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. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
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