The Lahore High Court (LHC) has ruled that peer-to-peer (P2P) cryptocurrency transactions and receiving funds linked to such transactions in a bank account do not, by themselves, constitute fraud or an electronic crime. The ruling came in a detailed 15-page judgment in which Justice Tariq Saleem Sheikh upheld the pre-arrest bail of three individuals accused by the Federal Investigation Agency (FIA) in a case related to cryptocurrency trading. The court’s decision provides legal clarification on the distinction between conducting P2P crypto transactions and committing an offence, stating that the mere transfer of virtual assets or receipt of related funds through a bank account is not sufficient to establish fraud, forgery or violations under the Prevention of Electronic Crimes Act (PECA).
The case involved allegations concerning a significant cryptocurrency transaction in which the complainant claimed to have transferred nearly Rs. 686 million while purchasing approximately 270,000 USDT after being encouraged by an acquaintance to invest in cryptocurrency. The complainant later alleged that his crypto account was frozen, while the FIA maintained that the accused had received funds from the victim through their bank accounts. During its consideration of the case, the LHC examined whether the transactions and receipt of funds were sufficient to establish criminal offences. The court concluded that investigators would need to establish specific evidence of wrongdoing rather than relying solely on the fact that money was transferred through bank accounts in connection with cryptocurrency transactions.
The court further clarified that cryptocurrencies not being recognized as legal tender in Pakistan does not, by itself, make them illegal. The judgment also addressed the State Bank of Pakistan’s 2018 circular concerning virtual currencies, noting that the restrictions apply to regulated financial institutions and do not create a criminal offence for private individuals engaging in personal cryptocurrency trading. The court also observed that buying or selling USDT does not automatically constitute a violation of foreign exchange laws unless prosecutors can demonstrate that an illegal foreign exchange transaction actually took place. This distinction is significant for the treatment of private P2P crypto activity within the country’s existing legal framework.
According to the judgment, investigators would need to establish evidence showing that the accused deceived the investor, created forged electronic records or were directly responsible for freezing the complainant’s cryptocurrency account. The LHC found no evidence at that stage demonstrating that the accused had misled the complainant, manipulated electronic records or controlled the platform where the digital assets were allegedly frozen. On this basis, the court determined that their physical custody was not necessary and allowed their pre-arrest bail to remain in place. The decision therefore focuses on the evidence required to establish criminal liability rather than treating cryptocurrency transactions themselves as sufficient proof of an offence.
The LHC ruling adds an important legal clarification to Pakistan’s evolving cryptocurrency and virtual assets environment, particularly around P2P transactions involving private individuals. While the court has stated that P2P crypto trading alone does not constitute fraud or an electronic crime, the ruling does not provide blanket protection for fraudulent or unlawful activity carried out through cryptocurrency. Criminal liability can still arise where prosecutors establish deception, forgery, illegal foreign exchange transactions or other offences supported by evidence. The decision comes as Pakistan continues to develop its regulatory framework for virtual assets, making the distinction between legitimate digital asset transactions and activities involving criminal conduct increasingly relevant to the country’s crypto sector.
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