Fraud of all types is a huge problem in the US. In 2020, there were 4.8 million reports of consumer fraud and identity theft. This type of personal fraud cost Americans over $7 billion in 2020.
Why are there so many reports of fraud? Two reasons. First, there are many kinds of fraud, like consumer fraud, voter fraud, elder fraud, identity theft. One specific type is called synthetic fraud, also known as synthetic identity fraud. The second reason: people have rationalization, opportunity, and pressure to commit many types of fraud. More specifically:
- Opportunity in a system’s weakness
- Pressure on a fraudster’s finances or addiction
- Rationalization to justify the crime
We’ll cover this emerging type of fraud, discuss how common it is, why people do it, as well as discuss synthetic fraud detection strategies for companies.
What is synthetic identity theft?
Synthetic fraud is similar to identity theft, where a criminal steals your personal information to create fake accounts and spend your money. However, synthetic identity fraud involves using real information combined with fake information to create a new, synthetic identity.
To start, the fraudster will steal the Social Security number of someone unlikely to notice. Perhaps a child, an elderly person, or a homeless person who very likely won’t check their credit often, if ever. Once they obtain a valid Social Security number, they’ll combine that number with a full fake identity, , including a name, date of birth, address, phone number, social media presence,, and other fictitious personal details. Synthetic fraudsters can build up the credit of this newly created fake identity to borrow even more money, or to pose as a victim of fraud to get back the money they spent!
When you think of identity theft, you think of someone stealing your identity. This usually looks like someone stealing your Social Security number or credit information to borrow money or make purchases, pretending to be you. Once you notice fraudulent transactions, you contact your bank, credit card company, or other account holders immediately. Synthetic identity theft starts similarly but is markedly different.
What if someone could commit identity theft without anyone reporting them? Banks and other institutions have a harder time catching synthetic fraud because the Social Security numbers stolen belong to people who might not notice for years. Experts predict the effects of this fraud to be catastrophic to children once they grow up and attempt to apply for credit, since they are a common target for Social Security number thefts.
Fraudsters are catching on to this new way to steal and defraud, an estimated 80-85% of fraud is synthetic fraud. The cost of this fraud is enormous, as banks lose $6 billion annually to synthetic fraud.
- Synthetic fraud is a type of identity theft in which a fraudster combines a stolen Social Security number with fake personal information to create a new identity and fraudulently spend and steal money.
- Sometimes fraudsters build up credit to borrow more money or pretend to be victims of fraud to get the money they spent back!
- Synthetic identity fraud is common but much harder to catch than regular identity theft.
Who uses synthetic identity fraud?
Criminals interested in stealing money commit synthetic identity fraud, as they do with other types of fraud. However, synthetic identity fraud is unique in that the perpetrators aren’t always financially motivated like the common fraudster.
Illegal immigrants sometimes commit synthetic fraud as a way to remain in their new country of residence. They aren’t necessarily motivated to steal the bank’s moneyRather, they want the freedom to regularly use a bank account and other financial services, and have credit to live a normal life. They may also use a semi-legitimate but synthetic identity to obtain healthcare, file tax returns, and even request unemployment benefits.
A new, synthetic identity takes years to construct and perfect, especially creating a good, long-term credit history and credit score. Others may use a new identity to evade detection from law enforcement and prosecution, or to engage in crimes like drug trafficking undetected. Still others want to “disappear” and start a new life elsewhere to escape someone looking for them.
Some fraudsters have multiple synthetic identities at once. They may use these identities concurrently for many years without detection. Banks and other companies don’t realize the identity isn’t real until the person makes multiple charges and stops paying, making the account delinquent. Then the person absconds, leaving that identity behind (known as “busting out.”) The bank, credit card, or other company is unable to collect or recover any money from the fake identity.
- Common, financially motivated fraudsters commit synthetic fraud because it’s harder for institutions to detect.
- Illegal immigrants also commit synthetic ID fraud to live a normal life in the country they are illegally residing in, including accessibility to banks, credit, and healthcare.
- Many people take years to build their new synthetic identity to access services or to evade prosecution and frequently have more than one.
What can companies do to prevent synthetic fraud?
The biggest victims of synthetic identity fraud are banks, as they lose a whopping $6 billion per year to this type of crime.. Synthetic fraud detection is difficult, and it’s why this type of fraud is so popular.
Traditional fraud monitoring systems don’t readily detect synthetic fraud. These vulnerable populations usually won’t know they’ve been a victim for a long time, if ever. Luckily, there are identity verification and other solutions to help protect companies and detect synthetic fraud.
Embrace artificial intelligence
Machine learning and artificial intelligence are great modern tools to catch any inconsistent consumer behaviors and identity discrepancies. These technologies can also help companies examine information across multiple companies to determine if the people of interest use the same information at different locations.
Look closely at identity profiles
Financial institutions should regularly update and enhance their identity verification processes, and ask these questions when people open new accounts:
- Does the person have any personal relationships? Synthetic fraudsters often have no apparent friends or relatives
- Does the person have a suspiciously high number of authorized users on their account, especially users in different cities and with different last names?
- Has the person used different personal information perhaps by mistake, like different dates of birth, etc.?
- Do you see any indicators of identity history, like a driver’s license, passport, or utility bill?
- Has the person tried applying for credit an unusually high number of times?
Utilize public records software for fraud prevention
Tracers public records software has a number of different searches that can help companies prevent fraud before it happens. In addition to a cloud-based platform with identity management software, Tracers also provides batch skip tracing and API solutions. With a dedicated public records API, companies can integrate public records data directly into their own software for a completely seamless experience.
- Banks and financial institutions are hit hardest by synthetic fraud.
- Closely examining identity profiles and embracing artificial intelligence can help companies with early synthetic fraud detection.
- Tracers public records provides cloud-based, batch processing and API data solutions to prevent fraud.
Crime has always existed, but its methods and how we deal with it have evolved with each advance in technology. Synthetic fraud is the latest evolution of fraud. Tracers offers state-of-the-art synthetic fraud detection solutions to combat this evolved crime. Companies must be vigilant to protect their assets, and individuals must take precautions like checking their credit reports to prevent becoming a victim.