Three critical life lessons to learn from the downfall of SBF (even if you don’t invest in crypto)

THE BILLIONS disappeared in hours. The crypto magician had gone bust. The man who was set to become the next Warren Buffet, the crypto genius who had pumped millions into both US political parties and had “reinvented capitalism” was suddenly… er… bankrupt.

Of course I am referring to Sam Bankman-Fried… AKA “SBF”.

As SBF will soon discover “his” US passport is actually the property of the US government. They have allowed him to use it up to this point. It is not a difficult guess to think that the SEC/DOJ etc. have already placed a call to the State Department to cancel it.

SBF doesn’t need to be extradited if a simple passport cancellation leads to deportation.

Why extradite when it’s so easy to deport?

Even though there is an Extradition Treaty between the Bahamas and the US, extradition is a long and complicated process. A simpler and faster way to get SBF into the US will be to ask the Bahamian government to deport him. They will be obligated to do so if SBF no longer fulfils the underlying condition of possessing a valid current passport. This is such a tried and tested method around extradition that it is actually described in the State Departments Foreign Affairs Manual

It is also worth noting that this same simple deportation strategy could be used against other FTX employees… all without the need for indictments!

SBF does appear to have rightly drawn the criminal attention of the US. However, there are some life lessons to be learned from his situation for ordinary families.

Lesson One: Only one passport can be potentially inhibiting and even fatal!

Many Americans discovered the limitation of their sole US passport during the pandemic. Only possessing a US passport meant that they could not travel internationally… even if flying privately. While a nuisance for tourists, this problem also resulted in long separations for family members.

There are of course even more serious implications. Many wealthy individuals in more authoritarian states found that having a single passport could result in long periods as political prisoners, restriction from travel or even death. Often the people who suffered these fates have not committed financial or other crimes. Rather they were simply perceived to be a threat to those who held the power to cancel their passports.

Today, many wealthy global families across the political spectrum are rightly concerned about a future where their country is ruled by “the other tribe”. They want the optionality to “decamp” either temporarily or permanently should that other tribe make life untenable.

Lesson Two: A second passport expands opportunity

As I examined in a prior blog, for those in an emerging industry, a second passport may allow access to greater freedom. They may deal with regulation from a location which puts themselves and their lawyers on an equal footing with those who are seeking to regulate them. Previously the emerging industry was the on-line gambling and sports book industry. Today that industry includes all facets of the crypto sphere.

Also as previously mentioned, obtaining a second passport can allow one to stay globally mobile. This means you will be unaffected should your original passport suddenly become internationally shunned as a result of actions/inactions by your home government on everything from public health responses to geo-political events.

Another benefit of a second passport? It can create opportunities for all family members to live, study and work abroad. This particular benefit is one that I have seen in my own extended family. I swear that my siblings and I did not go nightclubbing in our youth looking for only European dance partners… However, my older sister married a Latvian; my brother an Italian; myself a Pole; and my younger sister an Irishman. I am the only one of my generation to actually move to Europe. However, almost all of the next generation have exploited their dual citizenships. They have studied, taken gap years, lived and worked in Europe. In almost all cases, lineage citizenship is a benefit that can also be passed onto future generations.

Lesson Three: A second passport without funds to live abroad is not optimal

If he can be believed, prior to his arrest SBF had less than $100K USD in his bank account. This means that even if he had secured a second citizenship, he didn’t have sufficient funds available to him to do much with it.

Many families have a story about an ancestor who fled “the old country” with only a pittance in their pockets. Whilst a great tale for future generations it wasn’t much fun for those who had to actually live through it. This is especially true if they previously were quite wealthy.

So you shouldn’t stop with legally obtaining a second citizenship. Wealthy individuals should also organise their financial lives. They need to make sure that they have sufficient funds outside the reach of their home country. This will allow them to maintain their lifestyles and rebuild, should they ever be forced to relocate permanently.

Planning to Act on the Three Lessons

So what next? It’s important to look at the practical steps HNW families should be undertaking in today’s world. This is when I will return to an analogy I have often used in the past….”Living in a Wildfire Zone”.

Imagine living in a wildfire zone and not investing in fire insurance…

The exact cause of the Wildfire threat changes for different families in specific circumstances. For some it is a “Sovereign Risk”. They are concerned that their home government will take adverse action against them personally. For others, it is also a “Geopolitical Risk”. They fear that their home government will act (or fail to act) in a way which impacts their family adversely. This type of risk runs the spectrum from reaction to global pandemics to currency control or outright banning of cryptocurrencies.

Actual wildfires destroy valuable neighbourhoods and lives. Likewise, these types of risks can have significant real life consequences. If you recognise that your family live in this metaphysical wildfire zone then prudence demands that you look into the “fire insurance” of a second passport and/or residence and organising assets abroad. The cost or “premium” of this type of fire insurance needs to be weighed against the damage your family will suffer should this theoretical wildfire become real and actually scorch your lives.

Time to plan…

Once you’ve invested in “fire insurance”, then a “fire escape plan” should be mapped out. This planning gives your family the peace of mind. They know that should the wildfire ever get too close for comfort, they will be able to avoid its damaging impact.

In some parts of the world, many wealthy families have already acquired fire insurance and a fire escape plan. In other countries (such as the US), this is still a novel concept. Unfortunately, in both cases many of these plans are put together by the families themselves or their non-expert advisors. Even worse, many are the result of sales pitches by commission driven sales people. These unscrupulous sorts will push their “solution” as the best regardless of suitability to your specific needs. Just like when building a house in an earthquake or hurricane zone, or undergoing significant surgery – the price of failure makes the cost of proper experienced independent expert advice seem like a pittance.

A Fire Escape plan is only as strong as its weakest element… don’t expose your family to wildfire without an effective fire-proof plan.

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