By the same token, cryptocurrency can enable tax evasion and financial crimes by malicious actors and can serve as a means for rogue states and criminal organizations to obtain funding and acquire illicit goods. Many government officials have lamented cryptocurrency’s role as a tool for crime. Former President Obama once described cryptocurrency as allowing individuals to possess “a Swiss bank account in their pocket” (Nancy Scola, “Obama Rejects ‘Absolutist’ Defense of Encryption,” Politico, Mar. 2016, https://tinyurl.com/y9n5nby2), and former Treasury Secretary and Chair of the Federal Reserve Janet Yellen stated that cryptocurrencies “have been used to launder the profits of online drug traffickers” and are a “tool to finance terrorism” (US Department of the Treasury, “US Treasury Department Holds Financial Sector Innovation Policy Roundtable,” Press Release, Feb. 2021, https://tinyurl.com/t665njj6). Such statements, buttressed by well-known cases of cryptocurrency being used as a tool for criminal activity, arise from cryptocurrency’s ready transferability and its possession-as-de-facto-ownership mode of use (US Department of Justice, “Global Disruption of Three Terror Finance Cyber-Enabled Campaigns,” Press Release, Aug. 2020, https://tinyurl.com/ycyh56vm).
Cryptocurrency is not the only financial instrument that relies heavily on possession as proof of ownership and is transferred without a record of the parties’ true identities. Bearer instruments, a once-prominent type of security that is now largely nonexistent in the United States, have functioned this way for centuries. Whoever possesses a bearer instrument can redeem its full value, and bearer instrument transfers are not tracked. Indeed, some scholars have described cryptocurrency as a “digital bearer instrument” due to the nature of cryptocurrency ownership and transfer (I.G.A. Pernice and B. Scott, “Cryptocurrency,” Internet Policy Review, 2021, https://tinyurl.com/43e8vdf2). This article will discuss the analogous roles cryptocurrency and bearer instruments have played in financial crimes due to their similar ownership structures.
Cryptocurrency Basics
A detailed and technical definition of cryptocurrency is beyond the scope of this paper and the authors’ knowledge. Accordingly, we will offer a simplified definition. Cryptocurrency transactions are digital transactions recorded through a blockchain, which serves as a “decentralized ledger” that records “every transaction across a distributed network of computers” and ensures that all cryptocurrency transactions are transparent, permanent, and indisputable (M.F. Shahzad, S. Xu, W.M. Lim, et al. “Cryptocurrency Awareness, Acceptance, and Adoption: The Role of Trust as a Cornerstone,” Humanities and Social Sciences Communications, Jan. 2024. https://tinyurl.com/5n9ymhch).
Transactions on the blockchain are kept confidential through cryptographic technology. The only identifying information in a cryptocurrency transaction is in the form of a pseudonym: a wallet address. There are thousands of different cryptocurrencies, ranging from prominent and established coins such as Bitcoin and Ethereum to so-called “meme coins” inspired by jokes with little practical usage beyond speculation. Cryptocurrencies are an emerging and significant part of the global financial system; governments and institutional investors are directly involved in the cryptocurrency industry, and the total market capitalization of cryptocurrency is over $3.8 trillion as of the writing of this article (“Global Cryptocurrency Market Cap Charts,” Coingecko, https://tinyurl.com/ytw7bw8j). Due to the speed, security, decentralized nature, and transparency of cryptocurrency transactions, combined with their growing accessibility due to user-friendly exchanges, cryptocurrencies are poised to grow.
Cryptocurrency Ownership
It would be natural to assume that whoever possesses the private key to cryptocurrency is not only its de facto owner but also its de jure owner. While the possessor of a private key has de facto ownership by virtue of the control that it confers, the legal (i.e., de jure) framework of cryptocurrency ownership is both more complex and more traditional. Courts don’t view ownership of cryptocurrency any differently than they view ownership of other property. Indicia of ownership of cryptocurrency, such as an entry on the blockchain or possession of a private key, are—like a certificate of title for a car or a deed to a house—simply evidence of ownership. They are not ownership itself.
For example, in 2020, investors brought a suit for conversion against a cryptocurrency trader with whom they had invested their Bitcoin, Ether, and Litecoin. They alleged that the trader had not invested their cryptocurrency as promised and had instead used their private keys to convert it to the trader’s personal use. In granting summary judgment for the investor-plaintiffs, the US District Court for the Southern District of New York held that while the investors had turned over their private keys to the trader, this only gave the trader “dominion and control” over, rather than ownership of, the cryptocurrency. The trader lacked “any ownership interest in the assets” since he “wrongly procured them by fraud and misrepresentation” (Lagemann v. Spence, 2020 WL 5754800, report and recommendation adopted, 2020 WL 7384009).
Blockchain as Breadcrumbs
Just as defrauded investors can overcome blockchain entries and possession of private keys to establish their ownership of cryptocurrency, the government can seize cryptocurrency assets that were acquired illegally. The transparency and accuracy of blockchain technology mean that the government can use software to track down illegally obtained funds for seizure. The US District Court of the District of Columbia recently praised such software as having an “unprecedented rate of prior success, lack of incentive or capacity to lie, and incredible level of detail,” which makes it “a reliable foundation for probable cause that is beyond compare” (Matter of Search of Multiple Email Accts, pursuant to 18 USC § 2703 for investigation of violation of 18 USC §1956, 585 F. Supp. 3d 1, 20, D.D.C. 2022). While cryptocurrencies’ ease of transfer and pseudonymous possession make it an attractive tool for crime, the transparency of the blockchain and the principles of legal ownership allow governments to use cryptocurrency as an effective tool for tracking criminals and returning assets to their rightful owners.
Bearer Instrument Basics
Bearer instruments are financial instruments, such as bonds and shares, for which ownership “is determined exclusively by possession” (“Bearer Paper,” Wex Legal Dictionary, Cornell Law School, last reviewed July 2025, https://tinyurl.com/3276fm6b). The holder of a bearer instrument is entitled to its full value, regardless of how it was obtained. Bearer instruments were once commonly issued by governments, corporations, and banks. Bearer instruments were easy to transfer because there was no requirement for recording bearer instrument transfers and they were highly portable, with individual bearer bonds (one of the most common types of bearer instruments) available in values of up to one million dollars each (31 CFR § 340.2, 2025, https://tinyurl.com/3c5n98ex). Hundreds of millions of dollars in bearer instruments could be transferred in a single briefcase, which proved invaluable to anyone who sought to move large sums of money quickly and stealthily.
In disputes over ownership of bearer instruments, courts held that, if they were not directly obtained through illegal means, possession was ownership. This principle applied even in cases in which someone unwittingly purchased a stolen bearer bond. For example, in National Safe Deposit Sav. & Trust Co. v. Hibbs, (229 US 391, 394, 1913), the Supreme Court held that a bank was not entitled to a bearer instrument that had been stolen from it and that a third party had legally purchased. This was because the possession of bearer instruments “has been recognized, in the absence of knowledge or cause of suspicion to the contrary, as evidence of ownership or of authority to sell, pledge, or otherwise deal with such certificates as the owner might do.”
The Treasury Department even enshrined the near-finality of possession as proof of ownership in its regulations. In 31 CFR § 306.106, the Treasury Department essentially refused to help recover lost or stolen bearer instruments for aggrieved owners. A footnote to the regulation added a stern warning to owners of lost or stolen bearer instruments: “The government cannot protect and will not undertake to protect the owners of such bonds and notes against the consequences of their own fault or misfortune … Hereafter all bonds, notes, and coupons, payable to bearer … will be paid to the party presenting them … No attention will be paid to caveats which may be filed for the purpose of preventing such payment” (31 CFR § 306.106, 2025, https://tinyurl.com/3xcpv2r8). The validity of this regulation was later affirmed in Boyd v. United States (493 F. Supp. 529, 532, W.D. Pa. 1980).
Bearer instruments’ lack of a paper trail and anonymous ownership made them popular among criminals, particularly for tax evasion and money laundering. The notorious association of bearer bonds with criminal activity is epitomized by their prominent role in block-buster films such as Die Hard, Beverly Hills Cop, and Heat, which all featured villains who stole (or attempted to steal) bearer bonds (Zina Kumok, “Bearer Bonds Are in Your Favorite ’80s Action Movie—but What Are They?,” Salon, Oct. 2024, https://tinyurl.com/yc4ey463). In response to their role in illicit activity and the failure of prior efforts to address this, such as a reporting system for lost bearer government bonds, Congress made substantial changes to the law on bearer instruments in the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA). TEFRA required the federal government and the states to register all bonds with a maturity of more than one year and imposed significant penalties on private entities that issued bearer bonds (TEFRA § 310). The Senate Finance Committee report on this new registration requirement made Congress’s intent clear: “Registration will reduce the ability of noncompliant taxpayers to conceal income and property from the reach of the income, estate, and gift taxes” and “may reduce the volume of readily negotiable substitutes for cash available to persons engaged in illegal activities” (Senate Report 97-494, vol. 1, p. 242, 1982). TEFRA’s practical effect was to eliminate the issuance of new bearer bonds. Almost 30 years later, the 2010 Hiring Incentives to Restore Employment Act “stripped the value from the bearer papers already in circulation before TEFRA by absolving banks from the responsibility of redeeming them,” rendering pre-TEFRA bearer bonds worthless (https://lsd.law/define/bearer-paper). While bearer instruments are not illegal in the United States, they have been effectively regulated out of existence.
Cryptocurrency and Bearer Instruments: Common Crimes
Cryptocurrency and bearer instruments share a structure of de facto ownership based on possession and are both easy to transfer without identifying their owners. Due to these commonalities, cryptocurrency and bearer instruments have played a similar role in three different kinds of crimes: tax evasion, theft, and money laundering.
Tax Evasion
Tax avoiders sometimes take advantage of cryptocurrency’s pseudonymity and bearer instruments’ anonymity to avoid income or gift taxes when they receive or transfer wealth. This is, of course, no secret: The Supreme Court noted in an opinion upholding the Constitutionality of TEFRA’s regulation of bearer bonds that the then-Assistant Secretary of the Treasury testified in a congressional hearing that “bearer bonds often represent unreported and untaxed income that, without a system of recorded ownership, the IRS has difficulty reconstructing,” allowing them to facilitate tax evasion (South Carolina v. Baker, 485 US 505, 509, 108 S. Ct. 1355, 1359, 99 L. Ed. 2d 592, 1988). The government has repeatedly expressed similar concerns about the abuse of cryptocurrency for tax evasion. One example is its inclusion on the IRS’s 2024 “Dirty Dozen,” in which the IRS lists twelve of what it considers to be the most prominent “bogus tax avoidance strategies” (“Dirty Dozen: Bogus Tax Avoidance Strategies, Schemes with an International Element Wrap up Annual Taxpayer Awareness Campaign,” IRS, press release, Apr. 2024, https://tinyurl.com/yy487td5).
People who promote cryptocurrency as a means to avoid taxes typically sidestep publicly disclosing their intentions. Oddly, people who promoted bearer instruments as a means to avoid taxes were not so modest. In 1978, several US banks marketed small-denomination bearer instruments in a manner that “stressed the fact that the amount of the deposit and the interest earned are not reported by the bank to the IRS,” according to the Federal Reserve Board of Governors (https://tinyurl.com/3w3wvtwj). Some of these banks employed language such as “honor bonds” to highlight their lack of required reporting and compared them to Swiss bank accounts in marketing materials. These small-denomination bearer instruments outraged Congress. One representative alleged at the time that they could result in a loss of tax revenue in “the tens of millions,” could be “engines of evasion,” and called on banks to stop issuing such bearer bonds and the IRS to better regulate the practice (Deborah Rankin, “I.R.S. May Toughen Stance On Rules for Bearer Bonds,” The New York Times, Mar. 1978, https://tinyurl.com/j32cn5ut).
Theft
The shared features of cryptocurrency and bearer instruments have also made them common targets for thieves. Both bearer instruments and cryptocurrency are highly portable in large denominations. Thieves can store millions in bearer bonds in a single briefcase and millions in cryptocurrency on a single flash drive or laptop. This portability greatly eases the logistics of theft and smuggling compared to paper currency or gold. Because the possession of bearer bonds and cryptocurrency confers de facto ownership, neither loses its value after a theft and (barring government tracking) can be quickly disposed of.
Two high-profile thefts illustrate the similarities between cryptocurrency and bearer instruments: the City bonds robbery of 1990 and Jimmy Zhong’s theft from the Silk Road black market. The City bonds robbery was one of the most lucrative muggings in history. Due to their portability, some financial institutions in the United Kingdom transported hundreds of millions of pounds in bearer instruments around London through couriers with briefcases traveling on foot. On May 2, 1990, a mugger in London successfully stole 301 bearer bonds worth around £292 million (over $1.1 billion today) by targeting a courier (David Sapsted, “‘Opportunist’ Snatches £292m in Paper Money,” The Times, 1990, https://tinyurl.com/2tjvvh7e). This high-profile robbery sent shockwaves throughout the United Kingdom and compelled the British to launch a major task force to track down the missing bonds. The bonds were laundered throughout the world, but after a multiyear investigation conducted through gang informants, airport searches, and alerts in international banking databases, 299 of the 301 bonds were found and returned (Jon Dennis, “Britain’s Biggest Robberies,” The Guardian, Feb. 2002, https://tinyurl.com/2stdft9p).
James “Jimmy” Zhong’s defrauding of the Silk Road black market bears striking similarities to the City bonds robbery. In September 2012, Zhong used a system of linked accounts and rapid deposits and withdrawals to steal 50,000 Bitcoin from Silk Road, a “darknet” black market used to “distribute massive quantities of illegal drugs and other illicit goods.” Zhong was able to steal and store such a massive sum, $3.36 billion worth of Bitcoin, because of cryptocurrency’s portability. Zhong was able to hide the Bitcoin by dividing and transferring it between accounts and was able to sustain a lavish lifestyle for himself through small scale withdrawals (E. Javers and P. Tortorelli, “The Secret Life of Jimmy Zhong, who Stole – and Lost – More than $3 Billion,” CNBC, Oct. 2023, https://tinyurl.com/3vwveb9h). Eventually, the blockchain allowed investigators to track the anonymous wallet containing the stolen Bitcoin. After Zhong transferred Bitcoin from the wallet to an exchange with know-your-customer rules, investigators were able to link him to the theft (Javers and Tortorelli 2023). After Zhong pleaded guilty, the IRS was able to seize $3.36 billion of Bitcoin, one of the largest cryptocurrency seizures in US history (US Attorney’s Office, Southern District of New York, “US Attorney Announces Historic $3.36 Billion Cryptocurrency Seizure and Conviction in Connection with Silk Road Dark Web Fraud,” press release, Nov. 2022, https://tinyurl.com/y95dv57m).
The high value of both thefts and the ability of the perpetrators to hide the assets for years were only possible due to the portability and possession-based de facto ownership shared by cryptocurrency and bearer instruments.
Money Laundering
Both bearer instruments and cryptocurrency lend themselves to money laundering because of their possession-based model of de facto ownership and their ease of transfer without identifying information. Money laundering is traditionally defined as disguising the origin of illegally obtained money.
The City bonds robbery illustrates a typical example of money laundering with bearer instruments. After the robbery, the perpetrators divided the 301 bearer bonds and moved them (or attempted to) covertly in small amounts throughout the world (G. Smith, “Laughing all the way to the Bank of England,” The Independent, May 1994, https://tinyurl.com/56s42jun). The perpetrators took advantage of the portability of bearer instruments by hiding them in suitcases and mailing envelopes, among other small packages, which is a common strategy in bearer instrument laundering. The perpetrators also used the bearer bonds in illicit or unconventional transactions, such as black-market sales and, in the case of one perpetrator, as collateral for a home loan. The perpetrators were eventually brought to justice, but they succeeded in laundering a large portion of their stolen bearer instruments before they were caught.
Criminals laundering cryptocurrency employ similar strategies. They often divide up large amounts of illegally obtained cryptocurrency into smaller amounts and rapidly move them across different wallets. These strategies allow cryptocurrency criminals to avoid arousing suspicion and make tracking difficult. After his theft from Silk Road, Zhong made small withdrawals from the wallet containing the stolen cryptocurrency and spread the withdrawn cryptocurrency around several different wallets. This allowed Zhong to fund his lavish lifestyle for years without alerting authorities. Zhong also used “mixers” that obscured the source of the cryptocurrency by mixing the illegally obtained cryptocurrency with other cryptocurrency (Javers and Tortorelli 2023). Zhong also employed a technique known as “smurfing,” in which withdrawals are “peeled away” from an initial withdrawal into several different wallets and later merged into a single wallet (Marlene Koelbing, Klaus Kieseberg, Ceren Çulha, and Dimitris E. Simos, “Modelling Smurfing Patterns in Cryptocurrencies with Integer Partitions,” IET Blockchain, vol. 4, no. S1, 2024, https://tinyurl.com/45yhmpse).
To counter this, cryptocurrency investigators have developed techniques to trace stolen cryptocurrency, as Zhong’s eventual arrest shows. In contrast, bearer instruments had no blockchain-like ledger for investigators to follow, which led to the end of their use altogether.
Hope for Transparency
Cryptocurrency and bearer instruments share at least two strengths: ease of transfer and privacy. These shared strengths become weaknesses when they are used to enable crime. Despite these commonalities, cryptocurrency has an advantage that limits its ability to be used for crime: the traceability of the blockchain. Thus, while cryptocurrency has been perceived as an effective tool for crime, government and industry can, in fact, take advantage of the transparency of the blockchain to track and resolve crimes. This is likely to be what keeps cryptocurrency from suffering the fate of bearer instruments.
