Synthetic Identity – A New Form of Identity Fraud for 2019?

Synthetic identity fraud (SIF) is a comparatively new form of identity theft that has gripped the criminal fraud landscape. In synthetic identity fraud, fraudsters steal parts of real information from people’s identities and connect them with fake information to make a new identity for themselves. That identity is then used for a number of financial gains including obtaining credit and opening fake accounts thus making fraudulent purchases. Potentially, using a synthetic identity, a fraudster can steal money from banks and credit card companies by obtaining as many credit cards or loans as possible. They can go so far as to defraud government agencies and bypass tax returns or receive other monetary benefits.

How Does Synthetic Identity Fraud Work?

While in traditional identity fraud the fraudster steals the entire information from his/her victim, in SIF the perpetrator starts with only one piece of real information like a social security number. They then construct a fake identity with it, adding fake information to it including a name, phone number, address and date of birth. All this makes it nearly impossible to catch SIF. The number of synthetic identity losses has no precise calculations, but certain individual reports estimate that credit card losses up to $820 million due to SIF. By 2020 these losses are expected to rise up to $1.25 billion.

Once they manage to cultivate a fake identity, the fraudster is able to obtain credit from financial institutes and credit cards from different credit card companies. They then try to gain as much benefit as they can until the company or bank approaches them for payments. However, only then they are able to find out that the identity used was fraudulent. Undoubtedly it is the fast-growing yet highly undetectable form of fraud that the financial sector has faced to date.

Often times the criminals committing SIF are sophisticated and will take their time to obtain a good credit rating. At first, they will pay their bills on time and show responsibility on their part. This will build up a good name for them by showing a legitimate source of income, allowing them to obtain large amounts of credit. They are patient and are willing to play along with the system before leveraging the loopholes in it. Most SIF scams are designed by organised criminal gangs who take their time to build identities before pulling the trigger.

Why is Synthetic Identity Fraud Undetectable?

There are a number of reasons why SIF is potentially undetectable, one of them being the fault in anti-fraud solutions. A lot of fraud detection systems tend to be reactive rather than proactive. One of FBI’s former chiefs of financial crimes said that most financial services institutes and authorities tend to investigate the fraud rather than prevent it from happening. He also said that to avoid crimes like SIF from happening, a driven approach is required.

Due to its nature, SIF can go undetected for years on end. Since the criminals themselves are in no hurry to gain benefits, no one even realises that foul play is at hand. Fraudsters will also mostly use SSN of children as they cannot obtain credit until the age of 18. Through synthetic identity deception, they can create fake identities. All they have to do is misrepresent the age, and they end up gaining financial benefits for years on end.

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How to Prevent Synthetic Identity Theft?

According to comprehensive research and reports, fundamental and institutional level changes are required to combat crimes like SIF. The system of verifying identities by both governments as well as financial institutions needs to change. Technology can play a huge role in storing and sharing personal information of users. Experts suggest that information sharing between governments and financial institutes and trade centres needs to be improved. More to the fact that systems like artificial intelligence and data mining can play a major role in the prevention of frauds like SIF.

Methods, like Know Your Customer or KYC verification systems, can also play a major role in preventing frauds like synthetic identity theft. Shufti is providing businesses and financial services institutes with real-time verification of clients and end users through a hybrid technology of AI as well as human intelligence. It can identify and verify users and customers with the help of document and facial verification. Both these methods of verification can allow banks and financial institutes to authenticate if the person’s identity is real or a fake one. Through facial recognition tech, they can corroborate the person in the identity document with the individual presenting it.

Biometrics like facial recognition and fingerprint scanning can allow for a better understanding of an individual’s identity. KYC verification can provide identity authentication of customers and clients that can go a long way to prevent identity fraud. Multiple layers of verification can also increase the security of a business. All such enhanced methods of verification can provide better protection against fraud to financial institutes and enterprises.

What businesses need is better technology and vigilance to handle crimes like synthetic identity fraud. Businesses can avail Shufti as a KYC service provider to make their practices safer and fraud-free. Its KYC software runs real-time verifications that make the client onboarding process easier and faster for banks. It can also help them adhere to Anti-Money Laundering (AML) regulations through AML background checks of high-risk clients.