In April 2025, Pakistan announced the launch of a new Pakistan Crypto Council (PCC) and named Binance CEO Changpeng Zhao as its strategic adviser. Finance Minister Aurangzeb hailed it as “a landmark moment” for Pakistan, saying the country was ‘open for innovation’. Mr Zhao himself spoke of the ‘limitless’ potential of a nation where 60 per cent of people are under 30.

Yet beneath the optimism lies a critical question: is Pakistan embracing crypto too quickly without the institutional safeguards needed to manage its risks?

Pakistan’s financial oversight landscape is fragile. The State Bank of Pakistan (SBP) in 2018 warned that digital currencies, due to their decentralised nature, could become conduits for money laundering and illicit finance. That concern remains.

Although PCC is framed as a modernisation effort, declared as a movement to turn Pakistan into a Web3 ‘powerhouse’, the council’s ambition warrants caution, especially given the economic and governance realities of the country. Though out of the ‘grey list’ of the Financial Action Task Force, Pakistan’s anti-money laundering/counter-terrorism financing still has significant blind spots which manifest more with emerging fintech companies.

In the absence of regulation, local or imported crypto tools could be used to wash proceeds from cybercrime, tax evasion, or terrorism financing

In one case, the Federal Investigation Agency launched investigations into a major scam where Pakistani investors were defrauded of around $100 million through unauthorised crypto investment apps linked to Binance wallets. Pakistan lacked effective tools to trace crypto wallet owners or hold offshore exchanges accountable, highlighting the weakness of cross-border regulatory cooperation. Despite adopting potential solutions, crypto’s inherent design to protect user anonymity complicates tracing even further.

Even when regulated, cryptocurrencies continue to pose multiple financial crime risks. Their pseudonymous transactions make enforcement tricky. The International Monetary Fund (IMF) emphasised that without proper oversight, crypto could lead to widespread tax evasion. Unprepared tax systems could someday mean widespread evasion of value-added tax and sales taxes, leading to materially lower government revenues.

A 2021 report estimated that crypto capital gains taxes might have raised $100billion globally, and in Pakistan, where tax collection is already challenged, lax crypto rules could let affluent holders shelter gains off-book, especially since neither the Virtual Asset Bill, 2025, nor the Income Tax Ordinance, 2002, makes any mention of crypto taxation.

Money laundering is the paramount worry. Global data now suggest illicit crypto flows of tens of billions of dollars yearly. With a crypto transaction volume estimated at $40.9bn in 2024, nearly a quarter was linked to cybercrime.

History offers vivid examples as well: The Tornado Cash saga reveals how decentralised, privacy-enhancing crypto tools can facilitate large-scale money laundering and sanctions evasion. Tornado Cash (a privacy tool) became a hub for laundering funds stolen in cyber attacks, including by North Korean state hackers.

For Pakistan, this shows that in the absence of regulation, without oversight, local or imported crypto tools could be used to wash proceeds from cybercrime, tax evasion, or terrorism financing. Thus, missing a robust regulatory framework, even beneficial crypto innovations (like remittancecutting stablecoins) will introduce significant risks for Pakistan.

For emerging market economies (EMEs), the stakes are even higher. Unlike rich countries with deep capital markets, economies like Pakistan tend to be bank-based, with volatile currencies and lower financial literacy. The Bank of International Settlements (BIS) notes these “particularities make EMEs more vulnerable to some of the cryptorelated financial stability risks than advanced economies”.

In practice, widespread crypto adoption could undermine Pakistan’s policy tools. BIS and IMF analyses agree that Pakistan’s financial system is unusually fragile to crypto shocks; an unguarded crypto sector could amplify capital flight and exchange rate volatility and lead to what the IMF termed as ‘cryptoisation’.

More advanced jurisdictions have moved cautiously. Japan has been a crypto regulatory pioneer since the 2014 MtGox crash: it was the first country to impose a comprehensive crypto framework. Japanese law requires all crypto exchanges to register with the financial agency and meet strict standards, and this approach to tackling the risks in crypto bore fruit in 2022 following the failure of FTX. The Japanese subsidiary of FTX was completely protected from the troubles of its global parent.

The United Kingdom is pursuing a similar path. In April 2025 the UK government unveiled a draft law to bring crypto under its Financial Services and Markets Act 2002, covering everything from trading platforms to stablecoin issuance.

Pakistan’s stance, launching a crypto council and advisor without first enacting clear rules, especially with the benched Virtual Assets Bill, flips that sequence. It risks giving priority to the allure of modernity over the hard work of enforcement, thereby exposing Pakistan to the very dangers the SBP warned against.

The PCC’s next steps will test whether Pakistan can learn from others, especially since it was ranked ninth globally under the crypto adoption index. If the council works with lawmakers to adopt global crypto standards like mandating audits, capital requirements and strong governance, then the country might harness blockchain for innovation.

The writer is a corporate and tax lawyer

Published in Dawn, The Business and Finance Weekly, June 23rd, 2025