1. The Problem
It is almost commonplace to think that democracy and illegal markets are inversely correlated (Bracking 2026). A widespread assumption in mainstream political science tells us that as a society improves its democratic standards, institutional gain will progressively reduce the space for illegal markets and, consequently, for various forms of violence. Perhaps one of the most common manifestations of this argument can be found in works built around oppositions such as democracy and corruption, or democracy and organized crime. Qualifying this simplistic reasoning, several studies in the last thirty years have documented the complex relationship between democracy and various illegal economies, and how sui generis social orders emerge from their interaction. Various authors have examined the emergence of sui generis social orders at the intersection of the state, politics, and criminal organizations (Misse 2002; Arias 2006; Dewey 2012; Arias and Barnes 2017; Feldmann and Luna 2023). Others have examined how regulations and state repression generate cycles of violence and perpetuate inequalities around illegal markets (Feltran 2019). Also, research has shown how state actors, sometimes ambivalently (Auyero and Sobering 2019), use law enforcement mechanisms to produce specific outcomes, such as steering social order, distributing goods, and neutralizing social conflict (Snyder and Duran-Martinez 2009; Dewey 2018a; 2018b).
This essay takes the analysis of the coexistence of democracy and illegal markets a step further. It addresses a topic that is as understudied as it is fundamental to the functioning of different types of illegal markets: digital payment services. As the evidence I will provide below shows, services such as Mercado Pago, Ualá, or PIX have become popular not only as mechanisms for "financial inclusion" of sectors excluded from the traditional banking system, but also as a means of payment for illegal goods such as drugs and counterfeit products. Importantly, these payment services are offered by companies that act as intermediaries between the regulators—governments and the state—and users, who may be engaged in illegal activities (Dewey and Gava 2025). As with traditional banks, public regulators have outsourced anti-money laundering responsibilities to fintech digital payment providers. In other words, like banks, these intermediaries are required to monitor, detect, and report suspicious activity, particularly in relation to the illegal drug market.
For two reasons, this essay does not analyze cryptocurrencies, a means of payment commonly associated with the buying and selling of illegal goods in cryptomarkets operating on the dark web (Martin 2019; Tzanetakis et al. 2016). First, there is no empirical evidence of their use in Latin America beyond a few mentions in reference to drug cartels (UNODC 2022). Second, the popularity of cryptocurrencies as a means of payment appears to be overestimated (Alvarez, Argente, and Van Patten 2023), especially when compared to the marked expansion of virtual wallets offered by the providers that are the subject of this analysis. For these reasons, I propose to turn our attention to perfectly legal digital payment services whose widespread adoption in Latin America implies a transformation of practices in illegal economies.
This essay showcases the commercial practices of a cocaine dealer interviewed in Argentina to support two intertwined arguments. First, it argues that fintech digital payment providers acting as intermediaries are becoming pillars of illegal markets. Second, it argues that there are two reasons to explain this situation. On the one hand, the massive incorporation of a large segment of the population, which previously did not have access to the traditional banking system, significantly affects the process of monitoring, detecting, and reporting suspicious activities. On the other hand, unlike traditional banks, payment service providers enjoy a close relationship with users, i.e. widespread popularity, which has an impact on the regulatory process. In short, greater complexity in the regulatory process and a weakening of enforcement create a window of opportunity for those who conduct illegal transactions using digital payment methods.
This essay links the functioning of illegal markets with perfectly legal developments, such as innovations in financial products (virtual wallets) and the powerful discourse associated with them (financial inclusion), which has become an integral part of public policy. Financial inclusion is a well-established public policy in the region, operating on the premise that empowering individuals who have been marginalized by the traditional financial system has a positive impact on democracy. However, without denying its benefits or noble goals, this essay aims to raise certain questions about the regulation and enforcement of this public policy.
The approach I take is to document the practices of buyers and sellers of illegal drugs in order to inform an analysis of the political economy of this phenomenon. The following section presents first-hand evidence collected in Argentina and Brazil between 2021 and 2024. The final section analyzes the political economy of anti-money laundering regulations and enforcement.
2. The Evidence: “Everything Through Mercado Pago”
Between 2021 and 2024, 20 in-depth interviews were conducted with buyers (nine) and sellers (eleven) of various illegal substances. The first ten interviews led to the first academic article on Telegram's role in illegal markets (Dewey and Buzzetti 2024), which highlights how enforcement-resistant platforms such as Telegram and digital payment methods significantly enhance the experience of consumers and sellers of illegal drugs. Subsequent interviews focused solely on payment methods confirm the evidence previously collected to the point of reaching information saturation. Below I present a representative illustration of the evidence collected. It is important to note that interviewees are much more concerned about the money limits imposed by payment service providers than by law enforcement. In fact, the latter were not mentioned in any of the interviews. This is a clear indication that positive experiences over time are based on the perception that law enforcement is highly unlikely to intervene.
Adrián is an engineering student in a province of Argentina and runs a thriving business selling cocaine. Adrián regularly buys this substance, which he says comes from "some Peruvian neighbors" who live in the same town. Cocaine is transported in the gas tanks of cars to avoid detection by the security forces' dogs. Adrián often changes his selling point "so as not to burn the spots" and always carries his tools of the trade: a scale to portion the cocaine, the Telegram app, and a Mercado Pago account. In the Telegram groups where he sells "laja," usually in the early hours of the morning, Adrián has built up a good reputation and can choose his customers by raising the price per gram.
When it's time to get paid, Adrián gets "everything through Mercado Pago.” He explains, "I send them a payment link and they can even pay me by credit card.”
Interviewer: With a bank credit card?
Adrián: Yes, yes, with debit, with credit, with whatever money they have, whatever they want.
Interviewer: Is the Mercado Pago account in your name?
Adrián: I charge it to my account. Or I charge it to my friends' accounts, so there's not so much money in one account. I charge one sale to one account, another sale to another account, so it goes completely unnoticed because they get one or two transfers a week each and it's not all concentrated in my account.
Interviewer: Do you think Mercado Pago could say something if they see a lot of activity?
Adrián: They start charging you taxes, that's all. They don't investigate you right now. I think they'll investigate at some point, that's why I do it this way. Because if there are people who receive everything in the same account...
Interviewer: Do you know how much they start to tax?
Adrián: Now they are charging taxes on gross income from any amount, and above a certain amount they start charging income tax.
Interviewer: Right, if you exceed that amount, they charge you income tax.
Adrián: Right, that's why I prefer to charge a little bit at a time, and then they give me the money, they give me the cash, and that's it.
Interviewer: And in Mercado Pago, do they [buyers] make you many transfers?
Adrián: A lot. In fact, I looked at the transactions the other day and it's a lot. Even more than I thought. With Mercado Pago you get your monthly report, and I realized that I use Mercado Pago a lot—more than I thought.
Interviewer: And in percentage, how much do they [buyers] pay you in cash and how much with Mercado Pago?
Adrián: Now that I'm only dealing with regular customers, most of them pay with Mercado Pago. Because they're regulars, sometimes they pay me in advance. If it's a new customer, the transaction is done there when the delivery arrives. Everything is done on the spot.
3. The Analysis
The phenomenon analyzed in this essay has as its background a regulatory regime, the purpose of which is to fight money laundering. This regime aims to combat illegal financial flows by limiting the use of cash and channeling transactions through regulated financial intermediaries, such as Mercado Pago, which are subject to anti-money laundering obligations (Gava 2026).
Although this regulatory regime governs all companies offering retail payment services in Latin America, fintech companies offering digital payment services have significantly different traits from traditional banking institutions. This is crucial because the anti-money laundering regulatory regime was created with these intermediaries, traditional banks, as an example (de Koker 2009).
This essay argues that this new intermediary is bringing about two types of transformations. First, large segments of the population previously excluded from the traditional banking system have been included through new financial instruments. However, the inclusion of the "unbanked" calls into question the effectiveness of Know Your Customer (KYC), which is central to the AML regime. Originally designed for traditional banking institutions, the KYC principle is challenged both qualitatively and quantitatively in the case of fintech companies offering digital payment services. Qualitatively, the granting of a virtual account or wallet to individuals whose characteristics (due to credit records, employment, taxes, etc.) would prevent them from obtaining an account with traditional banks means a significant reduction in the information that the intermediary obtains about the customer. In short, this new intermediary knows much less about its client. As a result, the company will be affected in the performance of other subsequent activities that depend on a flow of information and to which it is obliged, such as the monitoring and identification of suspicious transactions, the sanctioning of companies or individuals, and so on. Quantitatively, the massive incorporation of participants into the financial system means that KYC becomes a difficult task to perform, in many cases also conditioned by the heterogeneity of new customers. Specifically, the difficulty of knowing customers provides a window of opportunity for actors like Adrián to use the system illegally.
Second, payment service companies acting as intermediaries play a role similar to that of the platforms described by Culpepper and Thelen (2020). That is, they are companies that establish a very close relationship with their customers, since the latter's income often depends on the ability to carry out digital transactions, move money, avoid holding cash, etc. According to Thelen and Culppeper's argument, platform power derives largely from the alliance that technology companies have established with their customers. This power puts companies in an advantageous position vis-à-vis regulators, who have little incentive to lose political capital by upsetting the alignment of companies-customers' interests and expectations. This clearly positive relationship differs from the one that individuals have with traditional banks, which are not particularly popular in society. In regulatory terms, this popularity means that digital payment companies have greater power vis-à-vis the regulator (e.g. the central bank) and are potentially influential in the regulatory process. The power of these intermediaries raises the question of how effective they are in enforcing the law and their capacity vis-à-vis the state (Varoufakis 2024).
A notable example of the regulator backing down in the face of a payment service provider seeking to influence the regulatory process is what happened to Sergio Massa, then Argentina's economy minister and 2023 presidential candidate. The Central Bank of Argentina ruled that in order to "prevent fraud" and "provide the system with better security standards," an immediate debit mechanism called DEBIN would be discontinued and a mechanism called "immediate pull transfer" would be implemented. Since this regulatory measure went against the interests of Mercado Pago, the main payment service provider in the country, its owner, active user of the X platform Marcos Galperín, claimed that "this measure is a new attack on financial inclusion, will negatively affect the experience of millions of people, and will encourage the use of cash," claiming that around 4 million users of the virtual wallet would be affected. In response to the company's position, accusing the regulator of negatively affecting the "financial inclusion" of millions of users, the next day Mr. Massa sent a message, also via the X platform, announcing that he had instructed "the directors of the Central Bank, representing the Ministry of Economy, to request the repeal of the rule and virtual wallets, Mercado Pago and others, to reduce the commission they charge for cash withdrawals.” Finally, the measure was withdrawn to satisfy the interests of the company.
4. Analysis and Discussion
In her book The Code of Capital (2020), sociologist Katharina Pistor analyzes the perfectly legal institutional arrangements or mechanisms that guarantee the reproduction of various forms of inequality. Drawing on this insight, this essay addresses perfectly legal intermediaries and services that have become part and parcel of various illegal markets, especially at the end of the chain. This perspective presents illegal economies as embedded in society and democratic systems. These economies do not fall from the sky or exist in isolation somewhere beyond our experience, but are underpinned by legal mechanisms or regulatory gaps around which political economy disputes exist. In this sense, digital payment platforms and services, as intermediaries that are currently regulated, become interesting objects of study to be analyzed in the two dimensions presented in this essay: the political economy of their regulation and the emerging practices that result from the adoption of digital media in the context of illegal markets.
The argument presented also complicates the idea of "financial inclusion," which, in addition to being a set of concrete financial tools, is also a powerful discourse used by the financial industry and governments to channel interests and public policies. In fact, Adrián's case typically illustrates a widespread situation, namely the use of digital payment methods for the purchase and sale of illegal products or services. This case raises a fundamental question: if the current configuration allows for inclusion so broad as to encompass criminals, how or where can a line be drawn that allows for the exclusion of actors that threaten the integrity of the financial system and the inclusion of the unbanked population that legitimately uses it?