What is Churning in Money Laundering?

Churning is the process of making multiple transfers of funds in order to make the analysis of bank accounts by an investigator more difficult. When a person is engaged in money laundering, dirty money is initially recorded in a bank account. Once a sufficient amount of cash has been accumulated, it is broken up and wired to multiple other accounts, typically in foreign locations, where the amounts are again split up and wired to other bank accounts. This constant reshuffling process obscures the origin of the cash.

Example of Churning in Money Laundering

Here is an example of how churning is used to launder money:

An individual deposits a large sum of illegally obtained cash into multiple bank accounts across different banks in different countries.
The individual then begins a series of rapid transactions that move the money through various accounts and assets. For example:
- The money is transferred from one bank account to another, often across borders.
- It’s converted into foreign currencies, which can be transferred internationally.
- It’s used to buy high-value assets (like cars or luxury items) and then sold for cash.
- It’s invested in cryptocurrency, split into smaller amounts, transferred across multiple wallets, and then exchanged for other cryptocurrencies or back into cash.
- Portions of it may be invested in shell companies or funneled through complex financial products, such as loans or derivatives, which may include high-frequency trading to further blur the origins of the funds.
Finally, the laundered money is reintroduced into the legitimate economy by using these “cleaned” funds to purchase a property or invest in a legitimate business, making it appear as if the money was obtained legally.

In this example, the continuous movement and conversion of funds, often across various accounts and asset types, obscure the money's illicit origin, complicating any potential investigation and making the money appear legitimate once reintroduced into the economy.

What is Churning in Securities Trading?

Churning in securities trading involves the excessive buying and selling of client-owned securities by a broker in order to earn commissions. Churning usually does not take into account the client’s investment goals. This situation can only arise when a broker has discretionary authority over a client’s account.