Sue Landauer

Synthetic ID fraud: It’s very real

Using fictitious identities to commit fraud has gained traction.

November 13, 2018

Among the most fastest growing types of identity fraud is synthetic fraud, which has exploded with the proliferation of data breaches such as Equifax.

“You need to be aware that this fraud is occurring and what the red flags are that can prevent it from happening to us,” says Sue Landauer, who provided an overview of synthetic fraud during a session Wednesday at the 2018 CUNA Bank Secrecy Act Certification Conference with NASCUS in Louisville, Ky.

With synthetic fraud, the criminal creates a fictional identity and fabricates an identity by applying for credit. In a typical scenario, the perpetrator will obtain the social security number of another person and fabricate a name, says Landauer, a certified public accountant with Forensic Accounting Service.

While the perpetrator is initially turned down for credit, he or she eventually develops a credit profile, and establishes credit. Many of the accounts are store credit cards and auto loans Landauer says.

Landauer cites three primary reasons for the growth of synthetic fraud:

  1. The proliferation of data breaches. The increase in data breaches makes Social Security numbers more accessible and 13.5 million identities have been stolen in the last several years, Landauer says.
  2. Method of issuing Social Security numbers. Social Security numbers are now randomized, so it’s difficult to determine where they originate, Landauer says. Also, children are issued Social Security numbers when they are born, so they often go unused for years. “And believe or not, right now, there’s not a database out there of valid Social Security numbers,” Landauer says. “It can take a long time to verify a Social Security number.”
  3. New credit card technology. Ironically, because of chip technology, fraudsters are more intent on stealing Social Security numbers.

Although it’s difficult to establish statistics, synthetic fraud may account for 5% of uncollected debt and up to 20% of credit losses, as much $6 billion in 2017, Landauer says. Another study shows that synthetic fraud accounted for $5 billion in losses in 2014, an eight-fold increase from 2012.

In 2013, the U.S. Attorney’s Office for New Jersey charged 18 defendants with plotting a $200 million credit card fraud conspiracy that involved fabricating more than 7,000 identities to obtain tens of thousands of credit cards.

Landauer says there are several red flags to look for, including:

  • Stolen Social Security numbers that belong to children.
  • Multiple synthetic identifications connected to a single business.
  • Credit granted exceeds the normal price of goods from a vendor’s line of business.
  • Multiple member applications from the same location or IP address.

She says credit union employees can use social media accounts to verify addresses and identities.

“I’m always amazed what you can find on Facebook,” Landauer says. “People put a lot of stuff on Facebook that can be used against them.”