Synthetic Fraud

Synthetic Fraud is a complex form of identity theft that occurs when a fraudster uses a combination of both fake and legitimate personal information or legitimate personal information from more than one individual to create a false or “synthetic” identity to build credit, make fraudulent purchases, and more. This process could combine a stolen Social Security Number with a fake address, date of birth, or new phone number. Synthetic Fraud is fast-growing and difficult to monitor and detect due to the often long process a bad actor uses to create a synthetic identity.

Synthetic Fraud is a type of fraud that still has yet to be clearly defined by the industry. As fraudsters and criminals continue to evolve their tactics when it comes to synthetic fraud, being able to pinpoint what exactly it is, how to look out for it, and when to report it can be tricky. 

While we work to increasingly detect and mitigate this type of fraud, it’s important to understand how it works, why it’s utilized, and how you can spot when it’s occurring to best protect yourself against it. 

What is Synthetic Fraud?

Synthetic Fraud is a type of identity theft that occurs when someone uses a combination of personally identifiable information (PII)–both real and fabricated–to create a new and false entity. 

As opposed to traditional identity theft that the public is more commonly aware of, Synthetic Fraud does not involve a thief taking on an existing identity of the victim. Rather, they will create a completely new identity that does not belong solely to any individual. 

The purpose of creating this fabricated identity can be for a number of reasons, like evading existing legal troubles with their true identity or attempting to commit further crimes for financial gain, among other reasons that we will discuss below. 

How does Synthetic Fraud Work?

Synthetic Identity Fraud is done in a few ways. Namely, the criminal will use a combination of both real and fake information in order to create their fabricated identity. The new entity is then often used to obtain credit or defraud government agencies or financial institutions.  

It often starts when a thief takes an actual person’s Social Security number who is not currently using it. Typically, the victim is a homeless person, a child, or someone who is recently deceased. 

Using this legitimate SSN, the criminal will then combine it with a bogus name, home address, phone number, and date of birth to create their new identity. To further establish their false identity, they may create and fabricate fake documents like utility bills or driver’s licenses that are often required to receive financial services or operate in society. 

After creating the synthetic identity, the thief will use it to apply for loans, commit further fraud for financial gain, open credit lines, apply for federal aid, and more. Before they can do this, they must work to establish a legitimate credit history for the entity. 

They can do this by applying for credit online, even if they know they will be turned away because of their lack of credit history. But, in turn, this will start their new identity’s credit history that they can slowly build up. 

The fraudster will keep applying for credit until they are eventually offered some sort of small loan of a couple of hundred dollars. By paying this off, they will slowly build up their credit until they can qualify for larger and larger amounts. At some point, they will take out a sizable loan and disappear, never paying it back and repeating the whole process over again. 

Risks of Synthetic Fraud

Even though the identity that is created with Synthetic Fraud is bogus, there are still real-life consequences that can result from this type of fraud. Let’s take a deeper look at some of the risks of Synthetic Fraud. 

  • Difficult to Detect

Possibly the largest risk with Synthetic Fraud is that it is difficult to trace and detect when it’s occurring. Since the criminal has fabricated a false name of someone who doesn’t exist, it can be challenging for financial institutions, government agencies, and law enforcement to detect their fraudulent activity. 

Oftentimes, the combination of real and fake information makes the individual appear legitimate to lenders and other institutions. In the end, it may take months or even years before the fraud is discovered. At this point, the criminal may have obtained significant amounts of credit and changed identities again, making it increasingly difficult to track down and prosecute. 

  • Supports Other Crimes

As we will discuss in more detail below, Synthetic Fraud often accompanies and supports other types of illegal activities. This includes serious crimes like human trafficking or terrorism financing. 

With a synthetic identity, it can be easier for individuals to move money around and go undetected when obtaining access to other sensitive information. So not only is Synthetic Fraud itself a crime, but it’s often used to perpetrate further illegal activities that result in serious harm to the public. 

  • Financial Loss for Victims

Victims whose actual Social Security number or other legitimate PII was stolen could experience large financial loss. 

If a criminal takes your SSN and uses it to take out loans and rack up thousands of dollars in credit card debt to pay off, your credit history will likely suffer. In some cases, you may be on the hook for the accrued debts. Plus, add on that total the amount of money and turmoil you’ll spend trying to solve the issue and get the details ironed out with the lender or credit card company. 

There is currently no good estimate of how much money has been lost due to Synthetic Fraud. However, most estimates are in the billions. 

Common Uses of Synthetic Fraud

To better understand this type of fraud, it’s important to take a look at what these synthetic identities are used for. Some of the motivation behind Synthetic Fraud includes the following: 

  • Credit Repair: if a person has an existing poor credit history or bad debt, they may create a synthetic identity as a way to hide their past and appear creditworthy in order to secure future financial services
  • Payment Default Schemes: some criminals may continually fabricate new identities over time to obtain goods or financing, with no intent to ever make repayments
  • Criminal Activity: aside from the crimes already described here, creating a false identity is often viewed as a necessary part of evading criminal prosecution or successfully operating any sort of criminal ring like money laundering, human trafficking, narcotics trafficking, terrorist financing, and more