As we have mentioned elsewhere, it is legal for a resident Pakistani citizen to invest up to $25,000 per person per year in foreign stocks, and to do so by converting money in their Pakistani rupee bank account to remit abroad, and that such a remittance is allowed without requiring permission from the State Bank of Pakistan (learn more).

So why do we not accept funds from clients who have only Pakistani rupee bank accounts and do not have US dollar assets? It would be legal for us to do so.

The problem lies in the difference between what is legally allowed, and what is practically allowed. Under the law, the government of Pakistan has allowed such an investment. That legal permission means that if you declare on your income tax returns submitted to the Federal Board of Revenue (FBR) that you made such an investment, the government will raise no objections.

However, the government of Pakistan is also obsessed with the exchange rate of the rupee against the US dollar and hence tends to tightly control all transactions that involve the conversion of Pakistani rupees into a foreign currency. (The reverse is less tightly controlled.) These controls are often informally applied through the banks, and tend to be much more restrictive that what the text of the law typically allows.

As a result, in order for us to accept such transactions from Pakistani rupees – to which our clients are legally entitled – we would need to go up against those informal controls. Nobody would ever tell us no in writing since doing so would open them up to litigation, but they would never actually allow us to do what we need to do.

Hence, we are restricting ourselves only to what is currently allowed not just in the letter of the law, but also as a matter of practice.

More broadly, we also do not intend to conduct any business that could cause macroeconomic instability for Pakistan. We want to encourage responsible investment abroad, but do not intend in any way to facilitate capital flight from Pakistan. We intend to remain fully compliant with both the letter and the spirit of the law.

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