nation's Sand Dollar as the world's first central bank digital currency.

In the meantime, the shock of the downfall of FTX and SBF remains embedded in the psyche of a nation.

"We were surprised. We all knew bitcoin could be a shady business, but the guy was on the cover of Forbes, who would have thought," the waiter said.

Read all of CoinDesk's SBF trial coverage here.

CORRECTION (Nov. 27, 2023, 20:44 UTC): Notes that while FTX said it reopened withdrawals for Bahamian customers because Bahamian regulators told it to, the nation's securities regulator denied this.