Is it permissible for me to buy a phone for my brother, knowing - most likely - that he will use it for unlawful things, and if it is not permissible, what should I do with the money he gave me?

The Shari'ah encourages assisting brothers and striving to fulfill their needs. However, if you are certain, or strongly suspect, that your brother will use the phone for something haram (unlawful), then it is not permissible for you to help him acquire it, as Allah Almighty says: "And do not cooperate in sin and aggression." If you have helped him despite knowing this, then you must repent.

You do not have the right to prevent him from having the phone, because it has become his property and a trust in your hand, and you must return it. The Prophet, peace and blessings be upon him, said: "On the hand is what it took until it returns it." You are not permitted to dispose of it because you are merely an agent. However, you must advise him not to use it for what is impermissible.

However, if the use of the phone for something haram is merely a possibility, or if you do not know, then the affairs of Muslims should be interpreted as wholesome, and a good assumption should be made about them.