The majority of investments made by the UK aid programme's private-sector arm went through "notoriously secretive" tax havens, according to a new report from international NGO Eurodad.
The new study revealed that billions of euros meant for projects in developing countries are being channelled through highly secretive financial havens, which can be used by businesses as a conduit to avoid taxes.
The UK's CDC Group, which is owned by the governmental Department for International Development, has used the jurisdictions for more than two thirds of its total investments, according to the report.
The group's net investments count as official aid, and make up part of the UK government's official pledge to spend 0.7% of gross national income on aid.
"CDC's portfolio as of 31 December 2013 shows that both direct and its indirect investment model rely heavily on secrecy jurisdictions," the report said.
"A massive 118 out of a total of 157 fund investments go through secrecy jurisdictions. Between 2000 and 2013, these funds received a total of $3.8bn (£2.4bn, €3bn) in CDC commitments, including $553m in 2013 alone," it said.
The CDC Group has registered sixty nine funds in Mauritius totalling $1.8bn, while it has also registered twenty six funds in the Cayman Islands, totalling $909m.
The practice is common among European countries, according to the study, which found similar patterns of behaviour in Belgium, Norway and Germany.
A CDC spokesperson said its investments "are helping create the jobs and growth needed to lift people out of poverty. Businesses we support employ over one million people in developing countries and last year paid over £2.4bn in local taxes."
"CDC requires the businesses we invest in to pay all taxes that are due of them and avoids making investments in jurisdictions that are not compliant with the OECD's internationally agreed standards on tax transparency," the spokesperson said, as cited by the Guardian newspaper.