A bearer is an individual who is in possession of a negotiable instrument, document of title, or proof of security that is either payable to the person in possession (ie. payable to bearer) or endorsed in blank. These types of instruments are commonly known as bearer papers. Bearer papers are the opposite of order papers, which are only payable to the party listed on the document.
Like all negotiable instruments, instruments payable to the bearer can be transferred from one party to another. Because ownership of bearer papers is determined exclusively by possession, they were long criticized for their uses in money laundering and other illicit activity. As a result, the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) prohibited issuing bearer papers. Furthermore, the passage of the Hiring Incentives to Restore Employment Act in 2010 stripped the value from the bearer papers already in circulation before TEFRA by absolving banks from the responsibility of redeeming them. These two acts have functionally abolished the use of bearer papers in the United States.
[Last updated in July of 2022 by the Wex Definitions Team]