How USDT is Powering Money Laundering and Capital Flight from Pakistan
By Rashid Mahmood | Monthly Prospera Magazine
I first heard about Mohammed Arsalan on a cold December morning in Karachi. A friend who trades crypto called me, his voice shaking. “They took him right off the street,” he said. “Armed men, unmarked police vehicle. Made him unlock his Binance account at gunpoint.”
Over the next few days, the details trickled out. Arsalan, a 30-year-old crypto trader, was kidnapped from a Karachi neighborhood by men who looked like they belonged to the law. They gagged him, held him near the Saddar FIA office—the irony wasn’t lost on anyone—and forced him to transfer $340,000 in cryptocurrencies from his account. Mostly USDT, the stablecoin everyone in Pakistan’s crypto world uses.
Seven suspects were later caught. One of them was a Counter-Terrorism Department officer.
Arsalan was released near the Quaid-e-Azam Mausoleum at 4 a.m. His phone had been reset. His funds were gone.
I’ve been covering financial crime in Pakistan for over a decade. I thought I’d seen it all—hawala networks, trade-based laundering, benami properties. But the rise of USDT has changed everything. It has created a parallel financial system that operates outside the reach of the State Bank, the FIA, and anyone else who might want to stop it.
And it’s not just street-level criminals anymore. Some of Pakistan’s most sophisticated money launderers are real estate developers—respectable businessmen who host lavish seminars in five-star hotels, promise “best ROI” to investors, and use USDT to move billions of rupees out of the country without ever touching a bank.
Pakistan now ranks third globally in cryptocurrency adoption, behind only India and the United States. Over 40 million Pakistanis use digital assets. Annual trading volume hovers around $25 billion. Most of it is in USDT.
This is the story of how that happened—and why no one seems able to stop it.
The Money Machine
Walk into any decent-sized market in Karachi, Lahore, or Islamabad these days, and you’ll find someone who can sell you USDT. They’re not hard to spot. They’re the ones with Binance open on their phones, their WhatsApp groups buzzing with buy and sell orders.
I met one such trader in Karachi’s DHA area last month. Let’s call him Bilal. He’s been in the business since 2021, when he lost his job at a textile export house during the Covid downturn. He started buying and selling USDT on the side, and within a year, he was making more than he ever did in textiles.
“I’m a currency dealer now,” he told me, laughing. “Just not the kind the State Bank recognizes.”
Bilal’s operation is simple. He has a network of buyers and sellers across the city. Someone wants to buy $10,000 worth of USDT? They send him rupees through bank transfer or EasyPaisa. He sends them USDT from his Binance wallet. The whole thing takes minutes.
What Bilal doesn’t talk about is where his clients’ money comes from. Or where the USDT goes after he sells it. He doesn’t ask. That’s the unwritten rule of Pakistan’s P2P crypto market: you don’t ask questions.
“The banks are impossible,” he said. “You want to send money abroad? You need a reason. You need documents. You need to wait for weeks. And even then, they might say no. With USDT, I can send money to my brother in Dubai in five minutes. He converts it to dirhams. Done.”
What Bilal describes is the engine of Pakistan’s shadow economy. When the State Bank says you can’t take more than $50,000 a year out of the country, USDT becomes a workaround. When banks freeze accounts for “suspicious activity,” USDT becomes an escape hatch. When the rupee loses value against the dollar, USDT becomes a safe haven.
But the same system that lets Bilal send money to his brother in Dubai also lets someone else send money to a property developer in Istanbul. Or a weapons dealer in Peshawar. Or a political party funding its election campaign.
The State Bank’s 2018 circular banning banks from dealing with cryptocurrencies didn’t stop the flow. It just pushed it underground. And underground, there are no rules.
The Real Estate Game
If you’ve been to a five-star hotel in Karachi or Lahore in the past few years, you’ve probably seen them: the real estate investment seminars. The ones with glossy brochures showing luxury apartments in Dubai, villas in Istanbul, beachfront properties in Northern Cyprus.
The speakers are always impeccably dressed. They talk about “capital appreciation” and “guaranteed returns” and “the best ROI in the region.” They show PowerPoint slides with graphs going up and to the right. They mention citizenship—Turkish citizenship, specifically, for investments over $400,000.
What they don’t mention is how the money gets from Pakistan to Turkey.
I tracked down one such developer, a man I’ll call Mr. Khan, who runs operations in both Karachi and Istanbul. He agreed to meet me at a cafe in Clifton, but only after I promised not to use his real name.
“We’re not doing anything illegal,” he said, stirring his tea. “People want to invest abroad. We help them. That’s it.”
I asked him how the payments work.
“It’s simple,” he said. “The client pays us in rupees here. We have collection agents in Pakistan. Then we convert to USDT and send it to our office in Turkey. In Turkey, we convert to lira and buy the property. The client gets the title deed. Everyone is happy.”
I asked about the State Bank’s capital controls. The limit on outward remittances. The requirement to declare foreign exchange.
Mr. Khan smiled. “What foreign exchange? We’re not sending dollars. We’re sending USDT. It’s not a currency. It’s not regulated. The State Bank has no jurisdiction over it.”
He’s not wrong. Under Pakistani law, USDT is nothing. It’s not a currency. It’s not a security. It’s not a commodity. It’s a regulatory ghost. And ghosts, as they say, don’t need permission to cross borders.
The scale of this operation is staggering. Pakistani nationals already own an estimated $12 billion in Dubai property alone. The flow has accelerated since USDT became widely available. Turkey’s citizenship-by-investment program has created a new pipeline: buy a $400,000 property in Istanbul, get a Turkish passport. The passport, of course, is worth far more than the property to many wealthy Pakistanis.
I asked Mr. Khan if he ever worries about the source of his clients’ funds.
“I’m a real estate developer, not a policeman,” he said. “If someone comes to me with money and wants to buy a property, I sell them a property. It’s not my job to ask where the money came from.”
But here’s the thing: it is his job. Under Pakistan’s anti-money laundering laws, real estate developers are supposed to conduct due diligence on their clients. They’re supposed to report suspicious transactions. They’re supposed to verify the source of funds.
Those laws, however, only apply to property transactions inside Pakistan. Once you’re dealing with offshore property and USDT, you’re in a different universe. The Securities and Exchange Commission of Pakistan has no jurisdiction over a developer marketing properties in Istanbul. The FIA can’t trace USDT transfers the way it can trace bank wires. And the State Bank’s foreign exchange regulations don’t apply to something that isn’t legally defined as foreign currency.
It’s a perfect system. For the developers, anyway.
The Citizenship Pipeline
Turkey’s citizenship-by-investment program has become the crown jewel of this laundering network. For $400,000—roughly 112 million rupees at current exchange rates—a Pakistani investor can buy a Turkish passport. The passport allows visa-free travel to over 110 countries. It’s a hedge against Pakistan’s political instability. It’s an escape route.
The program was designed to attract foreign investment, not to facilitate money laundering. But the combination of a relatively low threshold and lax enforcement has made it a magnet for illicit funds from Pakistan, the Gulf, and beyond.
I spoke with a lawyer in Istanbul who handles citizenship applications for Pakistani clients. She asked not to be named, citing confidentiality concerns.
“It’s very straightforward,” she told me over Zoom. “The client identifies a property. We help with the purchase. Once the title deed is registered, we file the citizenship application. The whole process takes about three to four months.”
I asked how her clients pay for the properties.
“Some use bank transfers,” she said. “But many prefer cryptocurrency. It’s faster. And there are no exchange rate issues. They send USDT, we convert to lira at the time of purchase.”
She paused when I asked about source-of-funds verification.
“The Turkish authorities require certain documents,” she said carefully. “A bank statement showing the funds came from the client’s account. But if the client is using cryptocurrency, it’s… more complicated. We work with lawyers who understand these cases.”
What she didn’t say—what no one in this business will say out loud—is that the cryptocurrency route effectively bypasses source-of-funds checks. When a client shows a bank statement showing they transferred rupees to a local USDT seller, that doesn’t prove anything about where those rupees originally came from. It could be legitimate business income. It could be drug money. It could be kickbacks from a government contract.
The Turkish authorities don’t have the capacity—or, some would argue, the inclination—to trace every USDT transaction back to its origin. And even if they did, the blockchain trail often goes cold after a few hops through mixing services and multiple wallets.
I asked the Istanbul lawyer if she ever turns away clients who seem suspicious.
“I’m a professional,” she said. “I follow the law. If the law requires certain documents, I request them. What the client does outside of that is not my concern.”
The Developers’ Sales Pitch
The marketing materials for these offshore property schemes are works of art. Full-color brochures. Professional websites. Testimonials from “satisfied investors” who are almost certainly made up.
I collected a stack of them at a seminar in Lahore last year. A developer called—well, let’s call them “Blue Horizon Properties”—was promoting a new tower in Dubai Marina. The brochure promised “guaranteed 12% annual returns” and “100% capital appreciation in five years.”
What struck me was the fine print. Buried on page 23 was a single sentence: “Payments can be made in cryptocurrency, including USDT, through our authorized partners in Pakistan.”
I called the number on the brochure and posed as a potential investor. A cheerful young woman explained the process.
“It’s very simple,” she said. “You come to our office in Lahore. We help you set up a Binance account if you don’t have one. You buy USDT from our preferred vendors. You transfer it to our wallet. We handle everything else.”
I asked if there were any limits on how much I could invest.
“No limits,” she said. “We have clients who have invested millions of dollars this way. It’s completely secure.”
I asked about taxes.
“We don’t deal with Pakistani taxes,” she said. “The property is in Dubai. You’re a foreign investor. There’s no tax on the transfer. Only the purchase price.”
What she didn’t say—what no one in this business will tell you—is that the Pakistani government loses millions in tax revenue every year because of these schemes. When money leaves Pakistan through USDT, it never touches the formal financial system. No withholding tax. No capital gains tax. No nothing.
And the developers? They’re making a killing. The properties they sell are often overvalued by 20-30 percent. The investor pays a premium for the convenience of moving money abroad without paperwork. The developer pockets the premium, laundered clean.
The Regulator’s Dilemma
I met with a senior official at the State Bank of Pakistan to discuss these issues. He agreed to speak on condition of anonymity because he wasn’t authorized to comment on cryptocurrency matters.
“Look,” he said, leaning back in his chair, “we know what’s happening. We’ve known for years. But our hands are tied.”
He explained the central bank’s position. Pakistan is under an IMF program with strict conditions on foreign exchange reserves. Capital controls are non-negotiable. If the State Bank were to legalize stablecoins like USDT, it would effectively open the floodgates for capital flight. The IMF would not be happy.
“People think we’re just being obstructionist,” he said. “We’re not. We’re trying to protect the country’s foreign exchange reserves. If every Pakistani with a few hundred thousand rupees could convert to USDT and send it abroad, we’d be bankrupt in a week.”
I asked about the Virtual Assets Act, which passed parliament in March 2026. The Act created the Pakistan Virtual Assets Regulatory Authority (PVARA) to license and supervise crypto exchanges. But it explicitly deferred to the State Bank on matters involving fiat currency conversion.
“That’s the problem,” the official said. “Everyone thinks the Act solved everything. It didn’t. It created a regulator that can license crypto-to-crypto trading. But the moment someone wants to convert rupees to USDT or USDT to rupees, they still need a bank. And the banks are still prohibited from touching crypto.”
This is the gap that the real estate developers exploit. The Act regulates exchanges. It doesn’t regulate P2P trading. It doesn’t regulate offshore property purchases. It doesn’t regulate the thousands of informal brokers who move billions of rupees through USDT every year.
“The Act is a good start,” the official said. “But it’s not the solution. The solution requires the State Bank to open up the banking system to licensed crypto firms. And that’s not going to happen anytime soon.”
The Cop Who Got Caught
The Arsalan kidnapping case was a wake-up call for many in Pakistan’s crypto community. Not because kidnapping is new—it’s not—but because of who was involved.
Chief Constable Ali Raza, a Counter-Terrorism Department officer, was one of the nine suspects arrested. Investigators recovered $220,000 in cryptocurrency, cash, a luxury car, and prize bonds from him and his accomplices.
I spoke with a police officer in Karachi who was involved in the investigation. He asked not to be named because he wasn’t authorized to discuss an ongoing case.
“This wasn’t just one bad cop,” he said. “This was a network. They had informants in the crypto trading community. They knew who had large balances. They targeted them systematically.”
The method was simple. The officers would identify a crypto trader with a large USDT balance. They’d show up in an unmarked vehicle, flash their badges, and take the trader into “custody.” Then they’d force the trader to unlock their Binance account and transfer the funds.
“They’d release them hours later, with their phones wiped,” the officer said. “The victims were too scared to report it. Who’s going to report a police officer? Arsalan was the first one who went public.”
The case exposed something deeper than individual corruption. It showed that Pakistan’s law enforcement agencies—even elite units like the CTD—have been infiltrated by criminal networks. And it showed that crypto traders, operating in a legal gray zone, are easy targets.
The FIA, which is supposed to investigate financial crime, has its own problems. I’ve spoken with multiple crypto traders who claim FIA officers have extorted money from them, threatening to file money laundering cases if they don’t pay.
“There’s no protection,” one trader told me. “The criminals are the cops. The regulators are the banks. And the government doesn’t know what it’s doing.”
Despite the chaos, Pakistan’s government is moving forward with an ambitious crypto agenda. In January 2026, it signed a memorandum of understanding with a company affiliated with World Liberty Financial—the crypto platform linked to President Donald Trump’s family—to explore integrating a dollar-backed stablecoin into Pakistan’s cross-border payment system.
The partnership raised eyebrows. Trump hasn’t even taken office yet (the election is in November), and his family’s business is already signing deals with Pakistan? But the logic is clear: Pakistan needs dollars, and the Trump family needs international partners for their crypto venture.
Visa has also been in talks with Pakistani banks and fintech companies about using stablecoins for remittances. Pakistan receives over $30 billion a year in remittances, mostly through traditional channels that take days and cost up to 10 percent in fees. Stablecoins could cut that cost to near zero.
But here’s the contradiction: the government wants to use USDT for remittances while banning it for everything else. It wants to partner with global crypto firms while refusing to let local banks touch digital assets. It wants to regulate the industry while leaving the most lucrative part—offshore real estate purchases—completely unregulated.
I asked a senior government official about this contradiction. He shrugged.
“We’re moving in the right direction,” he said. “The Virtual Assets Act was a big step. We’re working with the State Bank to figure out the banking piece. And we’re talking to Turkey and the UAE about information sharing on property purchases.”
I asked when those information-sharing agreements might be finalized.
“Soon,” he said. “Hopefully within the next year.”
In the meantime, billions of dollars continue to flow out of Pakistan through USDT. And the developers continue to hold their seminars in five-star hotels, promising the best ROI and a Turkish passport to anyone with 112 million rupees to spare.
The Human Cost
I went back to Karachi to find Bilal, the P2P trader I’d spoken with earlier. His shop was closed. I called his number. It was disconnected.
I tracked down a friend of his who told me Bilal had been picked up by the FIA two weeks ago. They’d accused him of money laundering. His accounts were frozen. His family was trying to get him out on bail.
“He was just a small trader,” the friend said. “He wasn’t moving millions. He was making a living. But they’re going after everyone now. The big fish? They’re in Dubai. They’re in Istanbul. They’re untouchable. But the small guys? They’re easy targets.”
I thought about what Bilal had told me when we first met. “I’m a currency dealer now. Just not the kind the State Bank recognizes.”
He was proud of what he’d built. A business that let him support his family. A way to make money in a country where jobs are scarce and inflation eats away at whatever you save.
He wasn’t thinking about money laundering or capital flight or the IMF. He was thinking about rent. School fees. Groceries.
But his clients? The ones who came to him with large sums, asking to buy USDT without asking too many questions? Some of them were sending money to their kids studying abroad. Some of them were buying property in Dubai. And some of them were funding things that no one wants to talk about.
The system Bilal participated in—the P2P network, the USDT transfers, the offshore wallets—is the same system that lets a property developer in Istanbul sell a $400,000 apartment to a Pakistani investor without ever asking where the money came from. It’s the same system that lets a drug trafficker in Peshawar move money to a supplier in Turkey. It’s the same system that lets a corrupt government official hide assets in Dubai.
Bilal wasn’t a criminal. But he was part of something much bigger than himself. Something that has become so embedded in Pakistan’s economy that no one really knows how to stop it.
Where Do We Go From Here?
Pakistan’s crypto moment is a test. Not just of the country’s regulatory capacity, but of its willingness to confront uncomfortable truths.
The truth is that Pakistan’s capital controls are failing. The State Bank can limit outward remittances through banks, but it can’t stop USDT. The truth is that Pakistan’s anti-money laundering laws are full of holes. The FIA can investigate bank transfers, but it can’t trace blockchain transactions. The truth is that Pakistan’s real estate sector has become a laundering machine, and the developers marketing properties in Turkey and the UAE are its most sophisticated operators.
The Virtual Assets Act 2026 was a necessary step. It created a regulator, established licensing requirements, and aligned Pakistan with international AML standards. But it didn’t solve the core problem: the gap between the formal financial system and the crypto economy.
Until the State Bank allows licensed crypto firms to access banking rails, the P2P networks will continue to dominate. Until PVARA gets authority to license stablecoin issuers and cross-border transfer services, the offshore property schemes will continue to flourish. Until Pakistan signs information-sharing agreements with Turkey and the UAE, the citizenship-by-investment pipeline will continue to funnel billions out of the country.
And until the FIA and other law enforcement agencies clean up their own houses, crypto traders like Bilal will continue to be targets—not for their crimes, but for their wallets.
I called Arsalan’s lawyer last week. He told me his client is doing better. He’s stopped trading crypto. He’s trying to rebuild his life. But the money is gone. $340,000, vanished into wallets controlled by men who wore police uniforms and badges.
“The system failed him,” the lawyer said. “The banks wouldn’t protect him. The regulators didn’t know what to do. And the police were the ones who took his money.”
I asked if he thinks things will change.
He paused. “Maybe,” he said. “But not soon enough for Arsalan. Not soon enough for the thousands of others who are caught in this system. The law is catching up. But the criminals? They’re already ahead.”
