The Hidden History of the Bahamas, the World’s Top Offshore Cryptocurrency Tax Haven

On Jan. 3, as Sam Bankman-Fried pleaded not guilty in New York on charges stemming from the collapse of one of the world’s largest cryptocurrency exchanges, the FTX debacle became, once again, a U.S. story. The Bahamian backdrop to the last days of FTX has faded into the background. But the torrid affair between what was once touted as the leading edge of financial technology, or fintech, and the Bahamas—a nation of 400,000 people, spread over some 700 islands, 50 miles or so offshore of Florida—is not merely incidental. It highlights the way in which the wider Caribbean region has repeatedly functioned as a Frankenstein laboratory of global capitalism.

The Caribbean was the first region of the world to feel the full force of Western conquest and planation slavery. In the 17th and 18th centuries, the Bahamas was a legendary base for piracy and smuggling. The 20th century brought the rise of American power and the struggles of the Cold War. Again and again, the fragile island chains have been wracked by hurricanes, volcanic eruptions, and earthquakes, all of which bring devastation but also prompt the churn of property and new waves of investment.

Every year, the spectacular beauty of the Caribbean attracts millions of tourists in search of sea and sun. Casinos and resorts jostle with the remnants of plantations, dilapidated factories, and freeports. Mega-yachts, fast boats, cruise ships, tramp steamers, tourist flights, and private planes enable people, money, and goods to circulate.

It is a region of extreme inequalities both between and within nations. The Bahamas, with a GDP per capita of around $30,000, is one of the highest-income countries in the region, featuring pockets of extreme affluence like that enjoyed by the FTX crew at the Albany resort on the island of New Providence. At the same time, the minimum wage in Nassau, at $250 per week, is that of a lower-middle-income country. That, however, is enough to attract tens of thousands of migrants from Haiti, who eke out an existence in shanty slums huddled around every Bahamian settlement and town.

If you are looking for an escape from government regulation, even in an age of digital surveillance, the secluded cays and private airstrips of the islands offer abundant opportunities for privacy. In the 1970s and 1980s, drug money from the Colombian cartels flooded the entire region. But the really big money, trillions of dollars all told, is drawn to places such as the Bahamas, not by anarchy but by a highly manicured, and strenuously maintained, financial seclusion. It is an economic model precariously balanced between profound poverty and extreme wealth, in a region that was once a battlefield of geopolitical tension and now faces the historic challenge of climate change.

Tax havens and offshore financial centers are a reaction to the fiscal and regulatory demands of the 20th century. The first such venues emerged in Luxembourg and Liechtenstein and across the British Empire during the interwar period, when the wealthy first had need to shelter their money from the heavy taxes imposed by newly democratized states shouldering the financial demands of total war. The first wealth management offices opened in Nassau, the capital of the Bahamas, in the 1930s. They received an additional boost in the 1950s, when the exchange and capital controls of the Bretton Woods system triggered the search for easier ways to move dollars around. Under the benign neglect of the Bank of England, so-called eurodollars were borrowed and lent back and forth within the offshore world, beyond the reach of U.S. Treasury regulations.

To circulate and move freely, capital must be legally coded—that is, it must gain recognition under a legal system. English common law is one of the principal codes worldwide with which to flexibly administer contracts and property rights. It is not by accident that so many of the key tax havens, whether it be in the Channel Islands, the Caribbean, or in the Indian Ocean, lie within what were formerly outposts of the British Empire.

But law alone does not an offshore financial center make. Take Jamaica, for instance: English-speaking and governed by common law but no one’s idea of an offshore financial haven. The question is not only which legal code you use but what uses that code might be put to. How likely is it to be used for the purposes of taxation, regulation, or even expropriation? The question is particularly pressing in a postcolonial state where the majority of the population is not only disenfranchised and propertyless but the descendants of slaves. Following Fidel Castro’s takeover of Cuba in 1959, it seemed quite possible that the Caribbean might become very dangerous for private property. After Jamaica gained independence in 1962, its politics were far too bare-knuckle for the country to be attractive to international capital.

Across the region, the combination of nationalism, Black radicalism, and socialism created a combustible mixture. And the threat of revolution provoked aggressive intervention. This hit the former Spanish Empire in 1965, with the U.S. intervention in the Dominican Republic. But British possessions were not exempt either. In 1983, the fratricidal Marxist regime in Grenada, where a British-appointed governor-general still held court, was overthrown by a military intervention led by the United States and backed by Barbados, Jamaica, and Dominica—all three of them former British territories. Socialism was quashed, English common law prevailed, but big money didn’t like the drama.

One way to avoid the perils of freedom was simply to remain under British authority, and that was doubly attractive for white minorities that would see their power and privilege threatened by majority rule. British overseas territories have parliamentary assemblies and heads of government, but a governor serves as the local representative of British monarchical authority and exercises a check on foreign affairs and anything that might be of international economic interest. The British Virgin Islands and Bermuda both remained as British overseas territories and have built thriving offshore financial centers that now rank as some of the most egregious bolt-holes for global capital. But the most telling example is the Cayman Islands, which until Jamaican independence was governed from Kingston and after 1962 opted to remain as a crown colony and then as an overseas territory with its own constitution. The Caymans has since become the global hub for the registration of hedge funds. Global money has a revealed preference, in short, not simply for England’s legal code but for the comfort of attenuated imperial power.

Against this backdrop, the Bahamas is the truly exceptional case of a postcolonial Black-majority state that is also a world-class financial center. (Among the major tax havens worldwide, the only comparable case is Mauritius in the Indian Ocean. It has a majority Indian population, gained independence in 1968, and ranks only a few places below the Bahamas in the Tax Justice Network’s Corporate Tax Haven Index.) The Bahamas has a winning combination of stable politics and high income. Indeed, it has the highest income of any Black-majority independent state in the world. Of the larger states in Caribbean, it is the only one to have managed, since independence, to go without a bailout program from the International Monetary Fund (IMF).

You might, therefore, be tempted to imagine a self-sustaining virtuous circle, in which offshore financial services generate affluence, which underpins democratic stability. But that would be to exaggerate the significance of financial services as a driver of economic growth. In the Bahamas, the financial services sector contributes 10-15 percent of GDP and 2 percent of employment. This small footprint is not a bug but a feature of offshore finance. After all, the whole point of offshore, what makes it preferable to onshore, is that you do not pay taxes and have minimal local commitments. Even in the Cayman Islands, with a population of less than 80,000 and a truly outsized financial footprint, financial services account for about 30 percent of GDP.

In all of these cases, aside from having inherited common law from the English and avoided the escalatory dynamic of revolutionary and counterrevolutionary politics, what has given the offshore financial system the cocoon of local political stability is prosperity generated by a second offshore economy—tourism and foreign property development. The key to success in this regard is proximity to the United States. Bimini, the westernmost island chain in the Bahamas, is just 50 miles from Miami. On a calm day, you can cross over in a couple of hours on a ferry or private boat. The flight from Miami to Nassau takes barely an hour. Of the millions of people who visit the Bahamas every year, 80 percent are American. The local currency, the Bahamian dollar, is pegged 1 to 1 to its U.S. equivalent. Bahamian supply chains, food and groceries, and the Bahamian school system are all Americanized. The colonial history may be British, but since 1945, the predominant influence has been American.

Tourism and property development are responsible for more than 60 percent of Bahamian GDP. Unlike offshore finance, whose footprint remains limited, mass tourism and property development have a transformative impact on the host state. Tourism is capital-intensive, requiring billions of dollars in foreign direct investment and then the mobilization of a significant labor force. It is the success of tourism and property development that makes the Bahamas—despite its independence, its democracy, and its extreme inequality—sufficiently stable to also be attractive as a center of offshore finance. The penthouse condo in which FTX was holed up is not just a backdrop. It is an essential part of the story.

It also sets up a delicate balance. Not only is the tourist economy, like the financial economy, subject to sudden and dramatic shocks. But precisely because it involves large-scale local employment, physical infrastructure, and the buying and selling of land—because it, therefore, involves the transformation of the local environment—it stimulates conflict of a kind not engendered by offshore banking. It engages the supercharged racial politics of the postcolonial aftermath, and it does so with particular force in the case of the Bahamas because of its proximity not just to the United States but to the American South, where struggles over segregation and civil rights coincided with the turmoil of the Caribbean independence movements.

Between the 1930s and the 1960s, before Bahamian independence, local elites and their foreign backers conceived of an offshore tourist and financial economy in the form of a racially segregated enclave. In Nassau, a prominent member of the white business clique known as the Bay Street Boys used the profits from Prohibition-era rum-running to build a 10-foot-high wall dividing the white from the Black part of town. The founding charter of the 50,000-acre Freeport development on the island of Grand Bahama provided for the owners to operate their own immigration policy. The tourism-industrial complex was rigidly segregated. The mob interests that hot-tailed from Cuba to the Bahamas in 1959 saw to it that the gaming tables were staffed by their cronies from Vegas and Miami.

By the late 1980s, U.S. efforts had largely succeeded in ending the drug flow. The end of the Cold War changed the complexion of geopolitics in the region. And in 1992, Pindling and the PLP were finally voted out. But even before the changing of the guard in Nassau, the Bahamas elite had set about cleaning up the islands’ reputation. Under huge pressure from the United States, the Organization for Economic Cooperation and Development (OECD), and other international agencies, Bahamian banks began at least superficially to increase their transparency and crack down on money laundering.

Of course, there was still money to be made in providing offshore services. And the purpose of those arrangements is avoidance, so scandals are a recurring feature of the business. Between 1994 and 2002, former Chilean dictator Augusto Pinochet laundered nearly $12 million through two offshore shell corporations in the Bahamas. In 2006, U.S. authorities indicted the president of a Bahamas-based offshore investment firm for laundering more than $1 billion in funds derived from tax evasion, drug trafficking, securities fraud, and bank fraud. As recently as 2017, the leak of the so-called Paradise Papers exposed the ownership of thousands of offshore vehicles created by the law firm Appleby on behalf of clients including European blue bloods, Chinese princelings, Russian oligarchs, and African potentates, as well as thousands of much smaller fry.

The stance of the Bahamian authorities is not to be rogue but to be at least superficially compliant, reacting to foreign criticism by taking measures against a selection of the obvious suspects and cleaning up whatever part of the Augean stable is currently in the headlines. The extradition treaty under which Bankman-Fried was arrested and handed over to the U.S. authorities was signed in 1990 and marks the occasion of this turning over of a new leaf. After being criticized by the OECD in 2000, Nassau rushed through a rack of banking legislation. Gray-listed by the U.S. Financial Action Task Force in 2018, the Bahamas intensified its prosecution of money laundering cases. In 2022, even as it sifted through the wreckage of FTX, the Bahamas proudly boasted of having been removed from the European Union’s list of money laundering jurisdictions and achieving a perfect score in the rankings for the fight against financial crime.

But offshore finance was always the icing on the cake. The mainstays of the Bahamian economy are tourism and property development, and it was their revival that was crucial to the stabilization of the 1990s. The new government of Hubert Ingraham and the Free National Movement party that was elected in 1992 lifted the ban on foreign purchases of land up to 5 hectares. In addition, the Bahamian government began the practice of making gigantic concessions of public land to encourage the launching of so-called anchor projects across the island chain. The model was Lyford Cay, the first exclusive gated community near Nassau, which was now replicated across the islands in locations such as Baker’s Bay on Great Guana Cay, where Tom Brady, Michael Jordan, and other A-listers enjoy beachfront homes.

Meanwhile, on New Providence, the hotel and casino resort model underwent a startling rejuvenation. In the 1960s and 1970s, the driving force of Bahamian resort development had been Vegas and Miami connections. In the 1990s, both the money and the inspiration came from what was, at first glance, a more unlikely source: South Africa.

In the 1980s, in Bophuthatswana, a Bantustan that South Africa’s apartheid regime had declared a satellite state, the hotel magnate Sol Kerzner had built the Sun City resort into a brand that was synonymous with high-rolling glamor and anti-apartheid boycott-breaking. In the 1990s, as apartheid ended and sanctions were lifted, he hoped to branch out and extend his enclave resort model into North America. Eventually, he would build a major casino in Connecticut within easy reach of the New York and Boston markets on the tribal lands ceded to the Mohegan in 1994. At the same time, in the early 1990s, he acquired an interest in the run-down Bahamian resort of Paradise Island. With over a billion dollars in investment, the renamed Atlantis resort would become a showcase for a new type of stage-managed postmodern tourist experience. In the mode of Walt Disney Imagineering, Paradise Island, which once bore the name of Donald Trump, was refashioned as an invented archaeological site that exposed the origin myth of the lost city of Atlantis. The resort took liberties with the Atlantan legend that originated with Plato, an idea encouraged by the discovery off the beaches of Bimini, where King had written his Nobel Peace Prize speech, of what enthusiasts took to be a sunken stone roadway. To the fun and thrills of a casino resort, Kerzner added an organizing theme. It offered, for roulette tables and waterslides, the same kind of narrative excess that crypto would bring to banking and payments. These were not just examples of financial engineering or tourism infrastructure. These were finance and recreation reimagined.

It was this impasse that first impelled Bahamian promoters to turn to crypto. Was fintech the magic that the Bahamas needed to revive its flagging financial services sector and steal a march on the Caymans? Both of the Bahamas’s contending political parties rallied to the promise of a new era. Well-networked local banks such as Deltec Bank positioned themselves between the fintech industry and up-and-coming politicos. In 2019, the Central Bank of the Bahamas became one of the first in the world to begin experimenting with a digital currency: the Sand Dollar, issued experimentally in the Exumas and the Abacos. In November 2020, the Bahamian Parliament passed the Digital Assets and Registered Exchanges Bill, one of the first pieces of legislation in the world to offer registration and legal standing for digital assets. By 2020, the Bahamas was ranked top of the crypto regulation league. The reason that Bankman-Fried would cite for moving FTX to the Bahamas was the fact that the islands offered regulation of crypto derivates. The other was that the Bahamas operated a relatively liberal COVID-19 regime, an observation that as far as the Bahamas was concerned spelled disaster. Nor was it the first but the second of two disasters that would strike the economy of the islands in short succession.

The first was Hurricane Dorian, which tore through the Bahamas in September 2019. A Category 5 storm, it inflicted massive damage to the Abacos and Grand Bahama, to the tune of 25 percent of Bahamian GDP. Then, only months later, the pandemic paralyzed the global tourist economy. It is hard to think of a more dramatic combination of shocks that could have struck the islands. As government spending surged and GDP plunged by more than 16 percent in 2020, the debt-to-GDP ratio shot above 100 percent. The latest PLP government, which took office in Nassau in 2021, was determined to hold its nerve. The rapid COVID-19 reopening that attracted Bankman-Fried was a deliberate policy to attract tourist dollars, restore GDP, and make the debt burden more manageable. But in 2022, with the shock of rising oil and food prices and the sharp hike in U.S. interest rates, Nassau’s bravado was wearing somewhat thin. Among local experts, there is now resigned talk of the Bahamas needing an IMF program sooner rather than later.

It was this disastrous series of shocks, against the backdrop of a disappointing decade, that made the prospect of attracting FTX, valued at more than $25 billion at its peak, so irresistibly alluring. This was not some discreet offshore financial deal or a billionaire quietly acquiring an island. The arrival of FTX in September 2021, with bitcoin reaching a high of $66,000 shortly after, became a fete. Bahamian Prime Minister Philip “Brave” Davis turned up to shake Bankman-Fried’s hand and break ground on the site of FTX’s future offices in Nassau in April 2022. Its new headquarters, Davis declared last June, would be a “space to rival the Google campus and one for innovation and training, attracting Bahamian and international talent.”

Nor was it just the local top brass who were sucked in. Bankman-Fried lured Bill Clinton and Tony Blair to the Bahamas along with a range of more or less serious Wall Street figures. It was a spectacle—imagineering for the money crowd. And it turned into an embarrassing disaster. As 2022 ended, the news in crypto circles was that so-called decentralized autonomous organizations were rushing to get corporate registration in the Caymans in the hope of capping their legal liabilities in the case of further bankruptcies and litigation.

As far as the Bahamas is concerned, however, FTX was ultimately a sideshow—just one more project, alongside many earlier failed foreign investments, that came to the islands to die. As the ratings agencies have declared, the failure of FTX has no material impact on the national bond rating. The fact that so much political capital was invested in the venture was itself a triumph of hope over common sense. What matters for the Bahamas is the continuing rebound in tourism and the local property sector. And that depends on fair weather.

With the sun out and the breeze blowing, it is tempting to dismiss even economic disasters as severe as those of 2019-20 as a matter of bad luck. After all, the pandemic was incubated in far-off China, and much of the worst hysteria proved to be exaggerated. Dorian was terrible, but in the Caribbean, hurricanes are a fact of life. Though the destruction was horrible, billions of dollars in insurance funds flooded in, propping up the Bahamian balance of payments and unleashing an orgy of property deals and construction on Grand Bahama and the Abacos. In the face of natural disaster, capitalism continues to function; indeed, the wheels spin faster than ever.