Editor's Note: (Casey Michel is a writer and investigative journalist covering kleptocracy and dark money networks across the globe. He is the author of "American Kleptocracy: How the US Created the World's Greatest Money Laundering Scheme in History," and is at work on a book investigating foreign lobbying in Washington. The opinions expressed in this article are his own. Read more opinion at CNN.com.)
(CNN) As investigators and authorities continue to sort through the fallout of the collapse of cryptocurrency exchange FTX, the contours of the implosion are becoming clearer. It will likely take many more months to disentangle the web of corporate greed and financial malfeasance at the heart of FTX's bankruptcy. But we can safely say that the company owes billions of dollars to creditors and, according to sources, at least $1 billion to clients, in what appears to be the greatest crypto collapse to date.
Friendly legislators, regulators and celebrities granted former FTX CEO Sam Bankman-Fried legitimacy, but all the while, he was reportedly moving clients' funds to prop up his related trading house, allowing him and the company to rise so high, and collapse so quickly. And it was smoke and mirrors that hid how quickly the crypto industry had become part of the offshoring economy, and how easily traditional offshore havens have made that possible.
If anything, FTX's stupendous collapse shines a light on just how symbiotic the entire crypto industry now is with the world of offshore finance -- and how open the entire industry is to fraudsters and scammers, with offshore havens racing to offer crooks the kinds of allowances, and lack of regulation, they need to thrive.
On Wednesday, during a virtual interview at the New York Times' DealBook Summit, Bankman-Fried said he "screwed up" and accepted responsibility for the failure of his company, but denied that he tried to defraud investors and clients. But Bankman-Fried's and FTX's implosion is something that the crypto industry, and even those broadly familiar with the financial world, could have -- and likely should have -- foreseen. Not only were there all kinds of red flags about FTX's background, but Bankman-Fried also decided to base his operations in the Bahamas, one of the world's most notorious offshore havens.
An "offshore haven" can be something of a nebulous term, but, in short, it is any jurisdiction that offers its clients enough anonymity that they can freely hide their wealth, or create entire financial operations that aren't subject to oversight. The Bahamas emerged in the early 20th century as a place for wealthy Westerners to hide their finances -- and financial fraud -- from anyone investigating. And while it may not be the center of the offshoring world that it once was, it has recently re-emerged as a tax haven. Most importantly, "offshore" doesn't need to mean just banking -- instead, as we saw when Bankman-Fried said he moved headquarters to the Bahamas because of its crypto-friendly reputation, it can extend to other industries, too.
So when crypto emerged as a major player in its own right, it was the Bahamas that stepped up. The Bahamian government made a conscious choice to recruit as much of the rising crypto industry as possible, with Prime Minister Philip Davis hoping to make the Bahamas an "ideal destination for [crypto] operations." Davis landed his biggest client last year when FTX announced it would headquarter in the Bahamas, helping the islands in their efforts to recruit crypto business.
Now, the Bahamas is reeling -- and many surely have questions about the country's regulatory oversight, or lack thereof. In a national address late last month, the nation's attorney general defended its regulatory practices and noted the government's shock at the "ignorance of those who assert that FTX came to the Bahamas because they did not want to submit to regulatory scrutiny."
And at long last, questions are also being asked about the relationship between crypto and the broader world of offshore finance itself. It's a relationship that has seen surprisingly little attention compared to things like real estate, luxury yachts and artwork -- thanks in large part to the oligarchs surrounding Russian President Vladimir Putin, and how they've used these offshore services to hide their wealth. And there's actually been fantastic progress in trying to close down some of these offshoring services over the past year, from the US passing legislation to ban anonymous shell companies to the United Kingdom finally moving to target the kleptocrats who park their wealth in London real estate.
But crypto, oddly, hasn't seen nearly as much attention -- or as much concern. Maybe it was all of the excitement surrounding the new technology. Maybe it was all of the get-rich-quick promise associated with early crypto entrepreneurs. Maybe it was just the fact that various celebrities endorsed FTX.
Whatever it was, investigators and legislators apparently missed the fact that crypto had become as enmeshed in the world of offshore finance as any other industry. Amidst its meteoric rise, the crypto market has been something of a financial free-for-all. A complete dearth of regulation compared to the rest of the financial world has allowed the industry to spin out of control, ending up in the kinds of Ponzi-scheme affairs FTX illustrates.
Which is why the FTX affair won't be seen as just a watershed for finally linking crypto with the world of offshore finance, but for what finally brought the regulatory hammer down on the entire industry. It remains to be seen what form those regulations will take, but figures like Treasury Secretary Janet Yellen have already called for greater regulatory oversight.
But now, the billion-dollar bill is coming due -- a bill that Bankman-Fried's depositors, still looking for their money, won't be able to pay.