Handling Unemployment Fraud During COVID-19

How to Prevent Synthetic Identity Fraud

According to the Federal Reserve, synthetic identity fraud is the single fastest-growing financial crime in the US. It causes billions of dollars in damages every year in a myriad of different industries from home rental to retail. For the sake of simplicity of explanation, we will focus on what this crime looks like to credit lenders, but know that this does not cover the dozens of organizations that can be affected by it. In short, anyone who is in the position of verifying identity in their business transactions needs to be on the look-out.

What is Synthetic Identity Fraud?

Synthetic identity fraud is when a cybercriminal steals (or buys off of the web) the social security number of an unsuspecting victim and combines it with fabricated information such as a made-up name, birthdate, and address. The victim is most often a child, elderly person, or homeless person because these people access their credit information less often than the rest of the population. This makes it easier for the fraudster to get away with the fraud for long enough to get the most payout. 

Alternatively, synthetic identity fraud can also be perpetrated by taking advantage of a relatively new system put in place by the Social Security Administration. In an attempt to make identity theft harder to commit in general, the Social Security Administration changed the way they assigned social security numbers from geographically significant to random in 2011. This makes traditional identity theft harder because the social security number of a real person is harder to guess, but it also makes synthetic identity fraud easier because a criminal can put together a random selection of numbers to create a completely falsified persona. In this case, synthetic identity fraud is tough to detect because no one will ever come to the financial institution to report identity theft. 

No matter how it’s perpetrated, committing synthetic identity fraud is usually playing the long game. Criminals will use the social security number to try to open an account at many different institutions. They will most likely be turned away many times at first because of the lack of established credit behind the social security number. However, each application makes them a record at each institution, granting the false identity more legitimacy and, at some point, there will be an institution that approves. The kind of credit granted is usually high risk and low limit. The criminal uses the credit responsibly, making average purchases and making all their payments on time. Then they will use the newly bolstered credit to open more, new accounts with higher limits. After biding their time anywhere from a few months to a few years, the criminal will “bust out”, suddenly maxing out all lines of credit and disappearing. This is the big moment of payout for them. Unless of course, they are really planning ahead. Some synthetic identity fraud criminals will “bust out” but then return to the institution and claim fraud with the real name and other personal information associated with the social security number. They are issued a refund for the fraud they committed and then they disappear. 

How it differs from traditional identity theft

Traditional identity theft typically involves stealing the complete information of a real person such as the name, social security number, and birthdate. The criminal then opens an account (or more than one account) and tries to max it out as fast as possible. Traditional identity theft needs to be done quickly because the victim is likely to either notice the fraudulent activity or to be notified by their financial institution. The erratic spending perpetrated by the fraudster is often quite out of the ordinary for the victim and is easily spotted. The victim can then report the identity theft to their financial institution which is then left to recoup the losses suffered.

How synthetic identity fraud impacts consumers

Synthetic identity fraud is as sinister as it is tricky to undo. By being the first to open a line of credit under the social security number, the criminal makes their false identity look more real than the person rightfully claiming that the account is a fraud. Additionally, if the synthetic identity fraud criminal is brazen enough to claim fraud on their own purchases, the real person behind the social security might really be in trouble when trying to prove that the identity is theirs. To the institution’s eye, it looks as if there has been fraudulent activity, a claim on that fraud, and recuperation to the wounded party. Then a third party comes along claiming that it was all fraud all along. The real person will have to prove it’s them, claim fraud and undo all the harm done to their credit history. This can be especially difficult because the majority of the victims of synthetic identity fraud are children. So it is often the case that a young person tries to open a credit card account for the first time or take out a student loan having no idea the damage that has already been done by synthetic identity fraud and not being familiar with credit repair.

Steps consumers can take to prevent synthetic identity fraud

There are many companies that will monitor your credit use for you and alert you to any suspicious activity under your name and/or social security. They can be essential in preventing synthetic identity fraud by providing multilayered protection. You can also visit federalreserve.gov for more information and resources on synthetic identity fraud.

How synthetic identity fraud impacts businesses

It is impossible to know the exact totals on the damage caused by synthetic identity fraud, but the Federal Reserve’s latest estimates are in the billions of dollars. When we consider that the average charge per synthetic identity fraud case is $15,000 and that there are innumerable other onboarding, labor, and convenience costs associated, it’s easy to see where the billion-dollar estimate comes from. Synthetic ID fraud is the most common form of identity theft and the rate at which the crime is being committed is only increasing. And financial institutions aren’t the only ones affected. For example, home and apartment renters can be victims when an identity fraud criminal uses a fabricated identity to rent a space for a period only to suddenly disappear without paying for the owed rent. Major banks may have the insurance necessary to recuperate the losses, but smaller businesses may be at a huge loss at the end of a fraud case that they did not even see coming.

How businesses can detect and prevent synthetic identity fraud

As mentioned previously, synthetic ID fraud is often quite challenging to detect as it is either reported too late or not at all. 

For businesses, IDScan.net has some solutions for verifying identification documents that can be essential in preventing synthetic ID fraud from being carried out. Because these fraudsters have to create their own fake IDs to match their fabricated identity, ensuring that the customer is who they say they are by validating their IDs is of utmost importance. For example, our online ID verification technology automatically performs identity verification by checking that the ID is formatted correctly. It also checks that the information in the barcode matches what is displayed on the front of the ID. It then queries the USPS database to confirm that the address on the ID exists. Lastly, it moves to the pictures, calculating a confidence percentage in the facial match between the photo on the ID and the selfie supplied by the customer. The selfie is also run through anti-spoofing processes to assure it is legitimate.

For more information about how our digital identity verification methods can help keep your business safe, reach out to sales@idscan.net.

What is synthetic identity fraud?

When a cybercriminal steals (or buys off of the web) the social security number of an unsuspecting victim and combines it with fabricated information such as a made-up name, birthdate, and address.

Who is affected by synthetic identity fraud?

Generally, synthetic identity thieves target people who rarely access their credit information, such as children, the elderly, and the homeless. Businesses, especially financial institutions, can face large payouts if precautions against synthetic identity fraud aren’t taken.

How can synthetic identity fraud be prevented?

Consumers should monitor their credit, as well as their children’s credit, in order to maintain awareness of any signs of identity theft. Businesses can ensure they are performing their due diligence for every customer they onboard using IDScan.net’s KYC solutions. Email sales@IDScan.net for more information!