Systemic Fiscal Risk from Chronic Tax Evasion: Regulatory Fragmentation and Public Financial Management Challenges

This article examines how large-scale fiscal–financial crime schemes in Brazil exploit legal and regulatory fragmentation, non-bank intermediation channels and institutional blind spots to generate systemic fiscal risk. Drawing on recent national operations in the fuel, logistics, beverage, retail and e-commerce sectors, it analyses how fintechs, payment institutions, investment funds, holding companies and shell entities have been used as parallel financial systems to sustain chronic tax evasion (devedores contumazes), money laundering and competitive distortions. Methodologically, the study adopts a qualitative, document-based approach, relying on official investigations, judicial records, government reports and regulatory documents. It integrates insights from financial regulation, public financial management, macro-supervision and organized crime to construct an analytical framework for understanding how fiscal–financial crime operates within the legal architecture of emerging markets. The findings show that fragmented supervisory mandates, gaps in the regulatory perimeter and limited data-sharing across tax, financial and sectoral authorities enabled criminal groups to operate at scale for long periods. These structures weakened state capacity, eroded public revenue and embedded illicit flows in key markets, thereby amplifying systemic vulnerabilities. The article contributes to the legal and regulatory literature by consolidating lessons from Brazil’s recent large-scale operations—such as Carbono Oculto, Poço de Lobato and Tank—into an integrated model of chronic tax evasion as a source of systemic fiscal risk. It concludes with a set of regulatory and public financial management recommendations that are relevant for both emerging markets and advanced jurisdictions facing similar legal and supervisory challenges.