Copyright The Street
This a monster that hangs around long after Halloween. In Mary Shelley’s iconic novel Frankenstein, the title character cobbled together various body parts to create his infamous monster. Today, fraudsters are employing a technique called synthetic identity fraud—or “Frankenstein fraud”—to steal billions of dollars. Unlike traditional identity fraud, where someone swipes and misuses a person’s ID, Franken fraudsters start with a single piece of personal data – usually a Social Security number – and build a fake ID around it using a bogus address, phone number, and other basic information, according to Thomson Reuters. Synthetic identity fraud is being called the fastest growing financial crime in the U.S.–and it shows no sign of slowing down. The Deloitte Center for Financial Services predicts that synthetic identity fraud could generate at least $23 billion in losses by 2030. “Not only can bad actors purchase personally identifiable information on the dark web for a pittance, but advancements in generative AI are making it easier to produce images and videos in someone else’s likeness—whether they may be real or imaginary,” Deloitte said. DOJ says suspects used Fraud Bible Many fraudsters concoct entire personas using a mix of real and fabricated information, which are often pinned to social security numbers taken from children or the recently deceased. The average payoff is estimated to be between $81,000 and $98,000, Deloitte said, but a single attack can sometimes result in the theft of several millions. More Tech Stocks: Senior analyst lifts Palantir stock price target with a catch Nvidia just scored a massive AI win, but CEO Huang has regrets Apple’s iPhone 17 story just took an unexpected turn Analysts revamp Salesforce stock forecast after key meeting In March, for example, the U.S. Department of Justice charged six defendants in New York for their roles in a conspiracy to steal roughly $80 million from government agencies. The fraudsters used fake or stolen identities to open bank accounts to carry out the scheme. One of the defendants, a bank teller, used his position to open and alter accounts to aid the criminal enterprise “We allege that the defendants stole tens of millions of dollars in COVID-19 relief and other checks, and even used a ‘Fraud Bible’ containing instructions for committing fraud,” Acting U.S. Attorney Matthew Podolsky said in a statement. Last year, Toronto police arrested 12 people in connection with a large-scale synthetic identity credit fraud ring after a financial institution detected multiple synthetic accounts. And in 2022, a man from Georgia was sentenced to over seven years in prison for his role in a nationwide fraud ring. The ring used real Social Security numbers combined with fabricated information to create fake identities. Using these synthetic IDs, they opened bank accounts and lines of credit, defrauding financial institutions of nearly $2 million. Firm cites importance of biometrics Part of the problem goes back to 2011, when the Social Security Administration began randomly assigning Social Security numbers. While this made it harder to guess a valid Social Security number it also made it more difficult to detect fictitious Social Security numbers when combined with other fabricated information. “The impact on banks is substantial,” Juniper Research said in a recent white paper. “Synthetic identities are often used to open accounts or obtain credit, which fraudsters then exploit by maxing out credit lines or defaulting on loans without any real person responsible for repayment.” This results in direct financial losses that the banks must absorb. And since synthetic identities combine real and fabricated data, Juniper said, they often slip through traditional Know Your Customer (KYC) checks that rely on verifying existing personal information. “This makes it difficult for banks to accurately verify the true identity of customers, increasing the risk of onboarding fraudulent accounts,” the Juniper report said. “As a result, banks face heightened regulatory scrutiny and the possibility of penalties if they fail to detect synthetic identities.” The firm predicted an 85% surge in fraud detection and prevention investment in the next five years, rising from $21 billion in 2025 to $39 billion in 2030. To combat Frankenstein fraudsters banks and financial institutions have been turning to biometrics, which measures and analyses unique physical or behavioral characteristics to identify or authenticate an individual. “Unlike passwords or PINs, physical biometric technology can analyze traits that are unique to each consumer’s makeup, such as their palm vein patterns, retina details, vocal pitch, and ear canal shapes,” Deloitte said.
