Law Enforcement and the Fight Against Synthetic Identity Fraud

For quite some time, we’ve focused our efforts on developing the tools and techniques to help companies detect and deter synthetic identity fraud (SIF), and with good reason. In addition to generating rising fraud losses, SIF can create unacceptable levels of false positives on legitimate customers during the account onboarding process.  And the growing threat of SIF certainly troubles many executives today, with 58% of organizations surveyed by IDology reporting that they were “worried” or “extremely worried” about synthetic identity fraud. It also has the attention of the nation’s law enforcement, with a U.S. Postal Inspector recently stating: “synthetic identity theft continues to become one of the fastest-growing consumer fraud schemes.”

Law Enforcement Investigating and Prosecuting Synthetic Identity Fraud

Thankfully, coordination with law enforcement continues to improve, with a number of high profile SIF investigations resulting in criminal prosecutions in the United States and overseas. And that improvement is reflected in our recent survey, with only 17% of organizations reporting coordination with law enforcement as a challenge to fraud prevention.

In fact, an investigation conducted by the FBI and U.S. Postal Inspection Service is the poster child for what a law enforcement can accomplish when it zeros in on emerging and sophisticated transnational crime involving SIF. As a result of a highly publicized investigation, the U.S. government charged 12 criminals for their role in using 7,000 fake identities to steal over $200 million. As part of a systematic approach to committing fraud, the perpetrators created fake identities and established lines of credit, including the use of primary lines of credit as well as the addition of synthetic identities to existing accounts in good standing. The criminals then drew down on their credit lines, which included splitting the proceeds of sham transactions with corrupt merchants. The fraud ring spanned beyond the United States, with conspirators wiring millions of dollars to Pakistan, India, the United Arab Emirates, Canada, Romania, China, and Japan.  According to the US Attorney involved it was “one of the largest if not the largest credit card fraud case ever prosecuted by the Department of Justice.”

In a similar vein, a separate investigation conducted by the FBI targeted a California resident, who created synthetic identities, applied for credit, and added the fake identities as authorized users to credit cards belonging to individuals with high credit scores. The perpetrator then established bogus businesses to process credit card transactions for the synthetic identities under their control. Not surprisingly, they subsequently defaulted on repaying their debt. According to the FBI, five major U.S. banks bore the brunt of the losses. This underscores an important point: in order to remain undetected and maximize their takings, criminals rarely focus all of their efforts on one organization. And given the connected nature of today’s financial system and the ability of criminals to victimize companies simultaneously, successful prosecutions heavily depend on industry cooperation and collaboration with law enforcement.

So whether conducted by a criminal gang or an individual, SIF challenges organizations to determine the difference between a legitimate identity and one that exists only in the minds of criminals. Ultimately, as the cases investigated by law enforcement show, the best way to detect and prevent synthetic identity fraud is with collaborative networks, law enforcement coordination, and a smart, multi-layered identity verification system.

For more information, download the white paper Combating Synthetic Identity Fraud: Determining Fact from Fictionwhich delves deeper into the issue of SIF. 

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Christina Luttrell for Total Retail

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