Controversial Appointment: Former Binance CEO Zhao Becomes Pakistan's Crypto Strategy Adviser

Pakistan has appointed former Binance CEO Changpeng “CZ” Zhao as an adviser to the newly formed Pakistan Crypto Council, a regulatory body tasked with overseeing the country’s embrace of blockchain technology and digital assets. What is concerning about this appointment is that Zhao pleaded guilty in 2023 to money-laundering violations and stepped down as CEO of Binance.

The U.S. Department of Justice charged Zhao with these violations and sought a 36-month sentence, arguing that he “violated U.S. law on an unprecedented scale” and that his “sentence should reflect the gravity of his crimes.”Nevertheless, Zhao was sentenced to four months in prison in California and was released in September 2024. Additionally, Binance agreed to a USD 4.32 billion penalty, and Zhao paid a USD 50 million criminal fine plus USD 50 million to the U.S. Commodity Futures Trading Commission.

Last week, Zhao agreed to advise the Kyrgyz Republic on blockchain and crypto-related regulation and technology after signing a memorandum of understanding with the country’s foreign investment agency. Born in China, Zhao is a Canadian citizen. Experts believe China is influencing Zhao’s international reputation as a leading expert in cryptocurrency and blockchain technology by appointing him as an advisor in countries like Pakistan, where it has significant control over financial assets.

During its investigation into Zhao’s money laundering violations, U.S. DOJ prosecutors stated that Binance adopted a model that welcomed criminals and failed to report over 100,000 suspicious transactions linked to designated terrorist groups, including Hamas, al-Qaeda, and the Islamic State. They also claimed that Zhao’s exchange facilitated the sale of child sexual abuse materials and received a large portion of proceeds from ransomware.

Pakistan appointed Zhao as a “strategic adviser” to a newly formed crypto council, despite his proven criminal record. The cash-strapped country plans to legalize cryptocurrency trading to attract international investment and integrate blockchain technology into its struggling economy. In March, Saqib, a British national, was appointed as the Chief Adviser to the Finance Minister of Pakistan on crypto-related matters. Pakistan’s central bank has long warned against cryptocurrency, citing concerns about fraud, money laundering, and financial instability.

Notably, Pakistan was placed on the Financial Action Task Force’s (FATF) “grey list” regarding terror financing and money laundering. It was added to the FATF’s grey list in June 2018 due to non-compliance with FATF recommendations, which addressed risk assessment, national cooperation, targeted sanctions, preventative measures, due diligence, internal and third-party controls, law enforcement, and regulation and supervision related to money laundering and terror financing, among others.

Therefore, Pakistan’s poor track record on money laundering and digital terror financing will become more opaque and harder to investigate as it increasingly relies on cryptocurrency and blockchain technology. An estimated 15-20 million Pakistanis are already trading digital assets. With countries like the U.S., particularly under the Trump administration, and the UAE adopting crypto-friendly policies, Pakistan feels the need to remain competitive and avoid being left behind.

Notably, Pakistan has taken over 20 loans from the International Monetary Fund (IMF) since 1958, with the latest being approved in September 2024 for USD 7 billion. The country is the fifth-largest debtor to the IMF. At the time of the loan approval, Pakistan assured the council that it would be its last loan, which seems unlikely. The federal government plans to generate more revenue by taxing the country’s capital gains and trading activity by bringing crypto trading under a regulated framework.

Policymakers in Islamabad are promoting the new crypto policy to help reduce fiscal deficits and lower the country’s reliance on external borrowing. Two-thirds of Pakistan's external loans come from China, which has been urging Islamabad to amend its monetary policies and repay debts. Zhao’s appointment as an advisor on Pakistan’s cryptocurrency strategy is likely to bear Chinese influence. Furthermore, a convoluted digital financial ecosystem may allow the country’s military establishment and corrupt political leadership to launder money through blockchain technology. Experts also believe that Pakistan will utilize cryptocurrencies for terror financing against its neighboring countries, particularly India.

In 2020-21, crypto transactions in Pakistan reached USD 20 billion, marking a surprising 711% increase and placing the country among the world’s most active crypto markets. Despite this surge, the State Bank of Pakistan highlights the volatility, illicit uses, and security issues associated with decentralized networks. It also expressed concerns about the decentralized nature of blockchain transactions, which complicates oversight and fuels fears of fraud, money laundering, and terrorism financing. These concerns underscore the difficulty of enforcement without a central authority.

Nevertheless, in a dramatic policy reversal, the Pakistani government launched initiatives such as the Crypto Council, appearing eager to capitalize on global digital trends and attract U.S. attention without first addressing ongoing regulatory deficiencies. The FATF’s recent follow-up reports on money laundering and terror financing indicate that Pakistan still faces challenges with certain recommendations, particularly those related to enhanced due diligence and the supervision of non-financial businesses.

Still, the launch of the crypto council is promoted as a means to modernize the financial landscape and attract foreign investment. However, this is little more than a political gambit — an attempt to showcase modernization and digital innovation while overlooking the unresolved deficiencies in its anti-money laundering (AML) and counter-terrorist financing (CFT) frameworks. By prioritizing crypto initiatives without fully establishing its regulatory foundations, Pakistan risks exposing its financial system to the threats of money laundering and illicit finance related to drug trading and terrorist funding.

Furthermore, with Zhao’s appointment as a “strategic advisor,” despite his criminal background, Pakistan aims to legitimize its efforts to digitalize its economy through blockchain technology and decentralized crypto trade. Without robust regulatory oversight, Pakistan’s crypto-friendly initiatives are likely to falter and may be exploited for money laundering, the illicit drug trade, and terrorist financing by both local and international Islamist groups, possibly supported by the military establishment. Read 'Zamin' on Telegram!