Britain's Department for International Development is accused of allowing tens of millions of pounds in UK aid to be invested in Nigerian money laundering fronts, BBC Newsnight has learned.
An equity fund backed by DfID-owned subsidiary CDC Group is being investigated by Nigerian officials.
The accusation is that the private fund invested in companies linked to convicted money-launderer James Ibori.
DfID says CDC carries out thorough checks before investing in funds.
Ibori, a former governor of Nigeria's oil-rich Delta States, who looted millions from state coffers, is due to be sentenced by a UK court having pleaded guilty to 10 counts of money-laundering and conspiracy to defraud.
As his trial at London's Southwark Crown Court was about to begin in February 2012, Mr Ibori changed his plea to guilty and admitted stealing money from Delta State and laundering it in London through a number of offshore companies.
DfID spent £5m investigating the case, the world's biggest money-laundering scam ever brought to justice, and Ibori's network - which spanned four continents.
Ibori had secret accounts and companies in London, Switzerland, Luxembourg, Mauritius, Polynesia, Panama, the Marshall Islands and South Africa.
But it is the alleged front companies in Nigeria which have cast a shadow over British aid.
CDC Group, the private enterprise arm of DfID, is said to have put $47.5m (£29.9m) into a private equity fund which invested in Nigerian companies allegedly linked to Ibori.
CDC is overseen by the development secretary, Andrew Mitchell.
In January, Mr Mitchell issued an unreserved apology to an Anglo-Nigerian whistleblower after Newsnight revealed DfID had betrayed his identity to the people he was accusing.
Dotun Oloko had warned DfID about potential problems with CDC investments. The department passed a document containing Mr Oloko's name to the private equity firm he had accused of investing in potential corruption.
He then became the target of private investigators hired by the firm who followed his children to school and looked into his personal and business affairs in the UK and Nigeria.
Mr Oloko told Newsnight he is delighted the Nigerian anti-corruption squad is now examining the issue.
He also pointed to the fact that Britain's development agency now stands accused of investing in the very corruption it has spent years helping to investigate.
"That's the incredible paradox. The same people who've funded the prosecution are the people who've funded the activities which are now being investigated," he said.
DfID issued the following statement in response to Newsnight's report:
"These specific allegations date back to 2009 under the last Labour government and were investigated by CDC at the time and subsequently passed on to the Met Police and the Serious Fraud Office.
"CDC always carries out full and thorough checks before investing in a fund manager and the subsequent investigation gives no indication that British funding has been misused in this case."
Watch Peter Marshall's full report on Newsnight on Monday 16 April 2012 at 10.30pm on BBC Two, then afterwards on the BBC iPlayer and Newsnight website.