bearer bond

A bearer bond is a debt security issued by a business entity, such as a corporation, or by a government. It differs from the more common types of investment securities in that it is unregistered – no records are kept of the owner, or the transactions involving ownership. Whoever physically holds the paper on which the bond is issued owns the instrument. This is useful for investors who wish to retain anonymity. Recovery of the value of a bearer bond in the event of its loss, theft, or destruction is usually impossible. Some relief is possible in the case of United States public debt.^[1]

History

The bearer bond most possibly has its origins in the post Civil War United States. In many respects the Reconstruction (1865–1885) was funded on these bonds. Their use in avoiding taxation became more popular after World War I. Europe and the remainder of the Americas adapted the use of these bonds in their own finance systems for similar reasons of utility.

Bearer bonds have historically been the financial instrument of choice for money launderers, tax evaders, and those just generally trying to conceal business transactions. In response, new issuances of bearer bonds were banned in the United States in 1982. ^[2]

In the United States all the bearer bonds issued by the U.S. Treasury have matured. They no longer pay interest to the holders. As of May 2009, the approximate amount outstanding is $100 million.^[3]

In June 2009, Italian financial police and custom guards seized documents purporting to be U.S. bearer bonds, totaling $134.5 billion. The bonds were in $500 million and $1 billion denominations, although the highest denomination ever issued by the U.S. Treasury was $10,000. It was unclear what the purpose of the fake bonds was; the two men carrying them were not detained after the bonds were seized. ^[4]

National policy and practice

In the United States, with the passage of the Tax Equity and Fiscal Responsibility Act of 1982, debt issued in bearer form has been discouraged. The interest on any such bonds issued after 1982 would be taxable to the issuer in the case of corporate bonds, and taxable to the holder in the case of municipal bonds. In contrast, registered bonds retain favorable tax treatment.^[5]

In Central America, issuance of bearer bonds is typically the standard procedure for financing corporate and government debt. Bearer bonds have been used in this region in this way for a very long time, and their use has had very little to do with the privacy and taxation benefits that come from using them.^{[citation needed]}

Bearer bonds in popular culture

Since bearer bonds can have extremely high values, a physically manageable number of them can represent a huge amount of cash. For this reason, many movies and TV shows use bearer bonds when characters are on the hunt for very large sums of money (e.g., $10 million) (see also MacGuffin). In paper currency, this amount of money would be unwieldy, filling up several suitcases. But with bearer bonds, this sum can be represented in a small, convenient package. Several popular films and television series that feature bearer bonds in this role include the films Goldfinger, Beverly Hills Cop, Lethal Weapon 2, Die Hard, Heat, Mission Impossible, Panic Room and the TV series 24, The Flash and Monk.^{[citation needed]}

References

1. ^ "LOSS, THEFT, OR DESTRUCTION OF UNITED STATES BEARER OR REGISTERED SECURITIES ASSIGNED AS PAYABLE TO BEARER". U.S. Treasury. February 2007. http://www.treasurydirect.gov/forms/sec3987.pdf. 
2. ^ "Bearer Bonds: From Popular to Prohibited". Investopedia. http://www.investopedia.com/articles/bonds/08/bearer-bond.asp. 
3. ^ "Bearer and Registered Securities Balances as of May 31, 2009". U.S. Treasury. http://www.treasurydirect.gov/govt/reports/pd/pd_bearregsec.pdf. 
4. ^ Elisabetta Povoledo (June 26, 2009). "Italy INtercepts Billions in Fake Treasuries". New York Times. 
5. ^ "Role Of The Transfer Agent". Federal Deposit Insurance Corporation. http://www.fdic.gov/regulations/examinations/trustmanual/section_11/rta_manualroleoftransferagent.html.