As per the Chainalysis adoption index for the market share of the investment in VAs, Pakistan is ranked as third in row after Vietnam and India. Similarly, the Times of India also claimed that Pakistan’s crypto market grew the most at 711%, and Central and South Asia and Oceania gained a valuation of $572.5 billion in 12 months up to June 2021. The Chainalysis report also indicated that Pakistan received an excess of $1.5 billion in crypto-cash last year. Despite having a huge market share with millions of people engaged in this sector in Pakistan, no serious efforts are made to deal with its administrative and legal aspects and there is even no determination exhibited by the relevant ministries to take onboard relevant institutions and law enforcement agencies including the State Bank of Pakistan (SBP), Securities and Exchange Commission of Pakistan (SECP), Financial Monitoring Unit, Federal Investigation Agency (FIA), Federal Board of Revenue (FBR), and other stakeholders directly or indirectly involved with trading related matters. Hence, no comprehensive study at the national level has been presented so far by the ministries as well as the relevant institutions to assess the risks posed by this sector, their mitigation, and their impact on our economy.
As reported in the media, while hearing the petition challenging the legality of the crypto ban imposed in 2018, the Sindh High Court directed the government to come up with modalities for cryptocurrency regulation within three months in consultation with the Minister for Information and Technology. So far, no concrete framework has been introduced either by the SBP or the SECP. This undue delay in regulating is, on the one hand, impacting our revenue-generating activity and on the other, is providing criminals access to the financial sector. Now that the FATF has updated its travel rule and issued updated guidance for a risk-based approach for VAs and VASPs, Pakistan can introduce a comprehensive framework on same lines. The requirements of recommendations 15 and 16 can be easily met by using the existing licensing requirements mentioned for formation of companies, applying the model of investment or security, trading companies as per the model compatible with the functions of our regulatory bodies. In the USA, cryptocurrencies have to be registered as commodities trading advisors and commodity pool operators along with regulatory requirements mentioned in the Investment Company Act, 1940 and the Investment Advisor Act 1940 along with relevant state’s investment laws. The UK treats cryptocurrency as a property, and licensing requirements depend on the regulated activities in terms of the Financial Services and Market Act, 2000 and Payment System Regulators requirements, etc.
Similarly, VASPs should be made liable to maintain an Anti-Money Laundering programme and include written policies and procedures. VASPs should also maintain internal controls with reasonable assurance of continued compliance by designating an officer for this purpose, training of the concerned staff in reporting suspicious activity, and independent review to assess the adequacy of the programme. Similarly, no one should be allowed to access the system to be listed on the sanction list maintained by the Government, the UN, or OFAC sanction list. The UK introduced the Anti-Money Laundering and Countering Terrorist Financing supervisor for companies carrying out cryptocurrency ventures. Both the USA and UK require the companies to perform ‘know your customer’ and customer diligence checks for those dealing in crypto, verifying their basic information such as their legal names, proof of residence, government-issued identity documents, etc. Pakistan already has a mechanism to regulate money service businesses under the Money Laundering Act, 2010, that can be applied to regulate cryptocurrency as well.
Regularization of this sector will not only generate economic activity in the country but will also help the government enhance its revenue by claiming a fair share of taxes. This sector is growing and major countries in the world have either started their risk assessment or issued regulations. It is a good time for us to bring this sector into the regulatory framework to encourage virtual currency-based innovations and efficiencies in finance and business. Our regulatory framework should also protect investors to ensure larger financial inclusion without any disadvantage to individuals, corporations, and governments.
(Concluded)
(Huzaima Bukhari & Dr. Ikramul Haq, lawyers and partners of Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences (LUMS), members Advisory Board and Visiting Senior Fellows of Pakistan Institute of Development Economics (PIDE). Abdul Rauf Shakoori is a corporate lawyer based in the USA and an expert in ‘White Collar Crimes and Sanctions Compliance’. They have recently coauthored a book, Pakistan Tackling FATF: Challenges and Solutions)
Copyright Business Recorder, 2021
The writer is a lawyer and author of many books, and Adjunct Faculty at Lahore University of management Sciences (LUMS), member of Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE). She can be reached at [email protected]
The writer is a lawyer and author of many books, and Adjunct Faculty at Lahore University of management Sciences (LUMS) as well as member of Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE). He can be reached at [email protected]
The writer is a US-based corporate lawyer, and specialises in white collar crimes and sanctions compliance. He has written several books on corporate and taxation laws of Pakistan. He can be reached at [email protected]
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