This article has been updated to show that the CEO of ShapeShift, Erik Voorhees, considers the Swiss banking system "fraudulent and unethical", and disputes allegations that his company was involved in money laundering.
The world has never been fond of crypto. Famous economists have called it a Ponzi scheme, notable investors have called it “rat poison squared,” the Fed president described it as a “giant garbage dumpster,” and governments around the world have banned, financially strangled and booted out crypto companies.
Worse, it became nigh on impossible for many crypto companies to get bank accounts. Many resorted to using companies like Panamanian “bank” Crypto Capital, which set up accounts at mainstream banks under various guises. But this too was stopped by law enforcement.
So it’s unsurprising that crypto companies have rebelled. When raking in massive profits—Binance saw $200 million of profits in just one financial quarter in its first year alone—and having nowhere to keep them, tax havens have presented an enticing solution. Add to that the streak of libertarianism that runs through the crypto community, it was all but inevitable.
“While powerful economies have a lot to lose from regulatory modification, small countries can be more flexible and have a lot to gain by attracting international companies,” Gidi Bar-Zakay, founder and CEO of crypto tax calculation platform Bittax, told Decrypt.
So we decided to take a closer look at some of the largest companies who’ve upped-sticks to tax havens.
Binance: Cayman Islands
Binance is one of the largest cryptocurrency exchanges in the world. It was founded in China in 2017, but a ban on cryptocurrency trading forced the company out to Japan. From there, it subsequently moved to Malta.
In April 2019, it signed a Memorandum of Understanding with the Malta Stock Exchange, paving the way for it to open an office on the island. However, its future on the island may be in question following the resignation of the pro-crypto Prime Minister, Joseph Muscat.
But its real headquarters have always been in the Cayman Islands, according to documents submitted to its registry office. This address has been used to register multiple trademarks of the Binance name and logo. Binance also set up Binance Investments in the Seychelles in 2019.
Bitfinex: British Virgin Islands
Bitfinex, another crypto exchange, was founded in 2012. It’s headquartered in Hong Kong, but registered in the British Virgin Islands, a known tax haven.
The corporate tax rate on money earned in Hong Kong is at a modest 16.5 percent, and taxes are not paid on capital gains, interest or dividends. In addition, money earned beyond its borders isn’t taxed at all. Which helps when the British Virgin Islands are famed for having no income tax, capital gains tax, wealth tax or sales tax.
The company has recently been embroiled in a legal battle, with the New York Attorney General accusing Bitfinex of hiding an $850 million hole in its finances by loaning itself funds to back its stablecoin Tether, without informing investors. The deficit was caused when Crypto Capital ran out of funds, shortly before its collapse.
The cryptocurrency exchange ShapeShift is based in Switzerland, although the company is run out of Denver, where ShapeShift CEO and prominent libertarian Erik Voorhees lives. (Voorhees himself, however, told Decrypt he considers the Swiss banking system "fraudulent and unethical").
Switzerland's legendary banking system just gave bitcoin a vote of confidence https://t.co/He6hm4eJ2K
— Erik Voorhees (@ErikVoorhees) July 12, 2017
The exchange hit the news when, in September 2018, the Wall Street Journal alleged the company was involved in $9 million worth of money laundering. A subsequent report by security company CipherBlade did little to allay suspicion, as CipherBlade itself had links to various shell companies. CipherBlade’s director, Genevieve Magnan, was listed in the Panama Papers too. (Voorhees told Decrypt he disputes these claims, which he has "factually discredited").
BitMEX, founded in part by the UK’s youngest billionaire, Ben Delo, is a cryptocurrency exchange based in the Seychelles.
BitMEX CEO Arthur Hayes has previously said that it’s easy to bribe the Seychelles with just a coconut. The company later explained that he meant the company doesn’t have to pay anything because coconuts are in abundance there.
They see me moonin’
Trolling and tryin’ to catch me tradin’ dirty pic.twitter.com/45zYIexACV
— Arthur Hayes (@CryptoHayes) February 6, 2020
Crypto-critic and economist Nouriel Roubini has accused the company of trading against clients—such as letting their own trading desk have access to their clients’ trading data—and allowing clients to take on excessive risk. The company is also under investigation by the US Commodity Futures Trading Commission (CFTC) for malpractice against US citizens, since the exchange was not registered with the body.
Huobi is another crypto exchange that was set up in China—in 2013—then later forced out. In June 2016, its total transaction volume reached 1 trillion RMB ($143 billion), and in November 2016 it accounted for over 60% of the global Bitcoin exchange market.
In 2017, it relocated to Singapore—in response to China’s trading ban—and set up offices in Seoul and Tokyo. The company also has a listing on the Hong Kong Stock Exchange.
OKEx is another crypto exchange based in Malta. Like Binance, it also used to be based in China, but moved its headquarters after the 2017 ban on crypto exchanges in the country.
The company also operates from the Seychelles, going so far as to have two different Terms of Service agreements, one for Italian and Maltese residents, another for everyone else. If you aren’t Italian or Maltese, then the crypto you buy on OKEx are held by Aux Cayes, a Seychelles-based company.
Praxxis: Cayman Islands
Praxxis is a cryptocurrency created by David Chaum. Chaum is famous for being the first to propose a blockchain protocol: his Ph.D. dissertation in 1982 bore striking similarity to what would appear in Bitcoin’s whitepaper.
The coin has been designed by World Best Money Corp. (WBM), which is based in the Cayman Islands. The Cayman Islands have clear regulations on cryptocurrencies, making them a more stable option for exchanges. They also have no corporate tax, which is a handy incentive for businesses.