Cash may be king for criminals but bonds – and bearer bonds in particular – are the currency of choice for money launderers.

Cash may be king for criminals but bonds – and bearer bonds in particular – are the currency of choice for money launderers.

In simple terms, a bond is an IOU: the lender, typically a government, borrows money in exchange for a certificate. The bond pays interest and can be sold but, and here’s the problem for the criminal, the lender has to register ownership.

This is where the bearer bond comes in. Like cash, the bond belongs to whoever is holding it. “To be flip, possession is 100 per cent of the law with a bearer bond,” one financial analyst said.

They are not registered, which makes them useful for anonymity, and for money laundering. A spokesman for Barclays Bank said bonds were popular because of their convenience and the aura of trust they carry in financial markets.

“You get a large amount of money on a small piece of paper,” he said. “Even if you couldn’t get all £4.4bn on one bond it would only take a few pieces of paper compared with the thousands of £50 notes.”

Bonds are usually guaranteed by a government or a financially sound company. “They would give an assurance of trust and they are more likely to be accepted than a large bag of notes that may not necessarily be exactly what they seem,” the Barclays man said.

Bond fraud, is an old game, from the 19th century. And a bond scam involving phoney or stolen ones is a key element in F. Scott Fitzgerald’s The Great Gatsby, when Gatsby is involved in a scheme to pass them.

Most frauds involve forgeries of US bonds, with several originating in the Far East. In November, 1997, the US Secret Service opened an office in London to monitor bond fraud after ones allegedly issued to anti-communist Chinese fighters in the 1940s began circulating in the City. Three men had been arrested trying to deposit $800m (£500m) of fake US Treasury bonds.

The City of London is the centre of the eurobond market and a great attraction of the euromarkets is the prevalence of “bearer bonds” that conceal the identity of the owner. The US Treasury stopped issuing bearer bonds in 1982 and the few remaining ones make up only 0.14 per cent of the market. It says only $5.2bn (£3.25bn) in paper certificates is outstanding.

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