October 1, 2023—The Federal Reserve (Fed) defines synthetic identity fraud as “the use of a combination of personally identifiable information (PII) to fabricate a person or entity in order to commit a dishonest act for personal or financial gain.” Cybercriminals use a combination of real, stolen personally identifiable data, such as a Social Security Number, and fabricated information, including name, address, birth date, and contact information, to invent a new, fake identity and use that identity to steal money, evade law enforcement or other entities, or fund and facilitate other criminal activities. Financial institutions can experience significant and irrecoverable losses and, for those whose data has been stolen, there is a risk to their reputation, credit scores, and finances.
The Fed launched an awareness and training campaign in 2018, and in 2022 released its Synthetic Identity Fraud Mitigation Toolkit. Synthetic identity fraud accounts for billions of dollars in losses for organizations each year, but losses are difficult to quantify as this type of fraud is often mis-characterized as a credit loss. However, at a recent Senate Banking Committee hearing on artificial intelligence and financial services, U.S. Senator Mike Rounds stated, “Despite the billions spent to protect institutions and the billions paid to buy off attackers, things are only getting worse, with synthetic identity fraud costing banks nearly $50 billion last year.”
Synthetic identity fraud is particularly popular in the United States because fraudsters can exploit weaknesses in the U.S. financial system including frequent data breaches, account onboarding processes with limited verification of identity and documentation, and the reliance on Social Security numbers, unique to the United States, as an individual’s primary identifier. Even credit application processes make it easy for criminals to introduce synthetic identities into the credit system, taking ownership of the SSN and establishing a “real person,” and to build its creditworthiness.
Critical to our industry’s ability to combat synthetic identify fraud will be our ability to detect a synthetic identity, validate real identities, and accurately report fraud data. The Federal Reserve provides dozens of resources online, including training videos and easy-to-understand fact sheets. Learn more at Synthetic Identity Fraud Mitigation Toolkit | Fedpayments Improvement.