Last week, Pakistan’s Federal Investigation Agency (FIA) suggested other state institutions establish dedicated departments for cryptocurrency enforcement.
The subtext is clear.
They are admitting their current tools are insufficient.
Not because crypto crime is sophisticated. But because they haven’t defined what “crypto crime” means.
A law enforcement agency operating without a legal framework is a ship without a compass. It drifts. It mistakes noise for signal. It spends resources on targets that yield no systemic change.
s heart.
Context: The Pakistani Crypto Landscape
Pakistan ranks high in global crypto adoption—#26 on the 2023 Chainalysis index. Its users rely heavily on P2P platforms like Binance P2P and local OTC dealers. The country’s currency, the Pakistani Rupee (PKR), suffers high inflation, driving demand for stablecoins like USDT as a store of value.
Yet there is no dedicated crypto asset law.
The government operates under the 1947 Foreign Exchange Regulation Act and traditional anti-money laundering statutes. The central bank, SBP, has repeatedly warned against crypto but never banned it outright. This legal ambiguity creates a fertile ground for both innovation and abuse—and the FIA now wants to tip the balance.
The suggestion is to replicate a “specialized unit” similar to its own Cyber Crime Wing, but focused solely on cryptocurrency transactions. The goal: combat terrorism financing, money laundering, and tax evasion.
But the premise is flawed.
Core: Systematic Teardown of the Enforcement Theater
Let’s deconstruct the assumption that a dedicated crypto unit can effectively trace illicit activity in Pakistan.
First, the tools.
Globally, agencies use commercial chain analysis platforms (Chainalysis, Elliptic, CipherTrace) to track on-chain flows. These tools work well when transactions pass through centralized exchanges with robust KYC. But in Pakistan, the majority of crypto flows occur through P2P markets, where the counterparty is an individual—often using a local bank account registered to a real person. The FIA already has access to bank account records. Adding a crypto overlay provides marginal utility.
Second, the skill gap.
During my audit of a DeFi lending protocol in 2023, I encountered a team based in a jurisdiction with similar legal voids—no securities classification, no tax guidance. The compliance officer had zero training in blockchain analytics. The company relied on a third-party vendor for wallet screening. This is the norm, not the exception. Pakistan’s FIA cyber wing already struggles to keep up with social media crimes. Expecting them to master on-chain forensics without a multi-year investment is unrealistic.
Third, the real vector of illicit finance in Pakistan is not crypto.
According to a 2022 report by the Financial Action Task Force (FATF), Pakistan’s primary money laundering channels are hawala (informal value transfer systems), trade-based laundering, and real estate. Crypto constitutes a tiny fraction. The FIA’s focus on crypto is a convenient narrative—easier to blame a new technology than to dismantle entrenched underground banking networks.
The data supports this.
A 2023 analysis by TRM Labs found that only 0.15% of global crypto transaction volume was illicit. For Pakistan-specific flows, no comparable public study exists. But logic suggests the number is even lower: Pakistani crypto users are predominantly retail, transacting small amounts for savings, not crime.
s heart.
Moreover, the FIA’s suggestion ignores a critical technical constraint: pseudonymity.
Without court orders to force KYC from global exchanges, the agency can trace addresses but not identities. DeFi protocols and privacy coins (Monero, Zcash) render tracing nearly impossible. If a sophisticated actor chooses to route funds through a DEX, the FIA’s unit will hit a dead end. The unit will then default to chasing low-hanging fruit—small-time P2P dealers who are already compliant with bank reporting.
This is enforcement theater. It produces arrest statistics but does not reduce systemic risk.
Gas saved, security lost.
Contrarian: What the Bulls Got Right
Proponents argue that any enforcement signal is better than regulatory silence. Clear rules—even strict ones—remove uncertainty. In theory, a specialized FIA unit could collaborate with compliant exchanges to whitelist services, creating a safe corridor for institutional capital.
They are not entirely wrong.
Countries like Singapore and Dubai have built robust crypto ecosystems after establishing clear enforcement frameworks. Pakistan could follow. The FATF’s 40 recommendations push all members to regulate virtual assets. This unit could be the first step toward a licensing regime.
But the timing is off.
Without a primary law (e.g., a Virtual Digital Assets Act), the FIA operates on shaky legal ground. Their investigations can be challenged in court. The very users they aim to protect will be the first to suffer—because higher compliance costs will be passed down as wider spreads, higher fees, and reduced access.
Optimization is often obfuscation.
Takeaway: Accountability Before Enforcement
The FIA’s suggestion is a well-intentioned misstep.
Before building a specialized department, Pakistan needs a legal definition of “crypto asset,” a tax classification, and clear guidelines for wallet custody. Without those, enforcement is arbitrary.
Code is law until it isn
The market will adjust. P2P premiums will widen. Users will migrate to decentralized platforms beyond the FIA’s reach. And the criminal actors the unit was designed to catch will simply route their funds through the same hawala networks they always have.