What is Synthetic Identity Theft?

Synthetic Identity Theft: A Growing Threat

Identity theft is more sophisticated than ever. One of the newest forms of identity theft is synthetic identity theft. Unlike traditional methods of stealing someone's identity, synthetic identity theft involves creating a new, fake identity by combining real and fabricated information. This reality makes it difficult to detect and even harder to prevent. The impact of synthetic identity theft is not limited to individuals alone; it can also have a detrimental effect on businesses. Here, we will discuss what synthetic identity theft is and how it works. We will also delve into the impact it has on businesses and the steps you can take to protect yourself from this growing threat.

What is Synthetic Identity Theft?

Synthetic identity theft occurs when a criminal creates a new identity by combining real and fake information. The goal is to establish a credit profile for fraudulent activities. Synthetic identities are difficult for traditional verification methods to detect because they often include both real and fake personally identifiable information, such as social security numbers, addresses, phone numbers, and email addresses.

Financial institutions must be aware of suspicious activity related to synthetic identities to protect themselves from becoming victims of this type of fraud. Banks and lenders need to implement stronger detection measures to combat synthetic identity fraud, a growing threat on the dark web. The Social Security Administration is also working to combat this type of fraud.

Synthetic Identity Theft vs. Synthetic Identity Fraud

Synthetic identity theft and synthetic identity fraud are related, but they refer to slightly different aspects of similar criminal activity. Here's a breakdown of the differences:

Synthetic Identity Theft: Synthetic identity theft involves creating a new identity by combining real and fake information. Typically, the criminal starts by using a real Social Security number (SSN) and then fabricates additional information such as a name, date of birth, and address. This synthetic identity is then used to open new financial accounts, apply for loans, or engage in other fraudulent activities. The primary aim is to establish a credit history for the synthetic identity, which can be exploited to obtain credit or make fraudulent transactions.
Synthetic Identity Fraud: Synthetic identity fraud, on the other hand, refers to the fraudulent activities conducted using the synthetic identity that has been created through identity theft. It encompasses a broader range of fraudulent activities beyond just financial fraud. Synthetic identities can be used for various illegal purposes, including obtaining government benefits, evading law enforcement, committing tax fraud, healthcare fraud, and more. Synthetic identity fraud often involves exploiting the credit system, as the criminal attempts to build a positive credit history for the synthetic identity to gain access to credit, loans, or other financial benefits.

Synthetic identity theft focuses on the creation of a new identity using a mix of real and fake information, while synthetic identity fraud encompasses the fraudulent activities carried out using the synthetic identity.

The Creation of a Synthetic Identity

To open fraudulent accounts and make purchases while evading detection by conventional verification methods, criminals use synthetic identities, which they create by combining real and false information.

A Fraudster Applies for Credit

To obtain a line of credit, individuals must provide personally identifiable information (PII), including their social security number and date of birth. However, criminals engaged in synthetic identity fraud use fake identities to request small amounts of credit. Upon successfully establishing a reputable credit history for this synthetic persona, these fraudsters can then qualify for larger loans and higher credit limits.

Adding a synthetic identity as an authorized user on a legitimate account is one way of boosting a positive credit score. Fraudsters involved in synthetic identity fraud frequently use this technique.

Busting Out with Stolen Funds

After approval of credit lines, scammers max out credit limits and disappear with the dollars. This type of fraudulent activity often goes undetected for years because it does not appear on traditional credit reports. Consumers should be on the lookout for misspellings or unauthorized medical care on their free credit reports, as these could indicate they are victims of synthetic identity theft.

Industries Affected by Synthetic Identity Theft

Synthetic identity theft and fraud can impact various industries, but certain sectors are more vulnerable due to the nature of their operations and the availability of personal data. The industries that are often targeted or affected most by synthetic identity theft and fraud include:

Financial Services: The financial services sector, including banks, credit card companies, and lending institutions, is a prime target for synthetic identity theft and fraud. Criminals create synthetic identities to apply for loans, open fraudulent bank accounts, obtain credit cards, or engage in money laundering schemes.
Government Programs and Benefits: Synthetic identities can be used to exploit government programs and benefits, such as Social Security benefits, unemployment benefits, or healthcare programs. Fraudsters may create synthetic identities to fraudulently claim benefits or evade taxes.
Retail and e-commerce: Synthetic identities can be used to make fraudulent purchases or create fake accounts for online shopping. Retailers and e-commerce platforms often face significant financial losses due to fraudulent transactions made using synthetic identities.
Telecommunications: The telecommunications industry is also vulnerable to synthetic identity fraud. Criminals may use synthetic identities to open fraudulent mobile phone accounts or obtain expensive mobile devices through fraudulent means.
Healthcare: Synthetic identity fraud can impact the healthcare sector through medical identity theft. Fraudsters may create synthetic identities to obtain medical services, prescription drugs, or submit fraudulent insurance claims.
Child Identity Theft: Children's identities are often targeted for synthetic identity theft since their credit history is usually clean and undetected for a long time. Criminals may create synthetic identities using children's personal information to commit various types of fraud.

Synthetic identity theft and fraud can have wide-ranging consequences and may affect other industries and sectors as well. As criminals continually adapt their techniques, it's crucial for organizations across all industries to stay vigilant and implement effective measures to detect and prevent synthetic identity-related fraudulent activities.

How Arkose Labs Can Help

A bot management platform can play a crucial role in preventing synthetic identity theft by implementing various measures and techniques to detect and mitigate fraudulent activities. Arkose Labs Bot Manager combines defense-in-depth detection with dynamic attack response to navigate unclear trust signals without disrupting the good user experience.

Here are some ways the Arkose Labs bot management platform can help detect and prevent synthetic identity theft and fraud:

Advanced Bot Detection: A robust bot management platform leverages advanced detection techniques to identify and block automated bots attempting to create synthetic identities or engage in fraudulent activities. This may involve analyzing user behavior patterns, device fingerprinting, challenge-response mechanisms, and real-time risk assessment to distinguish between human users and malicious bots.
Device Recognition: By utilizing device recognition technologies, a bot management platform can identify if a device has been associated with suspicious or fraudulent activity in the past. This helps in flagging potential instances of synthetic identity creation or usage.
Risk-based Authentication: A bot management platform can implement risk-based authentication mechanisms, which assess the risk level of each transaction or account creation attempt. By considering various factors such as user behavior, location, device information, and historical data, the platform can prompt additional authentication steps or deny access if the risk is deemed high.
Behavioral Analysis: Through sophisticated behavioral analysis algorithms, a bot management platform can detect abnormal patterns and anomalies in user behavior. This includes identifying inconsistencies in keystrokes, mouse movements, navigation patterns, and session duration, which can help flag suspicious activities related to synthetic identity theft.
Collaboration and Data Sharing: Bot management platforms often have access to a wide network of clients and can facilitate collaboration and data sharing among their clients. This enables the platform to gather and share information about emerging threats, new techniques used by fraudsters, and patterns associated with synthetic identity theft. Such collaboration enhances the overall protection against this type of fraud.
Continuous Monitoring and Analysis: A bot management platform provides ongoing monitoring and analysis of user interactions to detect any suspicious or fraudulent behavior. This helps in identifying potential instances of synthetic identity theft and allows for real-time response and mitigation.

By implementing these preventive measures, a bot management platform can significantly reduce the risk of synthetic identity theft by detecting and blocking fraudulent activities in real time, thus safeguarding businesses and their customers from financial losses and reputational damage.

Want to learn more about the Arkose Labs platform and how it can help detect synthetic identity theft? Book a demo today!

FAQ

Are there any laws or regulations in place to combat synthetic identity theft?

There are laws and regulations in place to combat synthetic identity theft, such as the Identity Theft and Assumption Deterrence Act, which criminalizes the act. The Fair Credit Reporting Act also requires credit reporting agencies to provide free annual credit reports to consumers. Additionally, the Children's Online Privacy Protection Act regulates information collection from children under 13 years of age.

What’s the difference between synthetic identity theft and synthetic fraud?

Synthetic identity theft and synthetic fraud are related but distinct concepts within the realm of identity theft. Both forms of fraud exploit vulnerabilities in financial systems, but they differ in terms of the origin of the identity used in the fraudulent activities. Here's an overview of their differences:

Synthetic identity theft involves creating a new identity by combining real and fictitious information. It typically starts with the theft of a real person's identifying information, such as their Social Security number (SSN), which is then used as a foundation. The fraudster then fabricates additional details, such as names, addresses, and dates of birth, to create a synthetic identity that appears legitimate. These synthetic identities are often used to apply for credit, open bank accounts, or engage in other fraudulent activities. Synthetic identity theft can be a long-term scheme, with fraudsters gradually building up credit profiles and establishing trustworthiness over time.
Synthetic fraud is a specific type of financial fraud that occurs when a fraudster creates a fictitious identity using a combination of real and false information. Unlike synthetic identity theft, synthetic fraud does not necessarily involve stealing someone else's personal information. Instead, the fraudster fabricates an entirely new identity using a mixture of genuine and counterfeit details. They may, for example, create a synthetic identity by combining a fake name and address with a legitimate Social Security number or other identifying information. Synthetic fraud is commonly associated with financial institutions, as fraudsters use these synthetic identities to apply for loans, credit cards, or other financial services with no intention of repayment.

In summary, synthetic identity theft involves using stolen personal information as a foundation to create a new identity, while synthetic fraud involves fabricating an entirely new identity using a combination of genuine and false information.