How does synthetic identity fraud work?
The most common method for developing a synthetic identity scheme begins with the theft of a Social Security Number (SSN). Once the SSN is stolen, it is combined with fake information (such as a fictitious name, address, and date of birth) to create an artificial, or synthetic identity. The intent of creating the synthetic identity can vary greatly, from creating a credit profile to facilitating human trafficking.
Two schemes associated with synthetic identities include piggybacking and bust outs:
- Piggybacking. Piggybacking is a method of using an individual's credit for gain. In this scheme, a fraudster will attach their synthetic ID to an unsuspecting individual's credit by becoming an authorized user on some of the victim's credit accounts. The fraudster is "piggybacking" onto a valid credit account and establishing good credit for the synthetic identity. Once the credit is established, the fraudster can use it to obtain additional credit in bust-out schemes.
- Bust outs. Bust outs are considered one of the more challenging forms of synthetic ID fraud to catch because they are developed slowly, over a long period of time. In this scheme, the criminals take months or even years to establish a good credit history with the synthetic identity. Once credit has been established, significant changes are made using that profile, such as obtaining credit line increases and maxing out available credit with no intention of repaying the charges. Eventually, the identity is abandoned, leaving the creditors and financial institutions on the hook for those losses.
A well-known past scheme was reported by the U.S. Department of Justice in 2016 that involved more than 7,000 false identities and tens of thousands of credit cards, with more than $200 million in confirmed losses.
3 Other ways fraudsters use synthetic identities
In addition to the methods above, fraudsters have found other ways to profit from synthetic identities, including:
- Selling: Synthetic identities have been sold to undocumented workers and criminals, giving those individuals a means to live and work in the United States and even to apply to receive benefits like federal Supplemental Security Income (SSI) and healthcare.
- Multiplying: Criminal enterprises purchase or create synthetic identities in bulk to facilitate multiple schemes simultaneously. This dramatically increases the losses associated with synthetic identities.
- Evasion: Fraudsters use synthetic identities to evade law enforcement and avoid prosecution, sometimes using multiple synthetic identities to continually move from area to area to avoid detection.
