Synthetic Identity Fraud

🔹 Definition

Synthetic Identity Fraud is a type of financial crime where fraudsters create a new, fake identity by combining real and fictitious personal information, such as using a valid Social Security Number (SSN) with a fabricated name, date of birth, or address. Unlike traditional identity theft, this technique doesn’t impersonate a real person entirely, but instead manufactures a new identity that passes as legitimate, making it harder to detect.

Synthetic identities are widely used to open bank accounts, apply for credit, access financial services, or launder money, often without triggering standard KYC red flags.

🔹 Frequently Asked Questions (FAQs)

Q1: How is a synthetic identity created?

• A real SSN (often belonging to a minor, elderly person, or unused number) is combined with:
  • A false name
  • Fabricated address, phone number, or email
  • Fake or mismatched date of birth
• This identity is then used to build a credit profile over time by:
  • Applying for credit
  • Making small purchases and repayments
  • Creating digital or paper footprints (e.g., social media, utility bills)

Q2: Why is synthetic identity fraud difficult to detect?

• The identity appears new but plausible—no victim may report it
• Standard KYC checks often verify the validity of individual fields, not whether they belong together
• Fraudsters nurture the synthetic identity over months or years to build trust
• There’s no traditional account takeover, so victims may not know they’re affected

Q3: What risks does this pose to institutions?

• Bad debts and credit losses when synthetic borrowers default
• Fraudulent onboarding of accounts used for money laundering or mule activity
• Increased KYC/AML non-compliance risks due to failure to detect false identities
• Reputational damage and potential regulatory scrutiny

Q4: How can institutions detect and prevent synthetic identity fraud?

• Use cross-field validation to ensure data elements belong to the same individual
• Integrate device fingerprinting, behavioral biometrics, and phone/email intelligence
• Monitor for thin credit files, newly issued SSNs, or inconsistencies in verification sources
• Apply AI-powered fraud scoring and identity resolution tools
• Leverage shared industry watchlists or fraud consortiums

Q5: How does this relate to AML/CFT compliance?

• Synthetic identities may be used to hide the true identity of a criminal actor
• Enables layering of illicit funds through fake but verified accounts
• Obstructs efforts to establish beneficial ownership and source of funds
• Increases false negatives in sanctions, PEP, and watchlist screening