Synthetic Identity Fraud: The Perfect Crime

 

[Editor’s note: This is a blog post from Garient Evans, Senior Director, Client Services for ID Analytics. ID Analytics is a silver sponsor at LendIt Fintech USA 2018, which will take place on April 9-11, 2018 in San Francisco.]

In the 1985 cult film Fletch, Chevy Chase portrays a Los Angeles Times reporter, Irwin “Fletch” Fletcher, who gets caught up in a plot to kill a wealthy executive who claims to be dying of cancer and doesn’t wish to suffer. Fletch is suspicious of the executive’s story and changes his identity multiple times throughout the film as he works to uncover the truth. In this case, the fake identities are used in the pursuit of good. But what happens when they are used to commit a real crime?

Synthetic identity fraud usually involves creating an entirely new identity composed of information with no ties to a known consumer. This identity is then used to apply for credit and services. Synthetic identities are one of the most difficult fraud threats institutions face today and their prevalence has exploded over the past several years. Synthetic identity fraud is arguably the perfect crime because there is no consumer victim.

Put yourself in the shoes of a fraudster. As you consider your many nefarious options for committing a crime and getting away with it, you decide that the best crime is one where there is no clear victim. Sure, robbing a bank using a synthetic identity victimizes the enterprise, its shareholders, its employees and taxes its customers. However, no one individual is intentionally, directly hurt. Therefore, the non-existent victim does not alert authorities and the fact that a crime has been committed is lost to history. There is a “credit loss” and the debtholder is impossible to locate. The debt is written off, or sold, and the fraud is perpetuated yet again. Like I said, the perfect crime.

Sound implausible? Meet these real-life Fletch-sters:

  1. In February, 2013, the Justice Department and the Federal Bureau of Investigation filed a criminal complaint against a highly sophisticated fraud enterprise. A synthetic identity fraud ring composed of 18 people in eight countries, ranging from a 31-year-old credit counselor in Philadelphia to a 74-year-old jeweler in northern New Jersey, allegedly conspired to create fake identities, and pump up credit profiles with false information that would make them appear creditworthy to the national credit bureaus. The fraudsters created 80 fake companies, more than 1,800 mailing addresses, 7,000 false identities, and 25,000 credit cards. The fraud ring was responsible for more than $200,000,000 in unpaid credit card bills. See “How to Commit a $200 Million Scam”
  2. In January, 2017, Kelvin Lyles was sentenced to three years and 10  months in federal prison for wire fraud using synthetic identities. From January 2013 until December 2015, Lyles created over 300 synthetic identities using fake driver’s licenses and fake social security cards. He used these fictional individuals to  obtain credit cards and successfully charged approximately $350,000 in transactions. See “Identity Thief sentenced for using a new form of fraud ‘Synthetic Identities’”
  3. In May, 2017, the FBI and the U.S. Postal Inspection Service raided the South Carolina home of a DJ suspected of using fake identities to obtain 558 credit cards. This DJ filed 90 percent of his 750 applications by phone, using hundreds of mailing addresses. See “Fake People to Get Real Credit Cards”

Okay, so fake or synthetic identities are a real problem, but this is just a problem for the underwriting department, right? Unfortunately, the impact is much greater. Here are some other ways synthetics affect the lending industry:

  1. Marketing and Prescreen – How much money is spent targeting fake identities? How many direct mail pieces are sent to prospective borrowers that do not exist? There are better ways to attract legitimate, prospective customers.
  2. Debt Collections and Debt Sales – How much wasted effort is spent by credit grantors dialing and skip-tracing fake debtors? How are debt buyers screening portfolios for ghost debtors?
  3. Investors and Securitization – Do investors know whether borrowers are real? How about those participating in Wall Street securitizations?

We can Help

ID Analytics was established to help enterprises protect against identity fraud, including synthetic identities. We are able to determine potential synthetics indicators based on millions of observations related to client-reported fraudulent and “suspicious credit” losses, and our Data Science Group has a growing understanding of how fraud rings and fraudsters are creating fictitious identities, taking advantage of the gaps in social security number verification tools, and exploiting the identities of children to perpetrate synthetic identity fraud.

To learn more about our perspectives and solutions for this emerging type of fraud, follow us on LinkedIn and Twitter), and sign up to receive updates at www.idanalytics.com/blog/.

 

One response to “Synthetic Identity Fraud: The Perfect Crime”

  1. Eric says:

    It’s stunning to see the growing scale of these operations. Thank you for sharing your insights.

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