Study Estimates 2-6% of World Bank Foreign Aid Diverted to Cryptocurrency

A study investigates the potential diversion of foreign aid in developing countries to cryptocurrency as a laundering method. Following the 2016 Panama Papers leak, regulatory enforcement around money laundering and offshore banking increased. The researchers developed a forensic measure of cryptocurrency activity, analyzing on-chain Bitcoin transactions, wallet creation, off-chain exchange records, and IP-linked web traffic. This analysis covered World Bank aid disbursements totaling $238 billion across 93 recipient countries from 2018 to 2024. The findings indicate sharp, short-lived increases in cryptocurrency activity coinciding with aid disbursement months, primarily involving anonymous and newly created wallets on various exchanges. The study estimates an implied leakage of 2 to 6 cents per aid dollar, equating to approximately $1.7 to $4.4 billion in diverted funds. Despite this diversion, the sectors affected—Transport, Water and Sanitation, Social Protection, and Governance—continue to receive half of subsequent World Bank funding. While cryptocurrency facilitates aid diversion, its transparent ledgers may assist in detecting and recovering misallocated funds. The authors acknowledge contributions from various academics and institutions, stating that the views expressed do not necessarily reflect those of the National Bureau of Economic Research.