Remote VASP serving residents in Pakistan

A standing prohibition by the State Bank of Pakistan (SBP) for regulated financial institutions to deal in or facilitate virtual assets.

SBP BPRD Circular No. 03 of 2018: Issued on April 06, 2018, this circular explicitly prohibits all banks, Microfinance Banks (MFBs), and Payment System Operators (PSOs)/Payment Service Providers (PSPs) from:

Dealing in Virtual Currencies/Coins/Tokens (VCs/VCOs/VCTs).

Facilitating any transaction involving VCs/VCOs/VCTs.

Maintaining accounts of individuals/entities involved in VCs/VCOs/VCTs.

Implication: This circular effectively creates a de facto ban on any regulated financial institution in Pakistan from engaging with or facilitating cryptocurrency activities. This means that:

Cryptocurrency exchanges, custody providers, and payment processors cannot legally operate with bank accounts in Pakistan or integrate with the traditional financial system.

Any individual or entity involved in crypto transactions faces significant challenges in dealing with their funds through regulated financial channels.

Exchanges: No license. Cannot lawfully connect to the banking system.

Custody Providers: No license. Cannot lawfully connect to the banking system.

Payment Processors (Crypto-related): If processing fiat for crypto, no license and prohibited for regulated entities. If purely crypto-to-crypto, it operates outside the formal financial system but still in a legally ambiguous and high-risk environment.

Ongoing discussions and proposed legislative efforts, primarily driven by the need to comply with Financial Action Task Force (FATF) recommendations, to eventually introduce a regulatory framework.

FATF Recommendation 15: Which requires countries to regulate and supervise Virtual Asset Service Providers (VASPs) for Anti-Money Laundering (AML) and Counter-Terrorist Financing (CFT) purposes. Pakistan's compliance with FATF recommendations is critical for its international financial standing.

Anti-Money Laundering Act, 2010 (AMLA 2010): This is the overarching legislation that criminalizes money laundering and provides the legal basis for AML/CFT measures in Pakistan. It mandates reporting obligations for financial institutions and designated non-financial businesses and professions (DNFBPs).

SBP CDD / KYC Regulations, 2022 (BPRD Circular No. 04 of 2022): This is a critical development. The State Bank of Pakistan, through its Banking Policy & Regulations Department (BPRD), issued comprehensive Customer Due Diligence (CDD) / Know Your Customer (KYC) Regulations, 2022. These regulations explicitly define and include "Virtual Asset Service Providers" (VASPs) as a type of entity that must comply with AML/CFT requirements, effectively bringing them under the regulatory ambit.

Key Aspect: These regulations define a VASP, consistent with FATF definitions, and mandate that they adhere to all the CDD/KYC obligations applicable to other financial institutions.

Identification and Verification of Customer Identity:

Beneficial Ownership: Identify and take reasonable measures to verify the identity of the beneficial owner(s) of the customer, including for legal persons, trusts, and other legal arrangements.

Purpose and Nature of Relationship: Understand the purpose and intended nature of the business relationship or the specific transaction.

Trigger: Any transaction (attempted or completed) that appears unusual, lacks a clear economic or lawful purpose, is inconsistent with the customer's known profile, or raises suspicion of money laundering or terrorist financing.

Reporting Mechanism: Reports are filed electronically through the FMU's secure reporting portal.

"No Tipping Off": VASPs and their employees are prohibited from disclosing to the customer or any third party that a STR has been or will be filed.

Customer Records: All records obtained through CDD procedures, including identity documents, account files, business correspondence, and analysis of transactions.

Transaction Records: Records of all transactions, including the amount, currency, date, and details of the parties involved (both originator and beneficiary, where applicable).

No. Pakistan has not adopted the FATF Travel Rule. This is primarily because the State Bank of Pakistan (SBP), the central bank and primary financial regulator, along with the Ministry of Finance and other relevant bodies, have taken a position against cryptocurrencies and virtual assets.

Not applicable. Since the Travel Rule has not been adopted, there is no effective date for its implementation.

None. As VASPs are not legally permitted to operate in Pakistan, there are no legally covered entities that would be subject to the Travel Rule. Any entity attempting to provide VASP services in Pakistan would be doing so outside the law.

Anti-Money Laundering Act, 2010 (AMLA): This is the primary legislation for AML/CFT in Pakistan. If virtual asset transactions are used for money laundering, terrorist financing, or other illegal activities, individuals/entities would be prosecuted under this Act. Penalties can include:

Imprisonment: Up to 10 years.

Fines: Substantial monetary penalties.

Forfeiture of assets: Confiscation of property involved in or derived from money laundering.

Entity Targeted: Binance Pakistan (and implicitly, individuals running scam schemes facilitated through Binance). Violation Type: Alleged involvement in multi-million dollar cryptocurrency scam, money laundering, illegal financial transactions, non-compliance with local regulations. The FIA issued a formal notice to Binance's Global Head of Growth for its alleged role in facilitating fraudulent transactions that led to significant financial losses for Pakistani citizens. Penalty Amount: No direct fine was publicly levied against Binance by Pakistani authorities. The "penalty" was primarily investigative pressure, a formal inquiry, and a demand for cooperation, which could have led to further action or reputational damage. The FIA initiated criminal proceedings against individuals involved in the scam. Outcome: The FIA launched an inquiry and issued a formal notice to Binance, demanding details and cooperation. Binance subsequently stated its commitment to cooperate with the FIA and local authorities. The FIA also identified and initiated action against 11 individuals alleged to be masterminds of a multi-million dollar fraud scheme involving Binance. The action highlighted the government's serious concerns about unregulated crypto activities. While Binance itself wasn't fined, the action put significant pressure on the exchange and warned the public.

SBP Circular (January 2018): The State Bank of Pakistan issued Circular No. 03 of 2018, titled "Prohibition of Dealing in Virtual Currencies/Tokens (VCs/ICTs)." This circular explicitly stated that VCs/ICTs are not legal tender in Pakistan and prohibited all banks, financial institutions, and payment system providers from dealing in, processing, or facilitating transactions involving VCs/ICTs.

Update (2022-2023): While there have been ongoing discussions and government committees formed to evaluate the possibility of regulating cryptocurrencies, no formal change to the SBP's stance or new legislation has been enacted. Reports in local media suggest that committees involving the Ministry of Finance, Law Ministry, and the SBP have explored various options, including maintaining a ban or developing a regulatory framework, often influenced by FATF recommendations.