The Growing Threat of Fake Identity Fraud

What is Synthetic Identity Fraud?

Financial fraud is evolving, and one of the most alarming trends is synthetic identity fraud. This type of fraud, often referred to as "Frankenstein fraud", involves creating a fake identity by combining real and fabricated information. Unlike traditional identity theft, where a criminal steals and uses someone's entire identity, synthetic fraud builds a new identity from scratch.

How It Works

The process usually starts with a stolen Social Security number, often belonging to a child or a recently deceased person. Fraudsters then add fake details like addresses, phone numbers, and other personal information to create a completely new identity. This fake identity is then used to:

• Open bank accounts
• Apply for credit
• Commit various forms of financial fraud

The Challenge of Detection

Synthetic identity fraud is a significant problem because it is difficult to detect. Traditional methods of verifying identities, such as Know Your Customer (KYC) checks, often fail to catch these fake identities. This is because synthetic identities combine real and fabricated data, making them appear legitimate.

Financial Impact

The financial impact of synthetic identity fraud is substantial. According to Deloitte, this type of fraud could result in losses of at least $23 billion by 2030. The average payoff for a successful synthetic identity fraud scheme is estimated to be between $81,000 and $98,000. However, some schemes can result in the theft of millions of dollars.

Law Enforcement Response

Law enforcement agencies have taken notice of this growing threat. In March, the U.S. Department of Justice charged six defendants in New York for their roles in a conspiracy to steal roughly $80 million from government agencies. The fraudsters used fake or stolen identities to open bank accounts and carry out the scheme. One of the defendants, a bank teller, used his position to open and alter accounts to aid the criminal enterprise.

Combating the Threat

To combat this type of fraud, banks and financial institutions are turning to biometrics. Biometric technology analyzes unique physical or behavioral characteristics, such as:

• Palm vein patterns
• Retina details
• Vocal pitch
• Ear canal shapes

Unlike passwords or PINs, biometric technology can analyze traits that are unique to each consumer's makeup.