FTX founder Sam Bankman-Fried charged with bribing Chinese officials

Sam Bankman-Fried, the embattled former CEO of collapsed cryptocurrency exchange FTX, has found himself in more legal trouble. And this time, the problem involves China.

According to an indictment unsealed on Tuesday morning, U.S. federal prosecutors have accused Bankman-Fried of conspiring to bribe “one or more” Chinese government officials with at least $40 million worth of payments in order to unfreeze assets relating to his cryptocurrency business.

The U.S. attorney’s office for the Southern District of New York (SDNY) alleged that from January 2021 through February 2022, the disgraced cryptocurrency entrepreneur — commonly referred to by his initials, SBF — instructed his employees to direct tens of millions of dollars to regulatory officials in China in exchange for regaining access to two trading accounts, which were frozen by the country’s law enforcement in early 2021 as part of its crackdown on cryptocurrencies.

Hosted on two of China’s largest cryptocurrency exchanges, the accounts were linked to Alameda, a hedge fund and FTX’s sister company, which is also owned by Bankman-Fried. Combined, the accounts contained roughly $1 billion in cryptocurrency.

Before allegedly resorting to bribery, Bankman-Fried and others operating under his direction attempted for months to retrieve the funds legally, the indictment said. First, they hired lawyers to “lobby or otherwise advocate in China for Alameda’s funds to be unfrozen,” prosecutors said. Then they tried illegal means, by creating fraudulent accounts at Chinese exchanges under the names of people who were not associated with FTX, in order to circumvent scrutiny from Chinese authorities.

After none of those methods worked, Bankman-Fried tried to bribe Chinese officials. The money, according to SDNY, was transferred from Alameda’s main account to an anonymous crypto wallet in two installments, with the first taking place in November 2021. After Bankman-Fried received confirmation that the accounts were unlocked following the initial payment, the rest of the payment went through to complete the deal. The freed funds were then used to fuel additional trading at Alameda.

The federal prosecutors didn’t identify the Chinese officials or the conspirators who assisted Bankman-Fried in paying the bribe. But it said that at least one of the employees “was first brought to and will be arrested in the Southern District of New York.”

This activity might have violated the anti-bribery provisions of the Foreign Corrupt Practices Act, a federal law that makes it illegal for a U.S. person or corporation to bribe officials of foreign governments to maintain business relationships. The charge carries a possible criminal fine of up to $2 million for businesses and $250,000 for individuals.

Bankman-Fried’s fate will be decided at a trial that’s provisionally set for October. Prior to that, “prosecutors will give the names to SBF’s lawyers so they can prepare its defense,” Erik Gordon, a law and business professor at the University of Michigan, told The China Project. To determine whether Bankman-Fried is guilty of the bribery charge, “the U.S. does not need cooperation from Chinese officials and probably does not expect it,” he added.

SBF’s undoing and its ties to China

With the new foreign bribery charge, Bankman-Fried now faces 13 criminal counts relating to his FTX, which was forced to file for bankruptcy in November 2022 in what was initially thought of as an old-fashioned bank run as the company ran out of cash to cover its customers’ withdrawals.

But as federal investigators worked to unwind what caused FTX’s demise, they discovered that the crypto boss was behind what many have called “one of the biggest financial frauds” in history, orchestrating a massive con that included stealing billions of dollars in FTX customer deposits to support his Alameda Research hedge fund while living an affluent lifestyle.

Last December, Bankman-Fried was arrested at his home in the Bahamas, where FTX was based, and then extradited to the U.S. He has pleaded not guilty to everything thus far. After posting a $250 million personal recognizance bond, he is currently out on bail at his parents’ home in Palo Alto, California, awaiting a trial scheduled for later this year.

Before its collapse, FTX, founded by Bankman-Fried in 2019, was one of the largest digital currency exchange platforms for buying and selling cryptocurrencies. At its peak, the company was valued by investors at $32 billion and had over 1 million users.

Alameda, the crypto hedge fund Bankman-Fried co-founded in 2017, once called Hong Kong home before relocating to the Bahamas in search of a more favorable regulatory environment. Although China outlawed crypto trading and mining on the mainland in September 2021, Hong Kong — which is part of China but has a degree of autonomy — has publicly adopted a positive stance toward blockchain and crypto-related businesses.

Bankman-Fried reportedly celebrated his 29th birthday in Hong Kong last year, surrounded by FTX executives and staff from Genesis Block, a local crypto retail service provider that was then partially owned by Alameda. The company played a crucial role in SBF’s ascent to the top of the digital assets industry, helping his empire exchange crypto for physical cash and cultivate relationships with wealthy family offices in the city.

Is Beijing giving a subtle nod to Hong Kong’s crypto ambition?

Interestingly, despite its ban on crypto transactions, mainland China still represented the third-largest share of FTX’s customers at 8%, according to a document shared last November by the company at its bankruptcy hearing. In addition to the customer base, FTX had nine employees in mainland China at one time — though it never said that it had an official China office.

Similarly, Binance, the world’s biggest cryptocurrency exchange and FTX’s old rival, also had a robust footprint in mainland China about which it kept very quiet. Although Binance, which was originally established in 2017 and headquartered in Shanghai, claimed that it left the country in 2017 after China’s clampdown on the industry intensified, internal messages obtained by the Financial Times show that it maintained a Chinese presence until at least the end of 2019, operating an office in Shanghai and using a Chinese bank to pay some employee salaries. There was also an army of Binance-trained volunteers based in the country, who provided guidance for local users on how to use virtual private networks, or VPNs (software to disguise their user’s location), to go around China’s Great Firewall to trade and communicate.

Meanwhile, Hong Kong, which regulates cryptocurrencies separately from Beijing, has continued to promote itself as Asia’s digital asset hub. As a spate of countries — including the U.S. — has taken a tougher stance on the cryptocurrency industry in the wake of FTX’s debacle, Hong Kong announced plans last month to allow retail customers to buy big-cap digital tokens such as bitcoin and Ether later this year.

The city is so determined to strengthen its allure with crypto entrepreneurs and investors that even banks from mainland China can’t resist the temptation: As reported by Bloomberg earlier this week, the Hong Kong branches of several of China’s state-owned banks, including Bank of Communications and Bank of China, are in active talks with local crypto firms, trying to convince them to open corporate accounts with them, a move suspected by some experts to have gotten the green light from Beijing.