Parallel Banking Through Fintechs: Regulatory Blind Spots, Tax Evasion and Money Laundering in Emerging Markets

This article examines how fintechs and payment institutions in emerging markets have been used as parallel banking infrastructures that facilitate tax evasion, large-scale money laundering and regulatory arbitrage. Focusing on Brazil, it analyzes recent high-profile investigations—such as the Carbono Oculto, Tank and Quasar operations—to show how criminal organizations exploited payment institutions, digital accounts and card schemes to move value outside the visibility of traditional banks and supervisory authorities. The study employs a qualitative, document-based approach, drawing on official reports, judicial decisions, supervisory guidance and financial intelligence materials to map the architecture of fintech-enabled illicit finance. The findings show that fintechs and payment institutions provided anonymity, opacity and transactional mobility through fragmented regulatory perimeters, lighter reporting requirements and gaps between financial, tax and AML/CFT oversight. These blind spots allowed parallel banking structures to operate at national scale while remaining formally within the legal financial system. The article contributes by proposing an integrated conceptual framework for understanding fintech-enabled parallel banking in emerging markets and by outlining policy recommendations to close supervisory gaps, align reporting obligations across institutions and strengthen cooperation between financial regulators, tax authorities and law-enforcement agencies.