Minister Silvio Schembri tweeted in April 2018 the flattering comments about himself made by Chaopeng Zhao, the CEO of the cryptocurrency exchange Binance.

“After meeting with Parliamentary Secretary Silvio Schembri, we were impressed by the logical, clear and forward-thinking nature of Malta’s leadership.”

Zhao is the man who triggered the recent chaotic collapse of FTX, another cryptocurrency exchange. Hundreds of thousands of customers of FTX lost over $8 billion. The company, valued at $32 billion, went bankrupt overnight.

Its employees fled the Bahamas, where FTX was based, abandoning their cars at the airport.

Zhao, who had such praise for our brilliant Silvio Schembri, is pursued by regulators.  Zhao can’t set foot in the US. To try and enter the US market, in 2019, Zhao took a 20% stake in FTX, the brainchild of an eccentric 29-year-old called Sam Bankman-Fried.

But just two years later, Zhao and Bankman-Fried fell out.  Bankman-Fried bought Zhao’s stake in FTX for $2 billion. Zhao, however, was paid in part using the FTT token, the currency used by FTX.

https://twitter.com/silvioschembri/status/984839545760907264

At the beginning of November, Zhao decided to cash in his FTTs worth $580 million. FTX, which was valued at $32 billion, was unable to find the cash to pay Zhao, and FTX collapsed, leaving thousands of investors high and dry.

Of course, the whole FTX structure was a scam. Bankman-Fried reportedly fooled hundreds of thousands of people into believing that his company, FTX, would act as the gateway between traditional finance and the mysterious world of crypto money, which Silvio Schembri had been pushing so hard.

Many were taken in and invested millions in his companies.  But Bankman-Fried was running his company as his own personal fiefdom. He used customers’ funds to buy luxurious properties and fund his own lavish lifestyle.

Bankman-Fried paid $30 million dollars for a sprawling 12,000-square-foot penthouse in the Bahamas.  He accumulated a personal fortune of $17.7 billion.  Yet Bankman-Fried could never give a cogent answer when anybody asked about where he made his money.

FTX was simply a classic, age-old con. Bankman-Fried minted his own token, FTT, and then borrowed against it – he borrowed real money against fake money.

He boasted that his company was making huge profits, but his 2021 tax return showed his companies had lost $3.7 billion dollars.

By the time the scam was revealed, it was too late. Billions of dollars had gone missing.  When Reuters asked Bankman-Fried where the missing funds could be, he texted “???”.

The biggest loser from FTX’s collapse is the Bahamas. The prime minister had welcomed Bankman-Fried and his company to the country.  FTX promised to set up its global headquarters in the country after it was the first to first to draw up legislation for digital assets.

But having regulations and enforcing them are two different things. The Bahamas had been placed on the FATF’s greylist and was only delisted in 2020.  The EU added the Bahamas to its tax haven blacklist for failing to comply with international tax standards. And that is why FTX set up shop in the Bahamas.

What little reputation the Bahamas had has been shattered by FTX’s dismal collapse. The celebrated FTX headquarters project lies abandoned. The land earmarked for its development is a wasteland.

Silvio Schembri had embarked on a similar sales pitch.  He had declared Malta the Blockchain island and went about bullying banks into adopting cryptocurrencies. He encouraged the banking sector “to adapt and adopt the new reality”.

“They must make the necessary effort to see change as an opportunity, not a threat, and become enablers for this new sector to continue to take root and flourish,” Schembri had told the banks.

Thankfully, they ignored him.  If they hadn’t, Malta could have suffered the same fate as the Bahamas.

Schembri had rushed through parliament three Bills to provide the legislation to attract massive cryptocurrency companies to Malta.  Yet he knew that the FIAU lacked the competence, expertise and personnel required to regulate massive companies such as Binance and FTX.

Malta’s attraction for these companies was that the island was too small to be able to regulate them effectively even if it wanted to, let alone if it didn’t.

And Silvio Schembri left no doubt that he did not intend to regulate them. And he wanted that message to get through.

In an interview with Forbes’ Rachel Wolfson, he bragged that “we take a principles-based approach rather than a rules-based approach”. He was determined to let the big cryptocurrency companies know that if they came to Malta, they would not be bothered.

“What benefits do blockchain companies receive for being based in Malta?” Wolfson asked him.  “The major benefit is the attitude of the government,” he replied. “The Maltese government has a can-do approach and is very business-friendly.”

If Silvio Schembri hadn’t been called out, Malta would have been bearing the brunt of FTX’s collapse and the financial meltdown it unleashed.