Published on February 22, 2024
Synthetic identity theft: What is it & how does it work?
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Have you ever wondered how people create new identities online? Synthetic identity theft is the answer. Synthetic identity theft is not fiction, but a real danger that's becoming more common, and traditional methods struggle to catch it. Read below to learn what synthetic identity theft is, how it works, and what to do if you're a victim.
What is Synthetic Identity Theft?
Synthetic identity theft is a type of fraud in which criminals create fictitious identities by combining real and/or fake information. Unlike traditional identity theft, where thieves steal existing identities, synthetic identity fraud involves the fabrication of entirely new identities. This can include using real Social Security numbers (SSNs) along with fake names, addresses, and other personal information or creating entirely fake identities using a combination of fabricated information.
Victims of this fraud often belong to demographics less likely to monitor their credit, such as children, the elderly, or homeless individuals. Fraudsters cultivate these identities over time, gradually building credit histories before exploiting them. This makes detection challenging, allowing the fraud to persist for extended periods.
Synthetic identity fraud attracts criminals due to its lucrative rewards and difficulty in detection. Often perpetrated by sophisticated identity thieves, it involves combining stolen real information with fake details to establish credit lines or conduct purchases. This type of fraud is challenging to catch because it utilizes genuine elements like SSNs.
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What is A Synthetic Identity Used For?
A synthetic identity is used for various fraudulent purposes, primarily aimed at financial gain. Here are some common uses:
1. Opening Fraudulent Accounts: Fraudsters use synthetic identities to open bank accounts, credit cards, or other financial accounts under false pretenses. These accounts are then exploited to obtain funds or make purchases without intending to repay debts.
2. Building Credit History: Synthetic identities are often nurtured over time to establish positive credit histories. Fraudsters may make small purchases or obtain small loans to build up a credit profile, making the identity appear legitimate and creditworthy.
3. Obtaining Loans and Credit Lines: Once a synthetic identity has a sufficiently established credit history, fraudsters may apply for larger loans or credit lines, often with the intention of maxing out these credit facilities and disappearing without repayment.
4. Money Laundering: Synthetic identities can also be used in money laundering schemes to obscure the origin of illicit funds. Fraudsters may use these identities to transfer funds between accounts or conduct transactions to disguise the trail of illegal activities.
5. Accessing Government Benefits: In some cases, synthetic identities may be used to fraudulently access government benefits or services by providing false information about eligibility criteria or financial circumstances.
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Traditional Vs. Synthetic Identity Theft
Synthetic identity theft and traditional identity theft both involve fraudulent acquisition and misuse of personal information, but they differ in their methods and outcomes:
1. Synthetic Identity Theft
- Creation of New Identities: In synthetic identity theft, criminals fabricate entirely new identities by combining real and fake information, such as Social Security Numbers (SSNs) with false names, addresses, and other details.
- Long-Term Fraud: Fraudsters typically cultivate these synthetic identities over time by establishing credit histories and gradually building up trust with financial institutions. This allows them to engage in prolonged fraudulent activities, often going undetected for extended periods.
- Complexity: Synthetic identity theft is often more sophisticated and challenging to detect compared to traditional identity theft, as the fabricated identities may include genuine elements like SSNs.
2. Traditional Identity Theft
- Stealing Existing Identities: In traditional identity theft, criminals steal personal information from individuals, such as SSNs, credit card numbers, or other sensitive data, without their consent.
- Immediate Use: The stolen information is typically used immediately to commit fraud, such as opening fraudulent accounts, making unauthorized purchases, or accessing existing financial accounts.
- Detection: Traditional identity theft may be detected more quickly, especially if victims monitor their accounts regularly or if financial institutions have robust fraud detection systems in place.
How Does Synthetic Identity Theft Work?
Synthetic identity theft is a type of fraud in which criminals create a new identity by combining real and fake information to establish credit accounts or other financial services. Here's how it typically works:
1. Creation of Synthetic Identities: The fraudster creates a synthetic identity. This often involves using a combination of factual and fabricated information, such as a legitimate Social Security number (SSN) or other identifiers, along with fake names, addresses, and dates of birth. Sometimes, they may use stolen personal information from multiple individuals to create an entirely new identity.
2. Building Credit History: Once the synthetic identity is created, the fraudster establishes a credit history for it. They may apply for small loans, credit cards, or other financial products. Initially, these applications may be rejected due to the lack of credit history.
3. Credit Building: To build a credit history for the synthetic identity, the fraudster may start with secured credit cards or small loans that are easier to obtain. By making timely payments and gradually increasing credit limits, they aim to improve the creditworthiness of the synthetic identity over time.
4. Exploiting Good Credit Standing: As the synthetic identity's credit history improves, the fraudster may apply for larger loans or credit lines. They may max out credit cards or take out loans without the intention of repayment.
5. Profiting from Fraudulent Activity: Once the fraudster has obtained access to significant credit lines, they may engage in various fraudulent activities, such as purchasing goods and services, obtaining cash advances, or even laundering money. They may also sell the synthetic identity to other criminals.
6. Avoiding Detection: Synthetic identity theft can be challenging to detect because the synthetic identities may appear to legitimate individuals with established credit histories. Fraudsters often take steps to maintain the illusion of legitimacy, such as making minimum payments on credit accounts to avoid suspicion.
7. Victim Impact: Victims of synthetic identity theft may suffer damage to their credit reports and financial reputations. Since the synthetic identities are not directly linked to real people, it can be difficult for victims to prove that the fraudulent activity is not their own.
7 Methods Fraudsters Use To Create Synthetic Identities
Fraudsters employ various methods to create synthetic identities, blending real and fake information to establish fraudulent personas. Here are the primary methods they use:
1. Combining Real and Fake Information
Fraudsters often start with real personal information, such as stolen Social Security Numbers (SSNs), and then mix it with fabricated details like fake names, addresses, dates of birth, and other identifiers to create a synthetic identity.
2. Stealing SSNs or Purchasing Them
Fraudsters may obtain SSNs through data breaches, hacking, or by purchasing them on the dark web. They often target SSNs assigned to individuals with limited or no credit history, such as children, homeless individuals, or the elderly.
3. Creating False Documents
To support the synthetic identity, fraudsters may forge or create false identity documents, such as driver's licenses, passports, or utility bills, to make the identity appear more legitimate when applying for credit.
4. Using Synthetic Identities of Deceased Individuals
Some fraudsters exploit the identities of deceased individuals, using their SSNs and other personal information to create synthetic identities that are less likely to be detected.
5. Piggybacking on Existing Accounts
Fraudsters may piggyback on existing accounts with good credit by becoming authorized users in exchange for compensation. This tactic can help accelerate the process of building a positive credit history for the synthetic identity.
6. Creating False Credit Profiles
Fraudsters may establish false credit profiles for synthetic identities by opening small accounts or secured credit cards and making timely payments to build a positive credit history over time.
7. Fabricating Employment and Income Information
To support the legitimacy of the synthetic identity further, fraudsters may fabricate employment and income information when applying for credit, often using fake employer information and inflated income figures.
What Happens If You Fall Victim to Synthetic Identity Theft?
If you're the victim of synthetic identity theft, you may experience several challenges and potential consequences, including:
1. Financial Losses: Synthetic identity theft can lead to financial losses if the fraudster uses the synthetic identity to open fraudulent accounts, obtain credit, or make unauthorized purchases. You may be held liable for any debts incurred under the synthetic identity.
2. Damage to Credit Score: Fraudulent activity conducted under a synthetic identity can damage your credit score and negatively impact your ability to qualify for loans, credit cards, or other financial products in the future.
3. Identity Verification Issues: You may encounter difficulties when attempting to verify your identity for various purposes, such as applying for loans, renting an apartment, or even applying for employment, due to discrepancies or inaccuracies in your credit report caused by synthetic identity theft.
4. Legal and Administrative Hassles: Resolving synthetic identity theft can be a time-consuming and complex process that involves contacting financial institutions, credit bureaus, and law enforcement agencies to report the fraud, dispute fraudulent accounts or transactions, and take steps to repair your credit.
5. Emotional Stress and Anxiety: Being a victim of identity theft can cause emotional stress, anxiety, and feelings of vulnerability or insecurity, as you may worry about the potential for further fraudulent activity or the long-term impact on your financial well-being.
6. Reputation Damage: Synthetic identity theft can damage your reputation and credibility, especially if the fraudulent activity goes undetected for an extended period or results in legal or financial consequences that affect your personal or professional life.
7. Difficulty Obtaining Credit or Services: Even after resolving the synthetic identity theft and repairing your credit, you may still encounter challenges when applying for credit or services, as lenders and service providers may view you as a higher risk due to the identity theft incident.
You play a key role in preventing synthetic identity fraud by actively monitoring your credit reports for any signs of suspicious activity. It's essential for you to exercise caution when sharing personal information and to remain vigilant against potential phishing scams or fraudulent activities. If you suspect that you may be a victim of synthetic identity fraud, it's important for you to report it promptly to the appropriate authorities.
10 Tips To Detect And Prevent Synthetic Identity Fraud
Detecting and preventing synthetic identity fraud requires a multi-faceted approach that involves proactive measures by both individuals and institutions. Here are some key strategies:
1. Enhanced Identity Verification
Strengthen identity verification processes by using multi-factor authentication, biometric verification, and identity document validation to ensure that individuals are who they claim to be.
2. Monitor Credit Applications
Regularly monitor credit applications for suspicious activity, such as multiple applications using the same SSN but different personal information or applications with incomplete or inconsistent information.
3. Verify Identity Information
Verify identity information provided by applicants against trusted sources, such as government-issued IDs, Social Security Administration records, and credit bureaus, to detect discrepancies or inconsistencies.
4. Use Advanced Analytics
Employ advanced analytics and machine learning algorithms to analyze behavior patterns and identify anomalies associated with synthetic identity fraud, such as unusual spending patterns or high-risk credit behaviors.
5. Collaborate with Industry Partners
Collaborate with other financial institutions, credit bureaus, and law enforcement agencies to share information and best practices for detecting and preventing synthetic identity fraud.
6. Educate Consumers
Educate consumers about the risks of synthetic identity fraud and encourage them to regularly monitor their credit reports for any suspicious activity. Provide guidance on protecting personal information and promptly responding to identity theft incidents.
7. Implement Fraud Detection Tools
Invest in fraud detection tools and technologies, such as fraud scoring models, identity verification services, and real-time transaction monitoring systems, to detect and prevent synthetic identity fraud in real time.
8. Establish Account Monitoring
Implement proactive account monitoring systems to detect unusual account behavior, such as sudden increases in credit utilization or changes in spending patterns, which may indicate synthetic identity fraud.
9. Limit Access to Sensitive Information
Restrict access to sensitive identity information within organizations and implement strict data security measures to prevent unauthorized access or data breaches that could lead to synthetic identity fraud.
10. Report Suspicious Activity
Encourage individuals and employees to report any suspicious activity or suspected instances of synthetic identity fraud to the appropriate authorities, such as the Federal Trade Commission (FTC) or local law enforcement agencies, for investigation and action.
How Can FOCAL Help?
FOCAL's Device Risk uses strong AI engines and threat Intelligence to identify and automatically respond to elusive fraudulent activities in the digital landscape.
1. Anomaly Detection: Device risk analysis can detect anomalies in device behavior, such as unusual device configurations, IP addresses, or geolocations associated with credit applications. These anomalies may indicate potential fraudulent activity, such as using virtual private networks (VPNs) or proxy servers to conceal the true location of the fraudster.
2. Fraudulent Device Identification: By maintaining databases of known fraudulent devices or device fingerprints associated with synthetic identity fraud, financial institutions can flag suspicious devices and transactions for further investigation. This helps identify repeat offenders or coordinated fraud rings that use multiple synthetic identities across different devices.
3. Behavioral Biometrics: Device risk analysis can also incorporate behavioral biometrics, such as typing patterns, touchscreen gestures, or device usage patterns, to verify the authenticity of a user's interaction with the device. Deviations from established behavioral patterns may indicate potential synthetic identity fraud attempts.
4. Real-Time Monitoring: Implementing real-time device risk analysis allows financial institutions to monitor credit applications and transactions as they occur, enabling immediate detection and response to suspicious activity. This proactive approach helps in preventing fraudulent transactions before they cause financial losses.
5. Adaptive Authentication: Device risk analysis can be integrated into adaptive authentication systems, where the level of authentication required for a transaction is dynamically adjusted based on the assessed risk level associated with the device and user behavior. This enhances security while minimizing friction for legitimate users.
6. Cross-Channel Analysis: Device risk analysis can analyze device fingerprints across different channels and platforms, such as web browsers, mobile apps, and call centers, to identify patterns of fraudulent behavior that span multiple channels. This holistic approach helps detect sophisticated synthetic identity fraud schemes that exploit vulnerabilities across various channels.
Conclusion
In conclusion, synthetic identity fraud involves creating fictitious identities by blending real and fake information for various fraudulent purposes, posing unique challenges compared to traditional identity theft.
Therefore, it is important for you to implement device risk analysis, which provides financial institutions and businesses with an additional layer of security in detecting and preventing synthetic identity theft by leveraging device-related information to assess the risk of fraudulent activity associated with credit applications and transactions.
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