The Chiasso billion dollar Bearer Bond mystery

Chiasso Bearer Bond Mystery

In 2009, a sleepy provincial Italian town was the scene of one of the strangest-ever financial crimes. Two Japanese men en route to Switzerland were found by Italian police to have $134.5 billion in bearer bonds in a false-bottomed suitcase.

Given the ludicrous sums involved, the curious facts around the Chiasso Bearer Bond mystery have elevated the case of the case to cult status among financial crime fanatics. Similar cases that emerged soon after did, however, suggest that it might simply have been a case of organised but opportunistic counterfeiting.

On June 3rd 2009, the Guardia di Finanza, Italy’s financial police, arrested two Japanese men in their 50’s near Ponte Chiasso.

Ponte Chiasso, population 2,387, is a small town best known as an access point to Switzerland, with two border crossings accessible by car and train.

On the day in question, the two smartly dressed men were heading north by rail to Switzerland. The pair were conspicuous, travelling on a local train used mainly by working-class commuters rather than the express option used by tourists and businessmen.  

This oversight is particularly surprising, as given the contents of their luggage, they had every reason not to draw attention to themselves, yet achieved exactly the opposite effect.

In a suitcase carried by one of the suspects, the police discovered a false bottom that was hiding 249 bearer bonds, each with a face value of $ 500 million, 10 ‘Kennedy Bonds’ – so named because they carried JFK’s image – each valued at $1bn and assorted other securities.

The total value of the stash, $134.5bn, was equivalent to 1% of the US GDP at the time (according to Statista).

Bearer Bonds are something of a financial relic. They are a form of paper money that functions like cash, payable on presentation by whoever bears them, hence the name. 

Bearer Bonds are normally in the form of a physical certificate, indicating the denomination and value, along with coupons that indicate interest payments that the certificate holder is due.

Both the coupons and the certificate can be redeemed on presentation to a bank for cash by whoever holds them; there is no registered owner.

The unique nature of Bearer Bonds made them popular for money laundering, tax evasion and crime syndicates. As a result, they feature as a plot device for several Hollywood crime movies, including Beverly Hills Cop, Heat and Die Hard, and more recently (and surprisingly given their dated nature) in the modern popular Netflix crime series The Ozarks.

To recap. Two well-dressed Japanese men, looking like fish out of water, were travelling coach on a crowded commuter train among Italian blue-collar workers heading for Switzerland.

Unsurprisingly, the pair piqued the curiosity of Italian Financial Police, who stopped them for questioning.

The pair were discovered to be carrying $134.5 bn in Bearer Bonds in a false-bottomed suitcase. What already sounds like a plot straight out of James Bonds becomes even stranger considering what happened next. 

It took the Italian authorities two weeks to determine the authenticity of the bearer certificates, but they had good reason to take their time, given the significance of the bonds being genuine.

Under Italian law, a 40% fine could be applied to any physical cross-border money transfer over 10,000 euros – a mere 0.0000075% of the amount we’re talking about here. 

In this edge case, that penalty would have amounted to $58.3bn or 10% of the Italian national budget – quite a considerable potential windfall for the government at the time.

[They were] carrying the gross domestic product of New Zealand or enough for three Beijing Olympics. If economies were for sale, the men could buy Slovakia and Croatia and have plenty left over for Mongolia or Cambodia

Bloomberg’s William Pesek

Seeking the help of the US Securities and Exchange Commission, the bonds were eventually confirmed to be counterfeit. The value of the bonds in the suitcase exceeded the known circulating supply of a form of bond that stopped being issued in 1982.

Given their frequent use in financial crimes, US-denominated Bearer Bonds were phased out of use via the Tax Equity and Fiscal Responsibility Act. 

But, despite confirmation the Bearer Bonds were phoney, many more questions were left unanswered.

The whole thing is a total fraud. They don’t look anything like real securities, which in any case were never issued in any of those denominations.

Stephen Meyerhardt, spokesman for the Treasury Department, June 25th 2009

So, the first question that springs to mind is why anyone would try to perpetrate a scam on this scale using a financial instrument that was over 25 years out of date.

Let’s assume the delay taken by the Italian authorities to confirm the bonds’ authenticity was because they were good-quality fakes. How did the pair intend to offload the bonds without arousing suspicion, considering the highest denomination ever issued was $10,000?

You can’t exactly break a $ 500 million bearer bond at the local supermarket. 

The total amount of Treasury bearer bonds outstanding at the time was $105 million, with bonds issued in electronic form since 1986.

The next head-scratcher is the decision to fake the $ 1 billion ‘Kennedy Bonds’ from the 1930s, which the US Treasury Department said never existed.

And perhaps the question that, more than any, kept conspiracy theorists occupied – what happened to the two Japanese men in question? Italian authorities said they had no grounds to charge them, and their passports were valid. 

According to the New York Times, the Japanese consulate in Milan would not confirm their identities, though they were named in Italian media.

We don’t know where they are now. We have had no contact with the two men. They have not asked us for our help.

Japanese Consulate in Milan

So the mysterious duo, who stuck out like a sore thumb amid Italian manual workers, simply slipped over the border and disappeared, leaving behind one of the strangest financial crimes in history.

The bizarre circumstances of the Chiasso Bearer Bond mystery and the perceived indifference of the media to dig into the story spawned numerous colourful conspiracy theories. Many can be seen from the comments section of this Seeking Alpha article from 2009.

The most common theory suggested it was an attempt by a rogue state to destabilise the US Dollar. The currency debasement theory holds that dropping money on a country can be more destructive than dropping bombs.

In 2009, the US financial system was fragile, having self-immolated the previous year believing sub-Prime properties were AAA. So, were the Bearer Bonds part of a clandestine attempt by one of America’s enemies to send the greenback into freefall?

Perhaps the more realistic explanation is that the two Japanese men intended an analogue version of the Nigerian Prince Scam.

We’ve all received emails with some ridiculous sob story about a member of an obscure royal family needing our help to remit huge sums of money. 

What isn’t often appreciated about that brand of email is that they are designed to be as ridiculous as possible to filter out all but the most gullible and desperate. The telephone numbers often mentioned are not too dissimilar to the value of bonds discovered in Chiasso.

So, maybe our two well-dressed Japanese men were intending to pull off a similar confidence trick with $134.5 billion in fake bond certificates as collateral for obtaining cash loans from Swiss banks? 

The plot thickened in August 2009 when two Filipinos were arrested in connection with a parcel impounded at Malpensa airport (Milan) containing $103 billion in similar fake Bearer Bonds, with a separate stash of $13 billion in certificate subsequently recovered.

To call this pair foolish, given the heat generated by the Chiasso incident, is a huge understatement. The clumsiness of the repeat event so soon after Chiasso seems to undermine the rogue state argument and reinforce the loan collateral theory. But it doesn’t explain where the bonds came from.

Some production of fake bonds and currency with malicious intent did happen during World War II, so did some of this ancient stock find its way into the hands of criminal gangs? Maybe the Mafia or Yakuza just read up on Operation Bernard and created their own fake Bearer Bonds.

Neither of the Japanese smugglers was ever heard from again, and the two Filipinos refused to talk, but the discovery of even larger attempted bond fraud in 2012 surely put the conspiracy to bed.

In February 2012, Reuters reported that a year-long joint investigation by Italian, Swiss and US authorities had uncovered $6 trillion in fake Treasury bonds (no, that isn’t a typo) intended for use by a criminal gang as collateral in raising loans from Swiss banks.

The fake bonds, found in trunks held by a Swiss Trust company, amounting to a third of US debt (in 2012), made the Chiasso find look like chump change.

Sadly, their discovery pours more cold water on the colourful suggestion of a global conspiracy to take down the dollar, though with a debt mountain that’s since grown to $34 trillion, ticking up by one million every 30 seconds, the US Treasury seems to have done a pretty decent job of tanking the dollar on their own.

Financial Times – US says $134bn Treasury bonds seized in Italy are fake: or are they? (June 18th, 2009)

New York Times – Italy intercepts smugglers with $134.5bn in fake bonds (June 26, 2009)

Statista – US Gross Domestic Product from 1990 to 2022

Corriere della Sera – Il mistero dei bond falsi Miliardi verso la Svizzera (Sep 20th, 2009)

Business Recorder – Italy arrests two in $116 billion fake US bond probe (Sep 25th, 2009)

Reuters – Italian police seize $6 trillion of fake U.S. bonds (Feb 17, 2012)

US Debt Clock – Real-time value of US National Debt

No Free Lunch

There is no such thing as a free lunch, but if you’re hungry to find out why, we’re here to help.

You can learn the meaning and origin of the no free lunch concept, as well as the broader philosophy behind the idea that nothing can ever be regarded as free.

We look at our relationship with money and truth, examining all of the supposed shortcuts, life hacks and get-rich-quick schemes.