What is Synthetic Identity Fraud?

In today's data-driven world, identity theft has become a pervasive threat, and its forms are becoming increasingly sophisticated. Among these evolving threats is  a complex and insidious form of identity theft that is rapidly gaining ground, called Synthetic Identity Fraud.  So, what is synthetic identity fraud exactly and why should you be aware of it?

What is Synthetic Identity Fraud?

Synthetic identity fraud, also known as "Frankenstein fraud," involves the creation of a fictitious identity by combining real and fabricated personal information.

According to a more specific a definition provided by the Federal Reserve in April 2021, a synthetic identity is:

the use of a combination of personally identifiable information (PII) to fabricate a person or entity in order to commit a dishonest act for personal or financial gain.

Synthetic identity fraud is a growing concern for businesses and individuals alike. The Federal Reserve estimates that synthetic identity fraud losses reached a staggering $1.2 billion in 2020, and experts predict that this figure will continue to rise in the coming years. The stealth nature of synthetic identity fraud makes it particularly difficult to detect and combat, as it often goes unnoticed for extended periods.

How are Synthetic Identities created?

Fraudsters often utilize stolen Social Security numbers (SSNs) as the foundation for these fabricated identities, layering additional fake details such as names, addresses, and employment histories. This patchwork of real and fabricated data creates a persona that can withstand initial scrutiny and enable criminals to establish credit, open accounts, and commit financial crimes.

In particular, according to a document issued by the FED, generally synthetic identities are created by combining two types of elements:

• Primary elements: generally, those features that, in combination, makes an individual unique (e.g. name, date of birth, SSN, passport…);
• Secondary elements: those features that helps validate an identity, making it “more real” (e.g. e-mail address, digital footprint, phone number…);

How Fraudsters Exploit Synthetic Identities

Fraudsters employ synthetic identities for a variety of purposes, including:

1. Opening credit card accounts: Fraudsters use synthetic identities to obtain credit cards, often with high credit limits, which they then use to make unauthorized purchases.
2. Obtaining loans: Synthetic identities can be used to secure loans, which can then be used for illicit purposes or simply disappear without a trace.
3. Gaining government benefits: Fraudsters may use synthetic identities to obtain government benefits, such as Social Security and unemployment benefits, which they then redirect to their own accounts.

The Implications of Synthetic Identity Fraud

Synthetic identity fraud has significant repercussions for individuals and businesses alike. Victims of synthetic identity fraud may face years of financial hardship, as they are responsible for repaying debts and cleaning up their credit records. Businesses, on the other hand, incur losses due to fraudulent transactions and the expenses associated with detecting and addressing synthetic identity fraud.

Be aware of what Synthetic Identity Fraud is to fight it

Addressing the growing threat of synthetic identity fraud requires a concerted effort from businesses, financial institutions, and government agencies. Here are some key steps to consider:

• Data security: Businesses and financial institutions must enhance their data security practices to protect sensitive personal information from breaches.
• Data sharing: Agencies and organizations should collaborate to share information about synthetic identities, enabling them to identify and flag potential fraudsters early on.
• Fraud detection tools: Advanced fraud detection tools can analyze patterns and anomalies in credit applications and transactions to identify suspicious activity.
• Consumer education: Educating consumers about the risks of synthetic identity fraud and encouraging them to monitor their credit reports regularly can help reduce the potential for victimization.

Synthetic identity fraud is a complex and evolving threat that demands a proactive and multifaceted approach. By strengthening data security, enhancing data sharing, employing advanced fraud detection tools, and educating consumers, we can collectively combat this insidious form of identity theft and protect the integrity of our financial systems.