The Hidden History of the World’s Top Offshore Cryptocurrency Tourist Resort

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…