Thursday March 30, 2023

State Bank did not declare crypto currency illegal, SHC told

December 19, 2020

KARACHI: The State Bank of Pakistan has not declared crypto currency illegal, a joint director of SBP told the Sindh High Court on Thursday. Hearing a petition against restriction on trading virtual currencies, the SHC’s division bench, headed by Justice Mohammad Karim Khan Agha, directed deputy governor SBP to file his statement as to whether or not there was any law, rule or regulation which prevents the crypto currency business in Pakistan.

The court directed the counsel of the SBP to go through comments already filed by the SBP and the petition, so that he can answer the questions of the court concerning the ability of a person in Pakistan to operate and use the crypto currency for business. The court directed the federal law officer to file comments on the behalf of Ministry of Finance by January 13, observing that in case comments were not filed by the Ministry of Finance, the secretary finance shall appear in person and explain the position.

The court took an exception over non-filing of comments by the Federal Investigation Agency and Ministry of Finance despite the court directions. The court issued a show cause notice to deputy director FIA Cyber Crime Abdul Ghaffar on his non-appearance and directed him to reply as to why he had not complied with the court order in letter and spirit. The court directed him to appear in person on next date of hearing and explain as to how the FIA came to register an FIR against the petitioner.

Petitioner Waqar Zaka had filed a petition in the SHC against the SBP notification with regard to restriction on use of virtual currencies for trade and banking transactions and sought legality of virtual currencies and crypto mining. He submitted that virtual currency was internet based medium of exchange, which uses crypto graphical functions for financial transactions.

He submitted that the SBP had issued a circular on April 6, 2018, advising all banks and payment system operators to refrain from processing, trading and promoting in virtual currencies token and not facilitate their account holders to transact in VC and tokens as it provides a high degree of anonymity and can be used for facilitating illegal activities. He submitted that transaction in virtual currency was more real time traceable than an ordinary transaction or transaction in paper currency. He submitted that the SBP through an impugned order had restricted the people of Pakistan to carry on business who were associated with technology based profession, especially virtual currencies/assets, which was a blatant violation of freedom of business and occupation and could not be justified in any manner.

The court was requested to declare impugned the order of SBP as unlawful as it is restricting the people to enter upon or carry on business which was not unlawful by any legal statute in Pakistan and direct the government to draft a regulatory framework that clearly define the official stance and mechanism regarding virtual currencies and assets and crypto mining.

The SBP, in its earlier comments, defended its restrictions on trading virtual currencies and submitted that virtual currency like Bitcoin, Litecoin, etc, or initial coin offerings are not legal tender issued or guaranteed by the Government of Pakistan. The SBP’s additional director of payment system department submitted that VC can become source of major frauds targeting illiterate population to exploit their urge for earning quick profits.

The SBP director said besides there was an enhanced risk of money laundering and terrorism financing since the identity of users on VC network remains anonymous. The The SBP director said that the SBP has no objection to the use of virtual technology and allowed block chain and distributed ledged based technologies to operate in Pakistan. He said that a couple of banks/microfinance banks have been given approval to use block chains based home remittance system to transfer money from Malaysia to Pakistan besides Ripple’s block chain based money value transfer system named X-current has also been allowed by the SBP to function in Pakistan in collaboration with the bank.

Dispelling the petitioner’s contention that absence of PayPal system affected Pakistan’s remittance system, SBP said that Pakistan has received over US$20 billion worth of remittances from abroad that include the contribution of over a billion US$ by freelancers. Besides, he submitted that number of gateways including xoom, cyber source, Mastercard internet payment gateway are already working in Pakistan in the absence of PayPal and facilitating the local customers adding that the petitioner’s assertion that its next to impossible to receive payment for services rendered online is incorrect.

The SBP official submitted that there was no restriction on entry/operation of any international payment gateway in Pakistan subject to compliance of related foreign exchange regulations adding that presently international payment gateway services through international payment schemes like Mastercard and Visa are already operating in Pakistan. The SBP official, however, also offered companies like PayPal, Skrill offering digital payment services to come and establish their services in Pakistan in line with relevant legal and regulatory framework. The court was requested to dismiss the petition with cost.