Sindh High Court gives government three months to regulate cryptocurrencies
When Muhammad Asghar saw an invitation on social media to invest in a digital currency called Bither Cash, he was excited. Cryptocurrency was all the rage and he felt he should invest. He transferred a vast sum of money to Bither Cash’s Muhammad Zafar’s account. As Bither Cash was actually fake, Asghar lost his money and filed a case against Zafar. Given the excitement about cryptocurrencies in Pakistan, however, the question is how they are regulated and if any authority is monitoring this financial sector.
The Lahore High Court (LHC) took up this question on Wednesday, directing the federal authorities to explain what laws regulate the use of cryptocurrency in Pakistan. Zafar was arrested for selling the fake Bither Cash. He applied for bail in a banking court. But now, Asghar is questioning whether a banking court does indeed have the power to grant him bail.
So now the Lahore High Court is asking the State Bank of Pakistan (SBP), Securities & Exchange Commission of Pakistan (SECP), Federal Investigation Agency (FIA) about the laws on digital currency.
The court also asked about laws under which the complaints of cryptocurrency frauds are being registered.
During the proceedings, the SECP representative informed the court that SECP laws don’t permit registration of digital currency.
The court also asked the SBP representative about laws enacted to regulate digital currency. The court was told that the central bank’s jurisdiction only lies with commercial banks.
The representative of the FIA informed court that the complaints of fraud regarding crypto currencies are being registered under Pakistan Electronic Crimes Act (PECA) 2016, as there is no separate law regarding digital currency frauds.
Justice Jawad Hassan observed that nobody is willing to take responsibility on this subject.
In the petition filed with the LHC, Advocate Javid Kasuri, on behalf of his petitioner pleaded that the special banking court’s set aside his client’s objections regarding the court’s jurisdiction on matters relating to digital currency fraud and proceeded to decide on the bail application.
The counsel contended that the said offence lies outside the mandate of special banking court, as outlined in sections 2 and 4 of the Banks (Special Courts) Ordinance, 1984, as no bank or any employee of a bank is involved in this fraud.
The counsel explained that the offence relates to the issuance of cryptocurrency, therefore the special court’s judge had no authority to deal with the matter.
A complaint was filed by a man named Muhammad Asghar against Muhammad Zafar with the Faisalabad Cyber Crime Circle. The complainant pleaded that the accused invited public at large through social media to invest in fake digital currency “Bither Cash,” showing it as a genuine cryptocurrency.
The petition claimed that the accused deprived the complainant of heavy amount of money which were transferred to his accounts in the name of investment in the fake cryptocurrency.
An enquiry was conducted in the matter and subsequently, the FIA registered an FIR No.116/21 under sections 13, 14 of the Pakistan Electronic Crimes Act 2016 against the accused.
The sections 14 & 15 of PECA pertain to the unauthorized use of identity information and unauthorized issuance of SIM cards.
The accused filed a post-arrest bail petition with the Banking Crime Court, Lahore.
In a separate case, the Sindh High Court has directed the federal government to regulate cryptocurrencies within three months. The court directed the government to form a committee headed by federal secretary of finance to determine the legal status of cryptocurrencies.
The court was hearing a petition challenging the ban on cryptocurrencies.
During the hearing, the Federal Secretary of Finance told the court that it is still unclear what cryptocurrency is. “We don’t know if it is a software or an asset?” he said.
The SBP Deputy Governor Seema Kamil informed the court that the central bank has not allowed the trade of crypto currencies, but it has not yet declared cryptocurrencies illegal.
The court directed the federal government to bring clarity to the matter by taking all the stakeholders on board and prepare a report in three months.
The court said that the government should also consult Waqar Zaka on this matter. Waqar Zaka has been a vociferous advocate of cryptocurrencies. He runs a private Facebook group where he guides his followers on how to invest in cryptocurrencies.
In April, SBP Governor Raza Baqir said the central bank is studying cryptocurrencies and their potential for bringing transactions happening off the books into a regulatory framework.
In an interview with CNN’s Julia Chatterley, he said, “We are studying that [Central Bank Digital Currency] very carefully.”
He said that it will not only boost the central bank’s efforts for financial inclusion but also allow it to make progress in its fight towards anti-money laundering and countering terrorism financing.
However, the central bank has prohibited the transactions in digital currencies and declared them 'illegal tender'.
In a circular issued to banks in 2018, SBP warned the banks that virtual currencies like Bitcoins, Lite Coin, Pakcoin, etc. are not legal tender issued or guaranteed by the Government of Pakistan.
The circular also said the SBP has not allowed any individual or entity to issue, sale, purchase and exchange virtual currencies.
The central bank directed the banks to refrain from trading, holding and investing in such currencies, and to report any such transactions to the Financial Monitoring Unit of the central bank.