In retrospect, Sam Bankman-Fried and his cryptocurrency gang gave investors ample reason to steer clear of FTX: misleading claims that investments were covered by the Federal Deposit Insurance Corp., too-cozy-for-comfort relations with government regulators and other problematic behavior.
But the biggest red flag may have been the first: the crypto exchange’s relocation to the Bahamas. For centuries, the island nation has been defined by its close ties to dodgy, even criminal finance. Far from being an anomaly, FTX was simply the latest in a long line of sketchy enterprises.
The outlaw status of the Bahamas dates back to the 17th century, when the islands became the most important base for piracy in the Caribbean. While the British eventually drove the pirates away, the colony never lost its reputation for lawlessness.
After the British Empire abolished slavery in 1838, the local planter elite launched a new enterprise, salvaging ships that ran aground on the island. They lured ships to their doom through decoy lights and bribes paid to captains. Between 1858 and 1864 alone, 313 ships mysteriously ran aground on the Bahamas, their valuable cargos plundered.
During this same period, the Bahamas hosted blockade runners selling guns to the Confederacy. After the Civil War, the islands became a natural staging area for smugglers eager to dodge US tariffs. Then, during Prohibition, the islands became a staging area for bootleggers shipping rum to the US.
These illicit ventures gave rise to a ruling class of White merchants and property owners dubbed the “Bay Street Boys,” which one early assessment described as “the most reactionary group of businessmen in the colonial Caribbean.” This clique disenfranchised the Black inhabitants while exempting themselves from corporate and property taxes.
After the end of Prohibition in 1933, the Bay Street Boys developed a new racket, offering to help wealthy Americans evade the high taxes of Franklin D. Roosevelt’s New Deal. Typical of the new venture was the so-called Bahamas Insurance Company. It was, one witness later testified, “an insurance company which had no invested capital; which had no income; which had no assets; which [had] nothing; it was just a shell.”
Regardless, the new entity proved a most effective, altruistic undertaking. In a tongue-in-cheek account, the Christian Science Monitor described it as “giving first-aid treatment for Americans with uncomfortably high incomes.” The cure, which involved bogus interest deductions and fake loans, allowed taxpayers to reduce their liabilities to a pittance.
As tax historian Joseph Thorndike has noted, this was but one of many dodges peddled by the Bahamian elites at the time. The most successful and enduring was the personal holding company, which permitted tax-averse individuals to assign their income to an enterprise that was, in reality, nothing more than a name plate hung on a building owned by one of the Bay Street Boys.