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With a recent FiVerity report estimating that losses attributed to synthetic identity fraud (SIF) surpassed $20 billion in 2020, it’s no wonder that financial institutions are turning to innovative, AI-powered solutions in order to fight back.

However, while being able to place a monetary figure on the fastest-rising financial crime in the U.S. helps us to understand the scale of the problem, perhaps more concerning is how the proceeds from SIF are being used to fund organized crime.

Traditional forms of identity theft have typically been committed by individuals or small fraud rings in the U.S. who have a limited scope. In contrast, the sophisticated methods used to evade detection, and the profitability of the crime, suggest that perpetrators are part of, or have connections to, organized crime groups.

Sophistication of Synthetic Identity Fraud Suggests Links to Organized Crime

Synthetic identities are composed of personally identifiable information, including names, addresses and social security numbers, stolen from multiple people and combined together to create a new persona.

The fact that 85-95% of likely SIF applications are able to slip past legacy identity verification systems suggests that criminals are harnessing the power of AI in the development of these applications.

These AI systems analyze approved and denied loan applications, providing valuable input to their machine learning models. It’s a feedback loop that helps criminals identify the thresholds for each of the fraud detection rules used by legacy systems, and develop new profiles that are more likely to evade them.

The level of sophistication involved in creating machine-learning-optimized synthetic identities suggest links to large criminal organizations, rather than individual fraudsters.

The Synthetic Identity Fraud in the U.S. Payment System report by the Federal Reserve confirmed that SIF has links with organized crime rings: “While synthetic identities are sometimes used without criminal intent, there are serious consequences when criminals use them to steal funds, escape detection or facilitate drug and human trafficking. They also have been linked to crime rings, including those that fund terrorism.”

Indeed, when the U.S. Financial Crimes Enforcement Network (FinCEN) released its first-ever Anti-Money Laundering and Countering the Financing of Terrorism National Priorities, the rise of SIF was highlighted as a “threat to national security”.

The full list of priorities detailed by FinCEN included:

  • Corruption;
  • Cybercrime, including cybersecurity and virtual currency considerations;
  • Foreign and domestic terrorist financing;
  • Fraud;
  • Transnational criminal organization activity;
  • Drug trafficking organization activity;
  • Human trafficking and human smuggling; and
  • Proliferation financing. 

Organized Crime Groups are Attracted to SIF's High Profits

In synthetic identity fraud, criminals remain undetected by making payments on time and gradually accruing increasingly large lines of credit. In just a few months, these synthetic identities amass credit limits upwards of $65,000 across credit cards, personal loans and vehicle loans. Mature SIF accounts that successfully navigate their way to significant lines of credit are estimated to bust out with an average theft of $90,000.

With criminals automating much of the process, they’re able to scale their approach, managing tens of thousands of synthetic identities and generating considerable funds which they can funnel towards other nefarious activities such as money laundering, human trafficking, and cyber-terrorism.

Worryingly, it’s not just criminal enterprises that are attracted to profitable cybersecurity scams such as SIF. A recent report by the U.N. found that North Korea had generated $2 billion from a range of cyberattacks and used the money to fund its weapons program.

In some cases, rogue nations are even employing criminal organizations to execute parts of larger, sophisticated schemes and then channel the money back for laundering.

How Financial Institutions Are Fighting Back Against SIF Criminals

With some of the world’s leading financial institutions already coming under considerable regulatory and public scrutiny for accusations of money laundering, it is vital that more is done to prevent the funding of organized crime, including the use of increasingly lucrative synthetic identity fraud.

While criminals are becoming more sophisticated in their approach to SIF, so too are the solutions and approaches aimed at reducing the losses incurred by financial institutions.

For more information on how FiVerity is helping leading financial institutions fight back against SIF, book a demo today.

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