FTX collapse puts Antigua and The Bahamas in the spotlight

2nd December 2022

The eyes of international financial regulators and investors are on Antigua and Barbuda and The Bahamas following the collapse of crypto giant FTX.

Up until recent weeks, FTX – a digital currency exchange platform where people can buy and sell digital assets – was the second largest cryptocurrency exchange globally worth US$32bn in January 2022.

FTX has now filed for bankruptcy in the US amidst a digital bank run caused by many investors pulling their money after the company failed to raise US$8bn to stave off liquidity concerns. 

Several international news outlets including the Wall Street Journal have reported that its founder Sam Bankman-Fried may have illegally taken and diverted some US$10bn in FTX customers’ funds.

While the focus has largely been on FTX’s operations in The Bahamas, it has recently been revealed that the parent company is in fact registered in Antigua and Barbuda.

Antigua News reported that FTX’s Directors on record were Jonathan Cheesman, then an executive with international financial giant HSBC, and local attorney Arthur Thomas, the country’s Ambassador to the Czech Republic. Thomas resigned as Chairman of the government-owned Caribbean Union Bank when news broke.

Prime Minister Gaston Browne was quick to exculpate the country from the global fallout. Browne said that FTX had no trading licence in Antigua and Barbuda, even though the company applied for one back in 2021.

“FTX was to operate out of Antigua but when they made their application in 2021, the regulators did not quite understand the business model and it was a one-man operation, so they never proceed[ed] to licence it. They asked for greater particulars,” said Prime Minister Browne, intimating that the country may have dodged a bullet.

“I have to say that our regulators would have exercised prudence and did not rush to register them…I had a meeting with the same Bankman who was reputed to be worth US$33bn at the time. He complained that the Antiguan regulators had not approved his license and that was the primary reason he established his operations in the Bahamas. I don’t interfere with regulatory business…but I did say to the chairman of the FSRC that he had raised the concern but that is as far as I went,” Browne reportedly said.

FTX moved its headquarters to The Bahamas in 2021. “Their dishevelled CEO Sam Bankman-Fried had adopted The Bahamas as his home and was flooding its community with money, courting government officials and locals alike,” wrote Forbes in a piece dissecting the company’s time in the country.

There are estimates that the company and its now former CEO bought up to US$300mn in real estate in the country. Reuters reported that FTX spent US$121mn on 19 separate New Providence properties in the 14 months after it set up operations in The Bahamas. The company also reportedly made over US$10mn in donations to community groups and charities in the country during 2021 alone.

Forbes reported that the country and the company’s workers appeared oblivious to allegations that FTX was “drowning in debt and had been allegedly sending billions in customer deposits to its trading arm, Alameda Research, to use for risky investments”.

As US regulators including the Securities and Exchange Commission (SEC) intensified probes of FTX’s collapse, the Securities Commission of The Bahamas (SCB) moved to take control of cryptocurrency assets held by a unit of the bankrupt exchange there.

“On 12 November 2022, under the authority of an order by the Supreme Court of The Bahamas, the commission determined urgent action to safeguard the digital assets of FDM for the benefit of its customers and creditors was needed, and directed the transfer of certain digital assets to a digital wallet controlled by the commission,” said SCB in a statement, adding that the order provides for reimbursement by FTX for “expenses reasonably incurred by the commission in connection with the regulatory action taken to safeguard the digital assets”.

Concerns over the implosion’s impact on the Bahamian economy were somewhat tempered when to the surprise of some analysts, international credit ratings agency Standard & Poor’s maintained the country’s current rating, saying that FTX’s demise will likely have “no material adverse impact”.

Meanwhile, the Tribune reported that Brian Simms of Lennox Paton, one of the joint provisional liquidators of Bahamian subsidiary FTX Digital Markets, has expressed concern that its assets were “at serious risk of being lost, stolen, or seized unless frozen by the US courts”.

Simms also warned that the company’s local creditors including its Bahamian staff and goods and services suppliers are unlikely to recover 100% of what is owed to them, given the competition for its assets in liquidation proceedings and challenges in their recovery.  

The collapse has inevitably put focus on the Digital Assets and Registered Exchanges (DARE) Act which was passed in 2020 to provide the regulatory framework for cryptocurrencies, exchanges, wallet services and Initial Coin Offerings (ICOs).  FTX’s new CEO John Ray said that “faulty regulation” caused the failure. While Bahamian regulators and the Government have dismissed this criticism, it is difficult to argue that the country’s massive bet on crypto and FTX is going exactly to plan.

Photo by Mitchell Griest

This is a lead article from Caribbean Insight, The Caribbean Council’s flagship fortnightly publication. From The Bahamas to French Guiana, each edition consists of country-by-country analysis of the leading news stories of consequence, distilling business and political developments across the Caribbean into a single must-read publication. Please follow the links on the right-hand side of this page to subscribe, or access a free trial.