Prohibition by Circular: Pakistan’s Eight-Year Wait for a Virtual Assets Law

On 26th November 2024 the United States Court of Appeals for the Fifth Circuit held, in Van Loon v Department of the Treasury (No. 23-50669), that the Office of Foreign Assets Control (“OFAC”), the sanctions arm of the American Treasury, had exceeded its statute when it designated the immutable smart contracts of the cryptocurrency mixer Tornado Cash, because open-source computer code which no person can own, control or alter is not “property” of any foreign national within the International Emergency Economic Powers Act. OFAC had designated the mixer in August 2022 on the allegation of laundering the proceeds of North Korean hacking; on 21st March 2025 the Treasury removed the smart contracts from its sanctions list altogether, while the criminal prosecutions of the developers Roman Storm and Roman Semenov stood untouched; and Peter D. Hardy and his colleagues drew, in Money Laundering Watch on 5th December 2024, the moral that a regulator defeated on the code may still pursue the people behind it.

The American lesson is that even the most powerful financial regulator on earth must find its footing in a statute before it reaches a new technology. Pakistan’s failure ran the other way: the technology was in every Pakistani hand, and there was no statute at all.

On 6th April 2018 the State Bank of Pakistan issued BPRD Circular No. 03 of 2018, “Prohibition of Dealing in Virtual Currencies/Tokens”, by which it named Bitcoin, Litecoin, Pakcoin, OneCoin, DasCoin and Pay Diamond, advised all banks, development finance institutions, microfinance banks and payment system operators to “refrain from processing, using, trading, holding, transferring value, promoting and investing in Virtual Currencies/Tokens”, and directed that any such transaction “shall immediately be reported to Financial Monitoring Unit (FMU) as a suspicious transaction”. Two months later, in June 2018, the Financial Action Task Force (“FATF”) placed Pakistan on its “Grey List”, where the country remained until 21st October 2022.

A circular is not a law. It bound the banks and nobody else; it neither criminalised the coin nor protected its holder; and since there was no law in field governing “Virtual Currencies” therefore the trade did not stop, it merely left the banking channel and settled itself through peer-to-peer transfer and foreign platforms which no Pakistani regulator could examine.

The vacuum duly reached the courts. In the constitutional petition of Waqar Zaka against the State Bank’s position, the Honourable Sindh High Court constituted a committee headed by Deputy Governor Sima Kamil with members from the Finance Division, the Ministry of Information Technology, the Securities and Exchange Commission of Pakistan (“SECP”), the Pakistan Telecommunication Authority and the Financial Monitoring Unit (“FMU”); the committee reported on 12th January 2022 that the risks of cryptocurrency outweigh its benefits in Pakistan, recommended a complete ban and urged that platforms such as Binance and OctaFX be barred with dissuasive penalties; and the Bench of Justice Mohammad Karim Khan Agha, rather than adopt a prohibition resting on no statute, referred the report to the finance and law ministries to state whether a ban would even be constitutional. For the reasons best known to the federal government, no Bill was laid before Parliament for another three years.

The FMU, the financial intelligence unit constituted under the Anti-Money Laundering Act, 2010 (Act VII of 2010), watched the vacuum from within. It conducted strategic analyses of virtual asset reporting in December 2018, March 2020 and August 2021, and in the fourth quarter of 2022 it conducted four more; its Quarterly Report for October to December 2022 records in terms that “currently there are no regulations placed in Pakistan to tackle the risk of virtual assets”, and in that same quarter virtual currency accounted for seven financial intelligence disseminations to law enforcement agencies.

The four strategic analyses of that single quarter assessed 1,842 Suspicious Transaction Reports pertaining to virtual assets.

The same Quarterly Report shows what the vacuum cost the public at large. In the case of M/s WAL Traders, accounts across several banks aggregated roughly 4 billion Rupees raised from the public through a Ponzi scheme which fed the foreign forex platform OctaFX, a platform the State Bank of Pakistan has declared illegal; the Federal Investigation Agency registered a case and the SECP listed the company among entities running unauthorised schemes; yet the scheme met its first regulator only at the stage of criminal investigation, because on the legal front there was nothing earlier for it to meet, no licence to refuse and no register to inspect.

Abroad, the vacuum carried a price of its own. The Asia/Pacific Group on Money Laundering’s Mutual Evaluation Report of October 2019 scored Pakistan at thirty-nine per cent for technical compliance and three per cent for effectiveness, and four follow-up reports to August 2022 raised technical compliance to seventy-two per cent; yet Recommendation 15 on new technologies, which requires “Virtual Asset Service Providers” to be licensed or registered and supervised, remained one of only two Recommendations still rated partially compliant, as the Basel Institute on Governance recorded in its country briefing of 15th December 2022. Very unfortunately, the state functionaries had nothing to show on precisely the Recommendation addressed to the decade’s newest risk, since Recommendation 15 accepts either regulation or an enforced prohibition, and a circular addressed to banks is neither.

The turn, when it came, came fast. On 14th March 2025 the Finance Division launched the Pakistan Crypto Council, chaired by Finance Minister Muhammad Aurangzeb, with Bilal Bin Saqib as chief executive; on 8th July 2025 the President promulgated the Virtual Assets Ordinance, 2025 under Article 89 of the Constitution and thereby created the Pakistan Virtual Assets Regulatory Authority (“PVARA”); the Senate extended the Ordinance in November 2025; and Parliament put the regime on permanent footing, the Senate passing the Bill on 27th February 2026 and the National Assembly on 4th March 2026, whereupon it was enacted as the Virtual Assets Act, 2026. Under the Act, PVARA licenses, regulates and supervises “Virtual Asset Service Providers”, enforces anti-money laundering and counter-terrorism financing compliance and coordinates with the State Bank and the SECP; and by Circular Letter No. 10 of 14th April 2026 the State Bank withdrew its prohibition for licensed providers and permitted banks to open Rupee-denominated, segregated client accounts for them.

Eight years and eight days separate the Circular of 6th April 2018 from the Circular Letter of 14th April 2026 which undid it.

What remains is the harder half, enforcement. Laundering through coin will still be prosecuted under the Anti-Money Laundering Act, 2010 (Act VII of 2010), and the Honourable Supreme Court of Pakistan has held in Shahid Chaudhry v The State (Criminal Petition No.174 of 2026, decided 27th February 2026) that a charge of money laundering is derivative of a determined predicate offence; since a wallet of coin is “proceeds of crime” only where the predicate crime has first been established therefore an investigator who cannot prove the Ponzi or the tax fraud will not rescue his case by pointing at the blockchain, and the next WAL Traders will be won or lost on the predicate offence, not on the technology.

In the light of the above, it is urgently required that PVARA frame and publish its licensing and supervision rules without the delay which attended the parent law; that the FMU repeat its strategic analysis of virtual asset reporting under the new regime and publish the result, so that the 1,842 reports of 2022 may be compared against a regulated market; and that investigators and prosecutors be trained to establish the predicate offence before alleging the laundering of coin, keeping in view that the Honourable Supreme Court of Pakistan now insists upon exactly that sequence. The habit which this record exposes, of governing an entire asset class for eight years by executive instrument while Parliament stood by, hence needs serious reconsideration; the Circular could close the banks, but it could not license a provider or protect an investor.

The Fifth Circuit told the American Treasury that code which nobody owns cannot be sanctioned; the Pakistani record teaches the converse, that citizens who very much do own things cannot be governed by circular; and both are the same proposition, that power over a new technology runs only through law made by Parliament and applied to persons. Pakistan at last has such a law in field. Whether it also has the enforcement will be measured, as always, not by the statute book but by the convictions.