Crypto Capture of Foreign Aid

Sumit Agarwal, Peiyi Jin, Eswar Prasad and Daniel Rabetti

No 35655, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The 2016 Panama Papers leak tightened regulatory enforcement around money laundering and offshore banking. We investigate whether the diversion of foreign aid in developing countries led to a shift to cryptocurrency as an alternative laundering platform. We develop a disbursement-timed forensic measure of cryptocurrency activity, combining on-chain Bitcoin transactions and wallet creation, off-chain exchange records, and IP-linked web traffic, and apply it to World Bank aid disbursements covering $238 billion across the 93 recipient countries in our estimation sample during 2018-2024. Exploiting the administrative timing of aid tranche arrivals, we find sharp, short-lived surges of crypto activity at the disbursement month, driven mainly by anonymous and newly created wallets on both tax-haven and mainstream exchanges. Blockchain forensics reveal patterns consistent with the placement, layering, and integration sequence of conventional money laundering. We estimate an implied leakage of 2 to 6 cents per aid dollar, which amounts to roughly 1.7 to 4.4 billion dollars of aid diversion across the tranche arrivals we study. Capture carries no funding penalty: the four sectors where we detect it, Transport, Water and Sanitation, Social Protection, and Governance, still absorb half of subsequent World Bank funding. Cryptocurrency facilitates aid diversion, but its transparent ledgers also leave forensic traces that may help detect and recover diverted funds.

JEL-codes: G15 G18 G29 K29 K42 O16 (search for similar items in EconPapers)
Date: 2026-08
Note: CF DEV IFM
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.nber.org/papers/w35655.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:35655

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w35655
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().