What is Synthetic Identity Fraud?
Synthetic Identity is the fastest growing form of identity theft with losses in the multi-billions! Over 80% of all new account fraud can be attributed to synthetic identity fraud. Synthetic identity fraudsters are tricky and sophisticated. They use a combination of real data and fictitious data to create a new identity. Once this identity is established, the fraudster has successfully created a new persona from which they fulfill countless ongoing fraudulent activities. This can go on undetected for years while a fraudster builds up a synthetic credit profile based on the fictitious identity. The fraudster will open and utilize numerous accounts, loans, credit cards, etc., only to cash out in one fell swoop and disappear for good without a trace!
It’s extremely difficult to track down someone who doesn’t exist.
Unfortunately, this type of fraud is tough to spot and prevent unless you are using the most advanced level identity verification and due diligence tools. Let’s walk through exactly how a synthetic identity is created and what you can do about it!
How is a Synthetic Identity created?
Let’s walk through an example of how a synthetic identity is created, cultivated, and maintained. Let’s say our fraudster’s name is “Bob”. Bob is an expert fraudster, and he is presently on the synthetic identity gravy train defrauding countless businesses across the country. He’s gone undetected for years! Here is an example of how Bob conducts his fraudulent activities.
- Bob obtains an individual’s “real” information. Usually an SSN. This can be obtained numerous ways including from the dark web. The most vulnerable targets are children, elderly, and homeless people. Think about it…a child has a legitimate SSN but has no credit or public record presence yet. To a fraudster, that SSN is golden and ripe for the picking.
- Bob then combines this real SSN with a fake name, DOB, and address to create a new identity. This is sometimes called “Frankenstein ID’s”. Another way this can be accomplished is by using Bob’s real name, DOB, and address with a SSN that does not belong to him. From there, Bob is ready to commit fraud with his newly formed identity.
- Bob will then begin using his synthetic identity to obtain credit and establish his Frankenstein identity with the credit reporting bureaus. This is how he establishes a credit profile and begins cultivating his fraudulent credit identity. A good fraudster will play the waiting game and establish long-term excellent credit and building solid credibility. Bob will even make legitimate payments on his newly established credit accounts. He will continue building his credit profile and securing new loans, credit cards, etc., over time this builds the credit profile of the synthetic identity. More merchants and banks are likely to extend credit over time as confidence builds in the credit worthiness of the synthetic identity.
One day after this new identity has established solid credit with countless credit cards and loans. The fraudster maxes out the credit cards, grabs the cash and goods from the loans and jumps ship! Defaulting on all the accounts and making a clean getaway with no trace. The identity was synthetic; therefore, it wasn’t a real person. It’s going to be incredibly tough to track Bob down! - The fraudster does it again and again. In fact, many fraudsters will have multiple synthetic identities going at any one time. They actively and passionately use their skill to defraud companies nationwide. It’s a full-time job for folks like Bob. Losses are estimated to be 20 billion+ per year!
How to Prevent Synthetic Identity Fraud: Step by Step
To prevent synthetic identity fraud, businesses need to be using the most advanced technology available on the market. This technology should include automated identity verification, document authentication, and public records analysis. There are two key steps in this process.
Step 1: Is this person and their identity authentic? Government issued ID authentication and biometric verification is a must! However, you can’t stop there. Step 2 is just as important.
Step 2: Is this person who they say they are, and does their government issued ID match up with public records? Is there underlying data to support their identity? Public records analysis, and proprietary database verification is imperative.
These two steps involve quite a bit of analysis and data. It may seem cumbersome. However, it can all be automated using tools such as Thomson Reuters partner solution AU10TIX, which uses biometric screening technology linking physical and digital identities. Within 8 seconds an uploaded government issued ID and user-initiated selfie can be checked for authenticity using 100’s of different data points and forgery tests. In addition, biometrics and liveness testing are used to compare the selfie against the ID while ensuring the selfie is also legitimate.
Even the most advanced level fraudsters have a hard time getting through AU10TIX’s comprehensive identity tests. Furthermore, it’s imperative to conduct due diligence on the underlying source information available in public records and proprietary databases to confirm and verify the information on the ID is legitimate. Does the name, address, and personally identifiable information exist and is there data to prove it? This is where Thomson Reuters CLEAR platform steps in for public records analytics and verification. And if necessary deep-level due diligence.
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Together, AU10TIX and CLEAR can automate document authentication, biometric verification, and underlying source data analysis instantly. This is almost impossible for a fraudster to overcome. It’s the one-two punch in synthetic identity fraud prevention!
