The leading digit distribution of the worldwide Illicit Financial Flows

TL;DR

This paper examines whether the distribution of leading digits in estimates of worldwide Illicit Financial Flows aligns with Benford's law, revealing a logarithmic pattern consistent with the law across the data.

Contribution

It provides the first analysis confirming that the leading digit distribution of IFF estimates follows Benford's law, indicating underlying natural patterns.

Findings

Leading digits in IFF data follow Benford's law

Distribution closely matches theoretical logarithmic pattern

Supports use of Benford's law for detecting anomalies in financial data

Abstract

Benford's law states that in data sets from different phenomena leading digits tend to be distributed logarithmically such that the numbers beginning with smaller digits occur more often than those with larger ones. Particularly, the law is known to hold for different types of financial data. The Illicit Financial Flows (IFFs) exiting the developing countries are frequently discussed as hidden resources which could have been otherwise properly utilized for their development. We investigate here the distribution of the leading digits in the recent data on estimates of IFFs to look for the existence of a pattern as predicted by Benford's law and establish that the frequency of occurrence of the leading digits in these estimates does closely follow the law.