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Synthetic fraud crime under surveillance

  • Birdsall Obear

The growing interconnectivity in our economy and new technology has led to expanded federal law enforcement activities. The Federal Reserve recently issued a whitepaper discussing synthetic identify fraud and identified it as the most rapidly growing type of crime in the United States.

Experts estimate that synthetic identity fraud is the most rapid growing type of financial crime in this country. But, it is difficult to detect. It is often unreported because its victims are children, the elderly, the homeless and others who are less likely to seek access to their credit information and discover this fraud. This offense occurs when synthetic identities are created by combining valid information about consumers with fake information. For example, a real Social Security number may be combined with a fake address or birth date.

This leads to an identity that can evade detection by identity-verification or credit-screening precautions. The creditworthiness of synthetic identities is built up over a time period. Then, large purchases may be made before the purchaser disappears and often engages in this scheme again.

Consumers whose Social Security numbers and other personal information are used for this offense must undergo the time-consuming process of correcting their credit reports. Other consequences can include denial of disability benefits, tax return rejection and health record inaccuracies. 

This scheme existed before the internet. But, it has increased with the growth of the internet and as technical skills are refined and new methods are created. Traditional identity fraud usually included a person who pretended to be another real individual and used their credit card.

Estimates indicate that lenders in this country lost $6 billion because of synthetic identity fraud and that it was responsible for up to 20 percent of all credit losses in 2016. However, the actual costs may be unknown because of inconsistencies with identification of synthetic identities, inadequate investigations because financial institutions may not want to pay this cost and it is difficult to determine whether payments resulted from fraud or credit loss, and lack of awareness and reporting. Investigation and prosecution of this offense, however, may have devastating circumstances.

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