Speaker 1: I'm Stacy Marie Ishmel, Managing editor of Crypto for Bloomberg News,
Speaker 1: and this is Bloomberg Crypto, a daily Bloomberg ihod podcast.
Speaker 1: It's Monday, March sixth. It's been three months since one
Speaker 1: of the most influential crypto exchanges in the world collapsed
Speaker 1: into bankruptcy. Ftx's demise brought with it a wave of
Speaker 1: financial uncertainty and frankly distress in the crypto industry, and
Speaker 1: it also had a very significant effect on the small
Speaker 1: islands where the crypto exchange had established its headquarters, the
Speaker 1: island nation of the Bahamas. To be clear, this is
Speaker 1: not the Caribbean's first financial crisis, and history suggests it
Speaker 1: won't be the last. But it is perhaps one of
Speaker 1: the highest profile losses experience to date, and potentially the
Speaker 1: most damaging so far. And it comes just as islands
Speaker 1: in the region try to diversify away from tourism revenue.
Speaker 1: The Bahamas had high hopes that an ambitious financial sector
Speaker 1: would help it achieve its goals. Crypto was a big
Speaker 1: part of that game plan, and now FTX has gone.
Speaker 1: Can the Bahamas fill the gap left in its financial sector?
Speaker 1: Will the nations still be a hub for digital assets.
Speaker 1: Bloomberg's Katanga Johnson has been reporting all about this, and
Speaker 1: he joins me, now, Katanga, welcome to the podcast. It's
Speaker 1: so good to be here. I'm kind of happy that
Speaker 1: you're still talking to me because I feel like the
Speaker 1: last time I called you, then you were like in
Speaker 1: a place for a very long time, perhaps unexpectedly. This
Speaker 1: is one of the downsides of saying yes to the
Speaker 1: crypto team. Chaotic things happened. What happened exactly. What happened
Speaker 1: in the Bahamas was essentially a nation's attempt to rebrand
Speaker 1: itself not just as the long standing financial haven that
Speaker 1: welcomed banks and insurance companies and realtors and all sorts
Speaker 1: of other institutions, but one that could welcome new entrants
Speaker 1: to the financial industry with a set of rules, albeit
Speaker 1: rules that were still immature, that still needed room to grow.
Speaker 1: But it was an opportunity. Right, you have the perfect
Speaker 1: company that made its way to the shores, as well
Speaker 1: as the set of regulation that preceded the company's arrival.
Speaker 1: That company, of course, was FTX right and the Behaman government,
Speaker 1: financial professionals and the regulatory from clients space as well
Speaker 1: as everyday Behamans who many of who might have spent
Speaker 1: some time like learning about crypto because they were exposed
Speaker 1: to it in the United States, or others who were
Speaker 1: just hopeful that maybe this could be the new frontier finance.
Speaker 1: A lot of people welcomed it for different reasons, and
Speaker 1: what happened was this, essentially, as people described to me
Speaker 1: during my seven almost eight weeks there, there was a
Speaker 1: lot of hope put into FTX, its promises, its investments
Speaker 1: as being a part of the future, and then realistically
Speaker 1: sort of a reckoning with realizing that, oh, the right
Speaker 1: checks and balance is to make sure that this company
Speaker 1: could thrive and could be successful. Essentially, we're not We're
Speaker 1: not quite there. Why was it so important to the
Speaker 1: Bahamas to try to attract companies like FTX in the
Speaker 1: first place. There is this long standing understanding of the
Speaker 1: Bahamas being a financial paradise, and I think over time
Speaker 1: over the last perhaps we can say from the last
Speaker 1: financial crisis and the ways in which they may or
Speaker 1: may not have been tie ups with companies that were
Speaker 1: headquartered there, the country was trying to change its reputation
Speaker 1: to become a more stringent financial haven. If you will,
Speaker 1: or more like tax friendly rather than just being a
Speaker 1: tax haven, if you will. That subtle change meant that
Speaker 1: the regulations that the dear Act your Last Sets and
Speaker 1: Regulated Entities Act, Regulated Exchanges Act rather that Act was
Speaker 1: meant to be this sort of premier unveiling of how
Speaker 1: they were over the past decade serious about changing its
Speaker 1: reputation in the marketplace as well as a race to
Speaker 1: the finish. Larger industrialized nations like the US, of course
Speaker 1: hadn't quite come to a consensus about whether there was
Speaker 1: a need for regulations entirely, and of course other nations
Speaker 1: were also attempting to ready their own regulations, and I
Speaker 1: think the Bahamas caught wind of that and thought we're
Speaker 1: we're going to be first, and was successful in that regard.
Speaker 1: As you say, you mentioned the DARE Act, right the
Speaker 1: Digital Assets and Registered Exchanges. When was that introduced and
Speaker 1: what was it designed to really achieve? The DARE Act
Speaker 1: was introduced in twenty twenty, and essentially it was designed
Speaker 1: to be just a bare bones framework to show that
Speaker 1: the Bahamas was willing to welcome what would be a
Speaker 1: sort of an exchange, a dialogue between registered you know,
Speaker 1: digital asset providers and crypto companies in thinking through like, so,
Speaker 1: here are the regulations in response to this, how do
Speaker 1: you cryptocompany X y Z plan to help enhance this
Speaker 1: suite of regulations and show that with regulations you can
Speaker 1: do what's right. Essentially, that you can be innovative and
Speaker 1: you can make commitments and carry on carry on in
Speaker 1: that way. And we had an opportunity to speak to
Speaker 1: the Chair of the Security Commission of the Bahamas, Christina
Speaker 1: who Role, who described it as robust, but essentially it
Speaker 1: was it was still very much immature. That is to say,
Speaker 1: it needed room to grow, and that's only possible when
Speaker 1: faced with certain risks. The derect though, she made clear,
Speaker 1: and others came well before FDx started to court the Bahamas,
Speaker 1: and it really was away for the country to sort
Speaker 1: of race to the finish in trying to beat out
Speaker 1: its counterparts in the region. But essentially it was meant
Speaker 1: to be a suite of regulations that would, over time,
Speaker 1: with the regulators sort of inspections and examinations of the
Speaker 1: companies that would fall under it, help improve it helped
Speaker 1: him get better. In fact, there was already a preparation
Speaker 1: this year that started, I guess last year to sort
Speaker 1: of enhance it. There's a draft, there's a mock up
Speaker 1: of an amendment to it. And that was what the
Speaker 1: country pointed to as showing that it was already starting
Speaker 1: to take into account, not just FTX, but other I
Speaker 1: think they were at the time, maybe eight there were
Speaker 1: a registered That number of course fluctuates depending on a
Speaker 1: company's standing, but they were hoping to make it better
Speaker 1: and make it robust. But they made it clear that
Speaker 1: it was the welcoming post, but it would only be
Speaker 1: fortified over time. When you were there and you know,
Speaker 1: talking to folks who had either non Bankmen Freed no
Speaker 1: and other folks from FTX or had been affected by
Speaker 1: the collapse because they had local employees. For instance, what
Speaker 1: was the sentiment of the people who were trying to
Speaker 1: figure out what had happened when the company said that
Speaker 1: they had gotten approval to allow withdrawals for clients in
Speaker 1: the Bahamas. That approval, they described was really an exchange
Speaker 1: between the regulator and the company, and I think Bankmen
Speaker 1: Freed sent the email on behalf of the company to
Speaker 1: say that if you do not respond to this request,
Speaker 1: and this would have been the Thursday before the major withdrawals,
Speaker 1: if you will, or into the midnight of Friday morning
Speaker 1: that Friday morning, November twelfth. If I'm not mistaken, this
Speaker 1: exchange just said that if you don't respond to this note,
Speaker 1: then we will carry on with this plan to allow
Speaker 1: clients in the Bahamas to withdraw because we don't want to.
Speaker 1: And I think the language was spoke to the fact
Speaker 1: that the sentiment was we don't want to piss off
Speaker 1: the Behaman government or in any way ruin the relationship
Speaker 1: we have with our clients and the people here. But
Speaker 1: that wasn't a direct nod by the regulator, to be
Speaker 1: fair of them saying yes, you can allow that. But
Speaker 1: the understanding I think at the time, though before this
Speaker 1: was made public, was that is bankman freed in cahoots
Speaker 1: with the Behaming government or with the regulator or both.
Speaker 1: Did clients in the Bahamas get special privileges that clients
Speaker 1: all around the country, part of me, all around the
Speaker 1: United States, all around certain parts of Asia and elsewhere
Speaker 1: didn't get? And if so, why is that? We now
Speaker 1: know what that exchange looked like. But at the time
Speaker 1: it was a point of contention. There were reports of
Speaker 1: people flying in on private jets trying to bribe those
Speaker 1: clients in the Bahamas to help other clients, these global
Speaker 1: clients sort of like offload or you know, withdraw their funds.
Speaker 1: There were even discussions about whether certain banks were involved
Speaker 1: in allowing that during that particular window. But I think
Speaker 1: that confusion, that lack of clarity, particularly around those withdrawals,
Speaker 1: is still a sore point for a lot of people
Speaker 1: who feel as if they were short changed. Even if,
Speaker 1: like if we take what explanations bank man Freed is
Speaker 1: given around the decision making about mismanaging funds, people, still
Speaker 1: that particular window of time is still a sore point
Speaker 1: for a lot of people on the ground. Up next,
Speaker 1: you'll hear more from Bloomberg report to Katanga Johnson on
Speaker 1: what's happening with the Bahamas post FTX. We'll be right
Speaker 1: back now. When you went to the Bahamas, and you know,
Speaker 1: I remember we were like, hey, can you go to
Speaker 1: the apartment, Hey, can you find can you find the jail? Hey?
Speaker 1: It was just this like wackable of assignments. What things
Speaker 1: like stood out to you in terms of the first
Speaker 1: few days, particularly before he was officially arrested and then afterwards,
Speaker 1: like as people as it was sort of sinking in
Speaker 1: for more and more people in the island that this
Speaker 1: was real and happening. It was remarkable that the layman,
Speaker 1: the everyday Bahamian really did communicate to me at least
Speaker 1: that they thought, oh, this is all some big misunderstanding.
Speaker 1: It can be the case this person is truly hiding
Speaker 1: after being so public and engaged in the community. Right,
Speaker 1: former employees had it, you know, they were singing a
Speaker 1: different tone. The people were cautious in talking to me,
Speaker 1: but generally the consensus was, whatever the issue was here,
Speaker 1: there must be an explanation around where the funds are.
Speaker 1: So even if even if there's a concern about whether
Speaker 1: Sam's complying or not or what happened, that there must
Speaker 1: be some bigger explanation. And I think as I look back,
Speaker 1: it really speaks to the fact that what had gone
Speaker 1: on was in fully communicated to staff at a certain level,
Speaker 1: even among the compliance staff that were on the ground,
Speaker 1: many of whom were Behamian. The company made a lot
Speaker 1: of good faith efforts in terms of and there've been
Speaker 1: reports about this. Right people would talk about the sort
Speaker 1: of parties they hosted and how people were invited to
Speaker 1: attend those parties at a staff level, and they were
Speaker 1: so extravagant. People were recounted the ways in which many
Speaker 1: of the employees might have left like really good civil
Speaker 1: servant jobs, or left their jobs at other financial stitutions
Speaker 1: and like double their salary by working there, or you know,
Speaker 1: people would describe knowing that, oh, here was the beginning
Speaker 1: of what seemed to be a company that I think
Speaker 1: up to sixty of the say one hundred and twenty
Speaker 1: staff members were Behamians, or there was like equity in
Speaker 1: that way, and they were well paid and they were
Speaker 1: able to expense meals or grocery in the life. These
Speaker 1: are the kinds of things people described, and they would
Speaker 1: they would describe it in a way to say that
Speaker 1: it's a company that puts a value on its staff,
Speaker 1: and its reputation in this way is unlike other financial institutions.
Speaker 1: So it's it's that the novelty of crypto almost makes
Speaker 1: it seem cool and exciting, not just because of the
Speaker 1: product itself, but because of the culture. So they felt
Speaker 1: taken care of. People felt taken care of indeed, and
Speaker 1: they felt that because of that, whatever was happening with
Speaker 1: respect to these withdrawals and the funds. It could all
Speaker 1: be explained. But that quickly changed, didn't it, especially among
Speaker 1: people who didn't There were even people in the Bahamas
Speaker 1: who didn't benefit from being able to withdraw their funds,
Speaker 1: and those people were the most adamant that something didn't
Speaker 1: quite smell right, as they'd say, and people would even
Speaker 1: point to some signals from the Crypto Bahamas conference that
Speaker 1: took place months prior, but didn't quite understand what it was.
Speaker 1: They too, were perplexed given what they knew about the
Speaker 1: company and its culture, what they knew about the cast
Speaker 1: of characters at the highest level, and what was happening now.
Speaker 1: You reported on the jail and the detention conditions that
Speaker 1: bankun Freed was in. Was there any perception in the
Speaker 1: Bahamas after he was arrested that he was also getting
Speaker 1: kind of a different tier of I don't know, cozy
Speaker 1: custody than might have been afforded to local residents. But
Speaker 1: the onset it seemed that he would be treated like
Speaker 1: everyone else the night he was arrested, but that quickly
Speaker 1: changed the next day when he appeared at his arrayment,
Speaker 1: hearing one distinct moment that comes to mind is that
Speaker 1: the hearing it started on time he appeared, and before
Speaker 1: he was even able to introduce himself, there was a
Speaker 1: question about whether his nights stay was pleasing or suitable
Speaker 1: for him, and the judge, the presiding judge, so that question,
Speaker 1: like you know, sort of mind is blown. Was your
Speaker 1: stay in prison, okay, sir? Your stay in prison okay?
Speaker 1: Just you know, just for that evening before we even
Speaker 1: get to the heart of the matter. And and then
Speaker 1: there was this pause, you know, even described meeting certain
Speaker 1: medicine for his ADHD for I think perhaps other conditions
Speaker 1: that might have included insomnia and then his allergies, and
Speaker 1: one of them was prescribed that I think the other
Speaker 1: two were not. The ADHD was prescription was for dropping
Speaker 1: out the allergy and the insomnia prescription. And the hearing
Speaker 1: was held. There was a recess called for about an
Speaker 1: hour hour and a half so that his family members
Speaker 1: who were with him could be accompanied by police to
Speaker 1: drive across town maybe thirty minutes away maybe last right,
Speaker 1: if you're in a police murdicate or caravan to get
Speaker 1: his medicine so that he can be able to take
Speaker 1: it before it starts and that's in many ways a
Speaker 1: basic human right. But it stands in stark contrast to
Speaker 1: the prison in the Bahamas, where of course there have
Speaker 1: been complaints even as high as the US government sort
Speaker 1: of criticizing the country in some ways for the conditions
Speaker 1: of the prison, and people kind of pointed out how
Speaker 1: his treatment was much different even though there were these
Speaker 1: allegations against him at this point, you know, weeks into
Speaker 1: the initial news breaking would have gone. So that was
Speaker 1: one interesting tidbit. Over the course of the next week
Speaker 1: or so, with various hearings, however, things did what one
Speaker 1: might have expected with that sort of initial theatrics, though
Speaker 1: at the end of the day didn't didn't he his
Speaker 1: you know, Baer request was denied, and right, it seems
Speaker 1: now like it was all just a funny, funny joke
Speaker 1: to to sort of start the day. What an interesting
Speaker 1: time now, I find because I am from an island
Speaker 1: in the Caribbean, Trinidad, that most people think they understand
Speaker 1: would have like extremely narrow, you know, definitions of like
Speaker 1: this is what this island was like, this is what
Speaker 1: Trinidadian is like, this is what the Caribbean is like.
Speaker 1: What for you was the most common misconception about the
Speaker 1: Bahamas or about the people in the Bahamas are about
Speaker 1: regulators that you had to attempt to dispel in the
Speaker 1: process of your reporting on this story, states Marie. Like you,
Speaker 1: I am also from a nation in the West Indies,
Speaker 1: I'm from the Bahamas, which made the story so exciting,
Speaker 1: you know, But first informist. I see myself as a
Speaker 1: remember the press, as someone who is pursuing truth, and
Speaker 1: I went in with that particular like understanding of what
Speaker 1: I was doing and tried to engage with people, even
Speaker 1: people I knew, in the same way. One observation I made, though,
Speaker 1: was that in some ways you may think of the
Speaker 1: Bahamas as a place that's sleepy and quiet, and that
Speaker 1: people are not as informed of maybe their risks of
Speaker 1: dancing with the devil, if you will, right, sort of
Speaker 1: not taking seriously what could go wrong when you're courting
Speaker 1: such a novel, you know, engaging in such a novel
Speaker 1: industry and going further than even again, as we established, right,
Speaker 1: even the US went in terms of codifying regulations around
Speaker 1: around crypto. I think it kind of shows, and this
Speaker 1: is the nation's fiftieth year of independence, it kind of
Speaker 1: shows that the nation's ready to be bold and sort
Speaker 1: of take off the training wheels, and that comes with
Speaker 1: a big risk. And this hopefully is a learning lesson.
Speaker 1: But the way I see it, based on just the
Speaker 1: dozens of people I spoke to and continued to engage with,
Speaker 1: I think it's turning out to be that this might
Speaker 1: have been the best thing that ever happened to the
Speaker 1: Mohammas to help it mature in a way that it
Speaker 1: had hoped it would. By even welcoming FDx to begin with, Katanga,
Speaker 1: has been such a pleasure having you on the show.
Speaker 1: Thank you so much for joining us, Thanks for having me.
Speaker 1: That was Bloomberg Reporto Katanga Johnson. You can find more
Speaker 1: of his reporting on the Bloomberg Terminal and on Bloomberg
Speaker 1: dot com, and of course, be sure to check out
Speaker 1: our twice weekly crypto newsletter, Bloomberg Crypto. This is Bloomberg Crypto,
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Speaker 1: suggestions for the show to Crypto at Bloomberg dot net.
Speaker 1: The supervising producer of Bloomberg Crypto is Vicky Vergalina. Our
Speaker 1: senior producer is Janet Babin. Our producers are Mohammed Faroup
Speaker 1: and Sharon Barrero. Our associate producers are Ty Butler and
Speaker 1: Moses on Desto wonder Ad is our engineer. Original music
Speaker 1: by Leo Sidron. I'm Stacy Mariagemaal. We'll be back tomorrow