Protecting Your Organization Against Synthetic Identity Fraud

Given that synthetic identity fraud is the fastest growing financial crime in the United States, we decided to share key information from the ACFE Insights article, “How To Catch a Fraudster That Doesn’t Exist,” by Neil Dubord, CFE. The following summary will define and explain synthetic identity fraud and will provide tips for protecting your organization.

According to the article, “Synthetic identity fraud occurs when perpetrators combine piecemeal and, at times, factual information to create a new identity. These identities are cheap, quick and easy to produce, and may include a factual piece, or pieces, of information from sources such as breached data sites.” In a common synthetic identity scheme, a fraudster will take out and pay off a series of small loans under a fictitious identity to build credit.

Once credit is built, the fraudster will take out a large loan before abandoning or “busting out” of the identity. Dubord notes that synthetic identity fraud is particularly challenging to detect, investigate, and prosecute. This is especially true because synthetic identities frequently contain fragments of information that belong to real people.

The article names a number of factors that contribute to the rise of synthetic identity fraud. These include the growth of decentralized finance and online lending processes, as well as the availability of fake photo technology that can create hyper-realistic pictures of individuals who do not exist. That said, advanced technology, such as artificial intelligence and blockchain, can also be used to detect synthetic identities and prevent fraud.

Dubord recommends a proactive, multilayered approach to Know Your Customer (KYC) assessments for preventing synthetic identity fraud. He states, “A vigilant compliance officer undertaking a methodical KYC process should use as many tools as possible to validate that the information received, including the person’s picture, is accurate.” With that said, he recommends adding Open-source intelligence (OSINT) and PataPixel to your KYC toolkit. PetaPixel is a free Chrome extension that claims to detect fake pictures with 99.29% accuracy. While it is a valuable tool, Dubord warns that it will not be able to detect “high-quality deepfakes.”

With synthetic identity fraud on the rise, it is imperative that you continually review and strengthen your KYC process to protect your organization.

Want to learn more about how to protect your organization from fraud?  See our article here.