Background of the Case:
The individuals were involved in virtual currency (Bitcoin) business which is considered high risk in terms of anonymity of transferor/transferee of funds. They were using their bank accounts for sale and purchase of Virtual Currency (digital currency) which is not a legal tender in Pakistan
Multiple STRs were reported from different banks wherein similar nature of transaction activity was noticed in several accounts being maintained by different individuals. The suspicion was that the individuals were involved in dealing with virtual currency. The transactional pattern in their accounts revealed that funds were being credited into the accounts through IBFT, INET, Mobile Banking and transfers through ATM, which were subsequently being debited through cash withdrawals via ATM and transfers. It is pertinent to mention here that these individuals were not using on-counter services of banks but the other channels such as ATM, Internet banking and mobile accounts for transactions related to sale/purchase of virtual currency. Moreover, they were transacting with unrelated counterparties. The individuals were mostly young in age and involved in information technology/ online businesses and some of them were even students.
During the public databases search it was found that the individuals are very active on social websites and influencing people through internet marketing for buying and selling of E-Currency and providing a platform to potential customers of Bitcoins. It is pertinent to mention here that State Bank of Pakistan do not recognize cryptocurrencies as legal tender.
As per information extracted from FMU’s database of STRs/CTRs, few of the individuals were also maintaining multiple accounts and similar nature of transactional pattern was noticed also in those accounts. Based on the analysis, following red flags were noticed:
- Virtual currencies are very volatile in nature and offer an efficient and anonymous way to store and transfer funds online.
- Virtual currencies can be used as a tool for Money Laundering due to decentralization of peer-to-peer online transactions and their anonymity.
- Virtual currencies are also the source to launder tax evaded money as it is easy to park un-taxed money abroad through such digital currencies.
- Further, virtual currencies such as Bitcoins can be exchanged for real money and can be easily transferred online, which is potentially vulnerable to terrorist financing abuse.
Accordingly the strategic analyses was shared with State Bank of Pakistan for appropriate measures/controls on emergent use of bank accounts for virtual currencies such as Bitcoins.
Banking Instruments / Products / Services used:
Inter Bank Fund Transfers, Internet Fund Transfers, Mobile Banking, ATM withdrawals and transfers and online cash deposits/withdrawals.
Action Taken by the Regulator:
Based on our strategic analysis and internal findings of SBP, the regulator issued guidelines vide BPRD Circular No. 03 of 2018 dated April 06, 2018 and FE Circular No. 03 of 2018 dated April 18, 2018 to its reporting entities regarding the prohibition of dealing in Virtual Currencies/ tokens. In addition the State Bank of Pakistan also issued a caution letter regarding the risks of Virtual Currencies for general public awareness vide ERD/M&PRD/PR/01/2018-31 dated April 06, 2018.
- Prohibition of Dealing in Virtual Currencies / Tokens
- Prohibition of Dealing in Virtual Currencies/Tokens/C3
- Caution of Regarding Virtual Currencies