Cash, Bearer Bonds, or Cell Phone? FinCEN Proposes to Expand Obligations under Cross-Border Reporting Rule Financial Services Law Advisor Davis Wright Tremaine

An individual can buy any amount of bearer bonds, submit the coupons for payment, and remain anonymous since the bonds are not registered in the owner's name. As with registered bonds, bearer bonds are negotiable instruments with a stated maturity date and a coupon interest rate. In the U.S., bearer bonds were issued by the U.S. government and by corporations from the late 19th century into the second half of the 20th century. A registered bond is a bond whose ownership is recorded by the issuer or by a transfer agent. Interest payments, and the principal upon maturity, are sent to the registered owner. On the contrary, a bearer bond is an official certificate issued without a named holder. In other words, the person who has the paper certificate can claim the value of the bond.

So if you found 10 dollars on the street, you could pick it up and be the owner of those 10 dollars. Since the issuing company does not register each bondholder with each bond, the ownership of the bond transfers with possession on the bond. The government had incentive to curtail the use of bearer bonds. Completely anonymous and available in big denominations, they had become the currency of choice for money launderers, tax evaders, and criminals. Bearer bonds’ reputation as being a product for tax cheats hasn't changed much.

The Temptations of Anonymity

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• Bearer bonds are bonds that are not registered to any owner.
• For investors who don’t need to hide assets and income, bearer bonds now have few advantages.
• You may not even be able to redeem them at banks or other financial institutions anymore.
• Even though bearer bonds have gone out of use in the past few years, you might still wish to understand more about it.

But bearer bonds make it possible to hand over billions of dollars in a relatively small package. The money can later be re-inserted into the financial system how to cash bearer bonds from a legitimate-looking source. In the U.S., they gained popularity around the time of the Civil War, as reconstruction costs stressed government resources.

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Similar to cash, bearer bonds are vulnerable to theft and damage. Theft and forgery are tempting because bearer bonds are essentially one step away from cash. Thieves who stole bearer bonds could redeem the bonds and spend the proceeds with little risk of getting caught. Hiding assets and income was relatively easy with bearer bonds.