Advertisement
Advertisement
Advertisement
Mega racket of crypto

Mega racket of crypto

Mega racket of crypto
Advertisement

Pakistan is indeed a poor, debt-ridden country, but a handful of Pakistanis are super-rich and playing it big in the shadowy cryptocurrency market. If one believes the authenticity of a recent report issued by the country’s apex trade body, Federation of Pakistan Chambers of Commerce and Industry (FPCCI), then Pakistanis are holding a staggering $20 billion worth assets of virtual money, even though the cryptocurrency is not a legal tender in Pakistan.

This raises legitimate questions as to how massive amounts of foreign exchange got transferred abroad for investment in the cryptocurrency market when the government is struggling to keep the country’s economy afloat against the backdrop of a 12 per cent depreciation in the value of the rupee against the dollar in six months.

The mind-boggling disclosure that the investments of Pakistanis in cryptocurrencies is larger than the official foreign exchange reserves held by the State Bank of Pakistan (SBP) and almost equal to the trade deficit for the first five months (July-November) of the current fiscal year 2021/22 came as a shock in the highest echelons of power.

Therefore, the Federal Board of Revenue (FBR) has launched an investigation in the multibillion dollars investments in cryptocurrencies over the directives of Prime Minister Imran Khan.

“We have started an investigation into the claim of investments by Pakistanis in cryptocurrencies,” a senior FBR official told BOL News, requesting anonymity. “The prime minister himself was shocked when he heard about the mega investment in the virtual money by Pakistanis… he has directed the authorities to dig out the reality.”

Advertisement

The FBR is sending notices to all those persons and the entities involved in investing in cryptocurrencies to investigate the source of their money, the official said.

The FPCCI in its research report quoted the amount invested by Pakistanis in the virtual currency market and asked the authorities to regulate these investments to reap the benefit of the growing interest in cryptocurrencies.

Mohammad Younus Dhagha, chairman of the Policy Advisory Board of the FPCCI, said that investments in cryptocurrencies have been growing at an exorbitant pace in Pakistan.

“In 2020/21, Pakistan recorded around $20 billion of cryptocurrency value, showing an unprecedented increase of 711 percent.”

Besides, investing huge amount in the virtual currencies, Pakistanis are also one of the biggest investors in the world.

Advertisement

“Pakistan’s rank on the Global Crypto Adoption Index has also shown improvements by 12 notches to reach third position in 2021 only trailing behind Vietnam and India,” Dhagha added.

The official foreign exchange reserves of the State Bank of Pakistan fell $299 million to $17.855 million by the week ended December 24, 2021, compared with $20 billion in August 2021. The latest number of official reserves of the central bank also includes an amount of $3 billion deposited by the Saudi Fund for Development.

Pakistan’s trade deficit massively widened to $20.65 billion during the first five months (July-November) of the fiscal year 2021/22. The deficit may be attributed to the sharp increase in the import bill. The imports of the country surged 70 per cent to $33 billion during the period under review, compared with $19.47 billion in the same period a year ago.

The FBR official; however, said that the preliminary investigations show that the amount quoted in the FPCCI report was highly exaggerated.

“It looks some quarters want to whiten their money by enticing the government to regulate and take benefit of [the] improving foreign exchange position.”

The official said the research report is an attempt to reverse all the gains, which were made by the authorities in the anti-money laundering (AML) and counter the financing of terrorism (CFT).

Advertisement

“Over the last few years, the authorities, including the FBR, Federal Investigation Agency (FIA), Financial Monitoring Unit (FMU) and [the] National Accountability Bureau (NAB) have successfully thwarted such illegal activities,” the official said, adding that such disclosure would adversely affect Pakistan’s position in the upcoming meeting of the Financial Action Task Force.

The FATF is scheduled to meet in April 2022 to review the case of Pakistan, which remains on the grey list due to the alleged non-compliance to AML/CFT. In the previous meeting of the FATF in October 2021, Pakistan had met most of the conditions to qualify for the white list.

Experts believe the government should take concrete measures to stop the dollar outflows. They said although major initiatives were taken by the regulators, yet there is a need of further action against Hawala and Hundi.

Rehmatullah Khan Wazir, former senior member of the Federal Board of Revenue (FBR), said that during the last few years, major regulations have been introduced under the Anti-Money Laundering (AML)/Counter Financing of Terrorism (CFT) to document the economy.

“Now the people have found [a] way to park their undocumented money in cryptocurrency,” he said.

Advertisement

“It is very difficult to transfer money through legal channels for investing in the virtual currency, as the recent legislation makes it mandatory for the foreign currency accountholders to file their income tax returns and should be on the Active Taxpayers List (ATL) to make transfers through their foreign currency accounts. If such an amount is invested in the virtual currency, then it can only be made through Hawala and Hundi.”

The regime to regulate foreign exchange in Pakistan is liberal. Following the introduction of the Protection of Economic Reform Act in 1992, transfer of the foreign exchange through legal channels has been made easy. Wazir suggested that the government should revisit the Protection of Economic Reform Act, 1992 to stop the outflow.

The act allows freedom to bring, hold, sell and take out foreign currency. “All citizens of Pakistani residents in Pakistan or outside the country and all other persons shall be entitled and free to bring, hold, sell, transfer and take out foreign exchange within or out of Pakistan in any form and shall not be required to make a foreign currency declaration at any stage nor shall anyone be questioned with regard to the same,” according to the law.

However, in April 2018, the government brought an amendment to the Protection of Economic Reform Act 1992 to document the transactions through foreign currency accounts. Now only tax filers are allowed to transfer foreign exchange abroad as defined in the Income Tax Ordinance 2001.

Grey channels have been used for the transfer of foreign exchange for investment in cryptocurrencies. Different service providers across the world facilitate financing into cryptocurrencies, popular among them in Pakistan are Binance, Coinbase, Crypto.com and others.

The peer-to-peer (P2P) model for investing in cryptocurrencies work in a way that the buyer transfers money directly to the seller of coins, whereas service providers act as an intermediary and provide escrow services to hedge counterparty credit risks.

Advertisement

Pakistan’s informal economy is almost equal to the formal one. People taking advantage of the informal economy are making investment in those avenues, which are still beyond the reach of the regulators.

“The problem of tax evasion and black money in Pakistan has always been a serious challenge to the state. Successive governments have tried to appease the tax evaders through various amnesty schemes, but none succeeded to achieve this objective. All such schemes failed miserably and [the] black economy continued to grow rather than showing any decline,” according to a report of the Tax Reform Commission (TRC), which was prepared under the previous PML-N government.

Ashfaq Tola, president of Tola Associates, a corporate and tax advisory firm, said that the people were finding avenues such as cryptocurrency to park money earned from the informal economy.

Recently a campaign was launched to press the government to withdraw Rs5,000 denomination banknote as a legal tender; however, Tola opposed the idea and recommended introduction of polymer notes with a small tracking chip that should be embedded in the currency notes for effective tracking mechanism.

“Tracking the currency will resolve many economic ills in the country,” Tola said, adding: “Since the cryptocurrency is not a legal tender in Pakistan, transferring money from formal channels is not possible.”

Advertisement

On a question on legalising virtual currency in the country, he said, apparently it is not possible. “Making a legal tender means to allow the currency for day-to-day transactions.”

“This is not a currency, it is a type of commodity for trading. People are demanding to make it a legal tender for trading just like happens in [the] stock market.”

Traditional international payment instruments such as debit/credit cannot be used due to the SBP’s prohibition on financial institutions under its umbrella. “Investors rather use bank transfers through a local bank account, JazzCash, or easyPaisa through the P2P system,” according to the FPCCI report.

crypto exchange used by the Pakistani investors is Binance, which is headquartered in Cayman Island, whereas other renowned platforms include Localbitcoins.com, Binomo and others.

The FPCCI claimed that around 67 per cent of crypto investors from Pakistan have been utilising centralised services, whereas only 33 per cent have been using decentralised finances (DeFi) platforms for crypto-related transactions.

Also Read

Dubai World Trade Centre to set up specialised crypto zone
Dubai World Trade Centre to set up specialised crypto zone

DUBAI: The Dubai World Trade Centre will become a crypto zone and...

Advertisement
Advertisement
Read More News On

Catch all the Business News, Breaking News Event and Latest News Updates on The BOL News


Download The BOL News App to get the Daily News Update & Follow us on Google News.


End of Article

Next Story