Is there management for catching a thief who doesn't exist? The non-existent thieves in this question are Synthetic Identity Fraudsters (SIF), responsible for identity thefts. These scammers, who build a new identity with a combination of real and fake information, create a phony identity by starting with single legitimate information, unlike traditional identity fraud. Synthetic Identity Fraud is a significant concern in companies, especially in the financial sector.
While no one knows precisely how much money has been lost to synthetic identity scammers, a study by Aite Group found that the US credit card accounts lost $820 million to SIF in 2018. In addition, fraudsters, whose numbers are increasing day by day and becoming a significant threat, have cost banks and financial institutions in the US an estimated $ 20 billion in losses in 2020, according to FiVerity's 2021 Synthetic Identity Fraud Report.
What is Synthetic Identity Fraud?
The fact that there are different definitions of SIF and multiple approaches to its detection makes it difficult to determine and mitigate this fraud which is often associated with identity theft. For this reason, the Federal Reserve has created a group of 12 fraud experts to develop a specific definition. The resulting definition is as follows: ‘’Synthetic identity fraud (SIF) is using a combination of personally identifiable information (PII) to fabricate a person or entity to commit a dishonest act for personal or financial gain.’’ In addition, the Federal Reserve has published three white papers to raise industry awareness and reduce SIF risks.
Synthetic identity fraud is not just done to steal money. Not being detected by the government is also used to facilitate drug and human trafficking. Immigrants can use fake personal information to live, work, and enjoy the country's advantages in another country. Sometimes they just want access to bank accounts, which makes it easy to pay and buy.
Synthetic identity thieves can most easily steal your social security number, bank account number, credit card information, email, and medical records. With the development of technology, fraud is being committed in various.
Synthetic identity thieves inflict huge losses on lenders. In this long-term planned scam, a large amount of credit is gained, and they run away without repayment of the collected loans.
How Criminals Exploit Synthetic Identity Fraud for Financial Gain?
Creation of a fake ID
Scammers start by stealing the social security numbers of people who don't use loans to commit synthetic identity theft, usually a child and homeless people. In another way, Frankenstein IDs are identities that are created with different information stolen from multiple people. For example, one can make a synthetic identity using someone’s social security number, the other's bank number, and the other's email. Stealing information from discarded documents, purchasing it from the dark web, or obtaining it from a data breach is unfortunately not that difficult for scammers.
Application for loans
Thieves start to apply for loans online by using the synthetic ones they have created. Because the synthetic ID doesn't have a previous credit history, the initial application is usually rejected. The most critical point of the job is the start of credit history. The scammer applies for a loan until it is approved and finally gets his first approval from a high-risk lender with a small line of credit.
Building a positive credit track record
They start using the limit and making regular payments to improve credit ratings and build a solid credit record. Over time, they may access more generous lines of credit and other lenders. After months or even years, the scammer will look just like any other credit user. Advanced criminal gangs can create fake businesses and use available addresses to provide a more realistic view of identity, thus receiving higher payments.
Disappearance
By guaranteeing larger credit extensions, scammers max out their credit limits and disappear. While some scammers create new ones after using a fake ID, others use multiple counterfeit IDs Finding scammers who have disappeared is difficult because there is no way to reach them. The only trace they left is the person whose SSN is used, and it can also be challenging to prove that they are innocent.
How to Prevent Synthetic Identity Fraud?
Synthetic identity theft is one of the types of fraud that is the hardest to detect and protect. The filters used by financial institutions may not be powerful enough to catch fraud. Synthetic identities look like real customers with a very time-limited credit history. However, we can still do a few things against this powerful scam.
Institutions
- Financial institutions should reduce loss by using biometric features of their customers, such as facial recognition and fingerprinting.
- With artificial intelligence algorithms and machine learning, companies should detect unusual behavior of customers.
- Organizations should improve the measures taken to store and share personal information.
Individual customers
- Regularly review your own and your children's credit reports to detect any unusual activity that might indicate identity theft.
- Keep documents containing your personal information safe.
- Beware of scams with social engineering. You can read our article that will increase your social engineering awareness.
- If you think you've been hacked by identity scammers, freeze your credit. This way, you can prevent the scammers from harming you further until you eliminate them.
- Do not give your social security number to any unsafe institution or person.
- Using multi-factor authentication can protect you from many scams.
- Irregular emails are a big clue that your data may have been compromised. Check your email often.
The Role of AML/CFT Compliance in Synthetic Identity Fraud
Scammers can hide the source of the money by using new accounts they open with the synthetic identities they create; they can use the money to deposit illegal funds and even to buy and send goods.
Thanks to the information collected and analyzed during the Know Your Customer (KYC) process, it is possible to detect uncharacteristic behaviors. In institutions, Customer information should be known comprehensively. In this way, it can be determined whether a transaction was obtained by a real customer or by a fraudster who received the information. However, it is also possible to finally understand whether the identity is synthetic or not.
Financial institutions must comply with AML and KYC regulations to prevent fraud. Scammers can easily launder money from financial institutions through synthetic identity theft and make money laundering untraceable. While fraud is not the fault of financial institutions and banks, they have a responsibility to conduct due diligence. If the government finds that institutions have not taken the necessary measures to detect fraud, it may impose severe AML/KYC compliance fines.
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