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Estimating the Scale of Illicit Financial Flows: The Abnormality Method

Author

Listed:
  • Daniel Coll Sol

    (Tax Justice Network, London, United Kingdom)

  • Mario Cuenda Garcia

    (Tax Justice Network, London, United Kingdom)

  • Bathusi Gabanatlhong

    (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague,)

  • Miroslav Palansky

    (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague,)

  • Tijmen Tuinsma

    (Tax Justice Network, London, United Kingdom)

Abstract

This paper introduces the abnormality method to estimate illicit financial flows (IFFs) using a bilateral gravity model complemented by a machine learning technique to analyse unexplained financial flows to offshore centres. The findings provide robust evidence linking abnormal flows to offshore financial centres with tax avoidance and evasion and offer new estimates of their scale, costs, and geographical distribution. In 2023, abnormal flows to tax havens and secrecy jurisdictions reached US$2.8 trillion, resulting in foregone tax revenues exceeding US$60 billion. These flows originated mainly from Europe, the Americas, and Asia, flowing mostly to European tax havens. Random Forest analysis confirms that tax haven and secrecy jurisdiction status are key determinants of abnormal financial flows. Furthermore, the analysis of the Automatic Exchange of Information (AEOI) regulation indicates an increase in abnormal flows held in secretive jurisdictions.

Suggested Citation

  • Daniel Coll Sol & Mario Cuenda Garcia & Bathusi Gabanatlhong & Miroslav Palansky & Tijmen Tuinsma, 2026. "Estimating the Scale of Illicit Financial Flows: The Abnormality Method," Working Papers IES 2026/08, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised May 2026.
    • Handle: RePEc:fau:wpaper:wp2026_08
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    Keywords

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    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics

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