Illegal transactions in the digital age: emerging practices and regulatory intermediaries in Latin America

Digital innovations are transforming day-to-day transactions in illegal markets. Companies providing digital services and acting as intermediaries are tasked with preventing those illegal transactions. The impact of digital innovations on illegal practices and the policy responses put in place to discourage them have been addressed mainly by silos in sociological, legal, and policy research. On the one hand, studies on underground practices tend to focus on the micro-level and overlook their embeddedness in the legal and regulatory environment. On the other hand, studies on regulation of corporate integrity often engage with formal rules at the macro-level, disregarding their frontline implementation and circumvention. Furthermore, different kinds of intermediaries are studied separately, which overlooks real-world dynamics and disfavors comparison. This compartmentalized view hinders our understanding of the interaction between regulation and illegal practices in the digital environment. This project asks: how is the regulation and enforcement of business intermediaries shaping the digitization of illegal markets? Digitized illegal transactions need a platform to make deals and a digital payment service to transfer money. The use of digital platforms such as Facebook, Instagram, WhatsApp, or Telegram, as well as fintech-based payment services such as PayPal, Venmo, or MercadoPago poses regulatory challenges. These companies’ services are abused in different illegal markets. At the same time, these companies are tasked in public and private governance arrangements to prevent, monitor, and report the misuse of their services for illegal purposes. The project empirically analyzes the practices in three illegal markets (counterfeit goods, cannabis, child sexual abuse materials) in combination with the regulatory environments of digital platforms and payment providers in the three largest economies of Latin America: Argentina, Brazil, and Mexico. Conceptually, this project is based on the RIT framework (Abbott et al., 2017) and analyzes the strategic interactions between three actors: the Regulators (e.g., governments), the Intermediaries (e.g., firms), and the Targets (e.g., individuals participating as buyers and sellers in illegal market participants). These three actors make decisions under conditions of heightened uncertainty (Beckert & Streeck, 2008). This project investigates these tripartite interactions and decision-making under uncertainty at the macro level of regulatory intermediaries and the micro level of illegal market actors and their practices. With this approach, the project addresses a twofold gap. First, it unpacks the institutional underpinnings of observed illegal market practices online. Second, it uncovers the incentives and power dynamics between regulators, intermediaries, and individuals participating as illegal market participants. The Latin American region is a vantage point for observing these pressing developments because of conflicting policy goals (i.e., financial and digital inclusion vs. integrity), challenges to state capacity, and control over digital platforms and payment providers that can be large transnational corporate actors with widespread popularity. Enforcing such arrangements involves public-private interactions and transnational tensions. For example, platforms’ practices in Latin America are usually shaped by U.S. legislation, and international standards largely define the anti-money laundering framework relevant to payment providers. The project is organized into three work packages. WP1 focuses on social practices fostered by new digital technologies. WP2 focuses on the regulation and law enforcement of illegal behavior in digital platforms. WP3 focuses on the anti-money laundering regime relevant to payment providers. Methodologically, these WPs will work with data from in-depth expert interviews, desk research, legal cases, and public opinion surveys.