Synthetic Account Fraud: Unearthing Its Definition
The fraudulent practice of synthetic account fraud involves the deliberate creation of a false identity by skillfully combining both legitimate and fictitious information — such as an authentic Social Security number paired with a fraudulent name, birth date, and address. Fraudsters create these synthetic identities mainly to apply for credit cards, get loans, or access government benefits with the typical goal of building a reputable credit score, often before maxing out these credits and subsequently deserting these accounts.
Delving into the History of Synthetic Account Fraud
Tracing its origin to the early 2000s, synthetic account fraud has gained significant attention lately, primarily due to some key trends.
- Data Breaches: Massive data breaches like the 2017 Equifax breach, have resulted in a significant amount of personal information flooding the dark web. This serves as a source of reality-based data for fraudsters to generate synthetic identities.
- Advancement in Technology: Recent strides in automation and AI technology enable fraudsters to create and manage several synthetic identities both quickly and effectively.
- Regulatory Shifts: Alterations in the generation process of Social Security numbers, such as the randomization since 2011, have inadvertently facilitated the production of synthetic identities by making it harder to authenticate these numbers.
Over time, the comprehension of synthetic account fraud has transitioned from viewing it as a mere form of identity theft to understanding it as a refined and intricate financial crime. Importantly, the definition now encompasses manipulated identities and multiple strategies employed by fraudsters to avoid detection.
Examples of Synthetic Account Fraud
Impact on Financial Institutions
Heavily felt by financial institutions, a fraudster might fabricate a synthetic identity, secure multiple credit cards, and over several months, build a commendable credit track record. Upon credit limit increase, the fraudster maxes out the cards and vanishes, saddling the financial institution with substantial losses.
The Vulnerability of Government Agencies
Government agencies remain a prey. Synthetic identities can be exploited to apply for governmental benefits such as unemployment benefits or tax refunds. Not only does this scenario result in fiscal losses, but it also undercuts the integrity of governmental programs.
The E-commerce and Payments Space
In the payments sector, synthetic identities are utilized to create merchant accounts, thereby facilitating transaction laundering. This could culminate in reputational harm and significant financial losses for payment service providers.
Insightful Look at How to Mitigate Risks
Take actionable steps to mitigate risks associated with synthetic account fraud:
- Verify Identity Thoroughly: Use multi-factor authentication and advanced identity verification techniques to ascertain the authenticity of provided information. Implement robust KYC (Know Your Customer) processes that include verifying Social Security numbers using certified databases.
- Monitor Credit Activity: Regularly check credit reports for unusual activity. Use machine learning algorithms to detect patterns relating to synthetic identity fraud.
- Educate and Train: Train your staff on identifying signs of synthetic account fraud and the importance of diligent monitoring.Set up regular training sessions that sensitize employees about the latest fraudulent tactics.
Call to Action
If you’re keen on learning about how to protect your business from synthetic account fraud and other cybersecurity threats, try our comprehensive security services. Our Fractional CISO services, security assessments, and strategic IT security consulting are designed to strengthen the cybersecurity posture of small-to-mid-sized companies and minimize risks. Feel free to contact us for a complimentary consultation and discuss how our expertise can defend your business against the evolving threats of synthetic account fraud.