![BabyBondLA](https://upload.wikimedia.org/wikipedia/commons/9/9f/BabyBondLA.jpg)
A bearer bond is a
bond
Bond or bonds may refer to:
Common meanings
* Bond (finance), a type of debt security
* Bail bond, a commercial third-party guarantor of surety bonds in the United States
* Chemical bond, the attraction of atoms, ions or molecules to form chemica ...
or
debt security
A security is a tradable financial asset. The term commonly refers to any form of financial instrument, but its legal definition varies by jurisdiction. In some countries and languages people commonly use the term "security" to refer to any for ...
issued by a business entity such as a corporation or a government. As a
bearer instrument
A bearer instrument is a document that entitles the holder of the document to rights of ownership or title to the underlying property, such as shares or bonds. Unlike normal registered instruments, no record is kept of who owns bearer instruments ...
, 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 is the presumptive owner of the
instrument. This is useful for investors who wish to remain anonymous.
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
The national debt of the United States is the total national debt owed by the federal government of the United States to Treasury security holders. The national debt at any point in time is the face value of the then-outstanding Treasury sec ...
. Furthermore, while all bond types state maturity dates and interest rates, bearer bond coupons for interest payments are physically attached to the security and must be submitted to an authorized agent in order to receive payment.
Issuance of new bearer bonds has been effectively outlawed in the United States since the 1980s due to their use in illegal activities, but bearer bonds issued before this date can be redeemed if the issuer still exists.
History
Bearer bonds have been traced back as far as 1648, but there was a spike in popularity in the United States for these bonds during the Civil War, as government resources were strained and limited. Following the success and ease of transferring funds in the United States, Europe and South America also started issuing this type of bond.
The main appeal of bearer bonds is anonymity, which has led them to be the financial instrument of choice for
money laundering,
tax evasion
Tax evasion is an illegal attempt to defeat the imposition of taxes by individuals, corporations, trusts, and others. Tax evasion often entails the deliberate misrepresentation of the taxpayer's affairs to the tax authorities to reduce the tax ...
and concealed business transactions in general. In response, new issuances of bearer bonds have been severely curtailed in the United States since 1982.
All the bearer bonds issued by the
US Treasury
The Department of the Treasury (USDT) is the national treasury and finance department of the federal government of the United States, where it serves as an executive department. The department oversees the Bureau of Engraving and Printing and ...
had
matured as of May 2016. The amount outstanding is approximately $87 million as of March 2020.
Chiasso financial smuggling case
From 2009-2012, a series of incidents involving the forgery and smuggling of U.S. bearer bonds in Italy and Switzerland occurred, beginning with the
Chiasso financial smuggling case in June 2009, in which Italian financial police and custom guards seized documents purporting to be U.S. bearer bonds totaling $134.5 billion in Chiasso, Switzerland, on the Italian border. The bonds were readily determined to be phony, the latest in a series of "billion-dollar bond" schemes that the United States Treasury calls "Morgenthaus".
United States policy and practice
In the United States, the
Tax Equity and Fiscal Responsibility Act of 1982
The Tax Equity and Fiscal Responsibility Act of 1982 (), also known as TEFRA, is a United States federal law that rescinded some of the effects of the Kemp-Roth Act passed the year before. Between summer 1981 and summer 1982, tax revenue fell by ...
substantially curtailed the issue of debt in bearer form. The act disallowed a tax deduction of interest paid on any such bonds issued after 1982 by the issuer in the case of corporate bonds and removed the tax exemption of the interest to the holder in the case of municipal bonds. In contrast, registered bonds retained the tax-exempt treatment.
A challenge to this tax treatment by the US state of
South Carolina
)'' Animis opibusque parati'' ( for, , Latin, Prepared in mind and resources, links=no)
, anthem = " Carolina";" South Carolina On My Mind"
, Former = Province of South Carolina
, seat = Columbia
, LargestCity = Charleston
, LargestMetro = ...
was heard by the
US Supreme Court
The Supreme Court of the United States (SCOTUS) is the highest court in the federal judiciary of the United States. It has ultimate appellate jurisdiction over all U.S. federal court cases, and over state court cases that involve a point of ...
in the case of ''
South Carolina v. Baker
''South Carolina v. Baker'', 485 U.S. 505 (1988), was a Supreme Court of the United States, United States Supreme Court case in which the Court ruled that section 310(b)(1) of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) does not v ...
'' (1988), which upheld the law and brought to an end the further issue of virtually all US municipal bearer bonds.
See also
*
Stock certificate
In corporate law, a stock certificate (also known as certificate of stock or share certificate) is a legal document that certifies the legal interest (a bundle of several legal rights) of ownership of a specific number of shares (or, under Ar ...
References
External links
{{DEFAULTSORT:Bearer Bond
Bonds (finance)
Commercial bonds