October 19, 2023
5 min read

Synthetic Identity Theft: How It Works and Protection

Today businesses face a vast array of threats, but few are as covert or misunderstood as synthetic identity theft. This criminal activity involves the formation of fabricated identities, constructed using a mix of genuine and counterfeit information, and has emerged as a significant problem in recent years, impacting businesses across all industries.

Demystifying Synthetic Identity Theft

Synthetic identity theft transpires when criminals amalgamate real and made-up information to fabricate a novel, fake identity. This could encompass a legitimate Social Security number (usually belonging to a minor or someone who doesn't frequently utilise credit), coupled with a false name and date of birth.

Fraudsters then exploit this synthetic identity to establish fraudulent accounts, build up credit, and eventually accumulate considerable debts. Often, this criminal act goes undetected until debt collectors begin pursuing the innocent individual whose Social Security number has been misused.

The Ramifications for Businesses

Synthetic identity theft poses a genuine and significant risk to businesses. Firstly, there's the monetary impact. Businesses often endure the financial loss when synthetic identities default on their financial obligations. However, the harm is not solely financial. There's also a reputation risk, as consumers may lose faith in businesses that fail to protect their personal information adequately.

Safeguarding Your Business

So, how can businesses fortify themselves against this escalating threat? Here are a few strategies:

  • Customer Knowledge is Key: Implement comprehensive Know Your Customer (KYC) procedures to verify the identities of your customers. This can include data analysis, document verification, and biometric solutions.
  • Suspicious Activity Monitoring: Regularly scrutinise accounts for indications of synthetic identity theft, such as multiple applications from the same IP address, swift credit upscaling, or accounts that are exclusively used for large transactions.
  • Multi-Factor Authentication Implementation: Multi-factor authentication provides an extra layer of security, making it more challenging for criminals to misuse stolen information.
  • Stay Abreast of the Latest Fraud Trends: Criminals are continually refining their tactics, so staying updated on the latest fraud trends is crucial. This knowledge can help you identify potential threats before they escalate into major issues.
  • Employee Education: Make sure your employees understand what synthetic identity theft entails and how to recognise the warning signs. This awareness can be instrumental in averting these crimes.

In synthetic identity fraud, a criminal concocts a fictitious identity using a blend of real and fake information and then establishes fraudulent accounts to execute fraudulent purchases. The most prevalent example involves a criminal illicitly obtaining a legitimate Social Security number (usually from a minor) and integrating it with counterfeit contact details to apply for credit. They might utilise this credit responsibly for a while to gradually enhance the credit score of the fake individual and secure additional credit, or they might promptly proceed to exhaust all the credit cards and loans and abscond with the cash.

As we can see, synthetic identity theft is a multifaceted issue that demands a comprehensive approach. By staying informed and proactively implementing robust security measures, businesses can significantly reduce their risk and protect their customers.

Understanding and addressing synthetic identity theft is a crucial part of maintaining the security and integrity of your business. By staying ahead of the curve and implementing the necessary precautions, you can safeguard your business and customers from this growing threat.

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