ISLAMABAD: The Financial Action Task Force (FATF) has called for urgent global measures to address growing risks of money laundering (ML), terror financing (TF), and proliferation financing (PF) linked to virtual assets (VAs) and virtual asset service providers (VASPs).
This call comes as Pakistan continues its accelerated push towards regulating digital currencies. While the country has conducted risk assessments for VAs and VASPs, it has not explicitly banned their use. Legislation is currently underway for registering or licensing VASPs under anti-money laundering and counter-terror financing frameworks, including compliance with the so-called Travel Rule.
In its latest report on the implementation of FATF standards related to VAs and VASPs, the Paris-based watchdog urged countries to identify and assess associated ML/TF/PF risks and implement mitigation strategies without delay. 鈥淛urisdictions should develop and implement their approaches to VA/VASPs, either by permitting or prohibiting their use 鈥 fully or partially,鈥 the FATF said.
The report warned that due to the inherently borderless nature of virtual assets, regulatory lapses in one jurisdiction can have far-reaching consequences. It highlighted emerging threats from criminal exploitation of VAs, particularly the increasing use of stablecoins by terrorist financiers, drug traffickers, and state-linked actors, including those from North Korea.
Highlights illicit use of crypto as Pakistan mulls legislation
In one instance this year, the Democratic People鈥檚 Republic of Korea (DPRK) was responsible for the largest known theft of virtual assets, stealing $1.46bn from the VASP ByBit. Only 3.8pc of the stolen funds have been recovered, underscoring gaps in global asset recovery and cross-border cooperation.
The FATF also noted a sharp increase in crypto-related scams and frauds. An industry participant estimated that illicit on-chain activity related to fraud and scams totalled approximately $51bn in 2024 alone.
The report cautioned that widespread adoption of stablecoins or broader virtual assets could intensify illicit finance risks, especially with uneven application of FATF standards. It noted that even countries that prohibit VAs and VASPs must monitor and supervise such activities, as full enforcement of bans is resource-intensive and difficult to implement effectively.
To that end, the FATF urged jurisdictions to take immediate action by fully implementing Recommendation 15 (R.15), which includes licensing and registering VASPs, identifying natural or legal persons conducting such activities, and applying a risk-based supervisory approach.
The report encouraged countries to consider specific risks tied to stablecoins and offshore VASPs 鈥 those not incorporated or physically located within national borders 鈥 when developing their legal frameworks.
While the FATF acknowledged progress since 2024 by countries with major VASP activity, it said many still struggle with licensing, registration, and identifying operators of VASP activities. Challenges in regulating offshore providers also persist.
So far, 99 jurisdictions have either enacted or are in the process of passing legislation to implement the Travel Rule, which requires transparency of information in cross-border transactions. To support global implementation, the FATF on Thursday also published a guide titled Best Practices on Travel Rule Supervision.
Published in Dawn, June 27th, 2025