Foreign Exchange Regulation Act, 1947

What it is

The Foreign Exchange Regulation Act, 1947 is the principal statute of exchange control in Pakistan. It predates independence and was adopted at partition, and it remains the legal foundation on which the State Bank of Pakistan regulates the entire foreign exchange market. Only authorised dealers — banks licensed under section 3 — may deal in foreign exchange, and exchange companies operate under a separate licensing provision inserted in 2002. Section 4 restricts buying, selling and lending of foreign exchange outside the authorised channel. Section 5 restricts payments to and for the credit of persons resident outside Pakistan. Section 8 controls the physical import and export of currency. The operational detail sits below the Act, in the State Bank's Foreign Exchange Manual and its circulars, which change far more often than the statute.

Contravention carries both administrative and criminal consequences under section 23. Enforcement is split: the State Bank pursues adjudication against regulated entities, while the Federal Investigation Agency investigates unlicensed dealing, hawala and hundi arrangements and currency smuggling [the current allocation of adjudication and prosecution roles TO BE VERIFIED BY REVIEWING LAWYER]. Related statutes overlay the Act: the Protection of Economic Reforms Act, 1992 and the Foreign Currency Accounts (Protection) Ordinance, 2001 protect foreign currency accounts, and foreign exchange offences feed into the predicate-offence schedule of the Anti-Money Laundering Act, 2010 [scope TO BE VERIFIED BY REVIEWING LAWYER].

What changed

In September 2023 the federal government promulgated the Foreign Exchange Regulation (Amendment) Ordinance, 2023 as part of a broad crackdown on currency smuggling and the informal exchange market. The Ordinance enhanced the penalties for offences under the Act, including materially longer terms of imprisonment and larger fines [the enhanced penalty levels, and whether Parliament has since enacted the amendment as a permanent Act, TO BE VERIFIED BY REVIEWING LAWYER]. In parallel, the State Bank restructured the exchange company sector from late 2023: minimum capital requirements were raised sharply, smaller categories of exchange business were pushed to consolidate, and banks were permitted to set up their own exchange companies.

As of mid-2026 the tightened regime stands. The statute itself remains a 1947 skeleton fleshed out by regulatory instruments, and the practical rules on any given remittance — dividends, royalties, technical fees, disinvestment proceeds — are found in the Foreign Exchange Manual as it reads on the day of the transaction.

Who is affected

Every business that touches a cross-border payment is within the Act: banks and exchange companies as licensees; importers and exporters; Pakistani subsidiaries remitting dividends, royalties or service fees to foreign parents; borrowers raising foreign currency loans; residents holding assets abroad; and any individual carrying currency across the border. Directors and officers of companies face personal exposure where a contravention is committed with their consent or neglect [the attribution provision TO BE VERIFIED BY REVIEWING LAWYER].

What to do

Route every cross-border payment through an authorised dealer and keep the supporting documents the dealer relies on. Before signing a contract that promises repatriation — a royalty agreement, a loan, a share purchase with a foreign seller — check the current Foreign Exchange Manual chapter and confirm whether State Bank approval or registration is required, and build the timeline into the contract. Do not treat informal-channel transfers as a commercial shortcut; they are offences. If the Federal Investigation Agency or the State Bank issues a notice, engage counsel before responding and preserve the full payment trail.