ASSESSMENT OF IMPLICIT AND EXPLICIT ILLICIT REGION FINANCIAL FLOWS, CONDUCTED THROUGH THE FRAUDULENT ACTIONS OF LOCAL AUTHORITIES: THEORETICAL BASIS

Estimating illicit financial flows is crucial for increasing transparency and fighting corruption at the regional level. This study aims to develop a comprehensive methodology for assessing both hidden and overt illicit financial flows arising from the fraudulent activities of local authorities. The proposed methodology involves modelling and estimating the volume of illicit financial capital based on the convergence of elements of descriptive and canonical analysis, as well as the Minkowski metric. The scientific and methodological approach considers 30 relevant indicators that allow for the most complete assessment of illicit financial flows mediated by public officials. The algorithm of the developed methodology provides for the following steps: (1) formation of a data sample of 30 factors; (2) division of factors into four groups by means of logical analysis: the first group – factors for assessing the loss of financial resources from implicit illegal financial flows; the second group - factors for assessing the loss of financial resources from explicit illegal financial flows; the third group – factors for assessing the probability of accumulation of implicit illegal capital flows; the fourth group – factors for assessing the probability of accumulation of implicit illegal capital flows; (3) checking the data for multicollinearity; (4) determining the presence of intergroup relationships and the direction of influence for the formed groups of factors based on canonical analysis; (5) normalizing the input statistical database; (6) optimizing the number of relevant factors by means of factor analysis, principal component analysis; (7) construction of an integral indicator, based on the Minkowski metric; (8) construction and graphical visualization of the rating of quantitative categories of illicit financial flows by the level of the integral indicator; (9) formalization of qualitative categories of the level of illicit financial capital based on the Harrington scale for assessing illicit financial flows.