AML/CTF, Banking/Fintech, Digital Identity, Digital Onboarding, Identity Theft

Synthetic Identity Fraud : How AML/CFT compliance can help in building brand trust


Identity fraud has been a significant threat to businesses. Industries related to finance and financial institutes, tourism, and hospitality are the most affected by this. Although scammers use various methods and tricks for identity theft, synthetic identity is a major concern and is a popular trend amongst fraudsters.

Synthetic Identity Theft is a complex form of theft in which the person’s identity is imitated. The fraudster uses stolen information like Aadhaar Number and mixes it with false information like a false name, incorrect address, and made-up date of birth or phone number, mixing it with actual data to create a false identity. Since it has some legitimate information, the fraud is often hard to catch.

How does Synthetic Identity Fraud happen?

Synthetic fraud happens when criminals steal funds, escape detection by government or financial institutions or facilitate drug trafficking by using a synthetic identity. Large criminal rings also use synthetic fraud to manage thousands of fake credit accounts and execute transactions to fund luxurious lifestyles.

“As per a Panacea Infosec industry observation, about 10% -12% of credit card losses in India is due to synthetic fraud.”

Synthetic identity fraud starts by stealing the identity number given by the government to citizens. Scammers either buy the data from the dark net or hack the systems to get the number. In India, it can be an Aadhaar card number or Pan card number. Now, creating a fake identity by mixing real and fake information is an easy job for them. Scammers apply for loans and credit cards through this synthetic id and enjoy the facilities until they are caught. Sometimes, these identities go forever. Many countries have witnessed such frauds and suffered millions and billions of financial losses.

What are the Most Affected Industries?

The most common victims of synthetic identity fraud are banks defrauded. Individuals who detect such synthetic identity fraud and report it early to the financial institution usually escape with no or minimum penalties.

The financial institution or the banks must bear the brunt of the consequences in the form of loss for synthetic fraud. They also face negative effects because clients blame their encryption systems and security for not being foolproof. Sometimes the fraudsters build up huge loans through extra lines of credit, which results in a large financial loss for the institution concerned.

An added consequence of synthetic identity fraud is money laundering. Money laundering becomes untraceable when there are fraudsters wash their money safely. The synthetic identities make it difficult to detect such fraud. AML/KYC measures enable the banking institution to escape regulatory fines and penalties.

Customers hate a situation faced with data breaches and identity theft. This affects the brand and reputation of the financial institution.

How to Protect yourself against Synthetic Identity Theft?

For Banks and Financial Institutions:

  • Use biometric parameters while onboarding new customers as these cannot be replicated. Facial recognition, fingerprinting, and iris recognition are all included in this.
  • Multi-Factor Authentication is another tool that can be used to circumvent synthetic identity fraud. Personal details and further confirmation by an OTP sent via email or phone could be another factor used.
  • Use AI and machine learning to flag suspicious purchases, geographic locations, and malware threats.

For individual customers

  • Keep an eye on your credit. See what purchases are recorded under your name.
  • Always make sure that your credit history is accurately recorded. Check it thoroughly and monitor it for inaccuracies by minutely examining your free annual credit report.
  • Try never to share personal information such as phone numbers, addresses, and banking information, especially on your social media groups; it may seem like a good idea at the time. You can face unexpected financial problems like security and hacking of financial information.
  • When you come across an unexpected piece of mail containing some of your personal information, keep it as later it could turn out to be important.

 The Role of AML/CFT Compliances in SIF

Financial institutions must satisfy the Bank regulations relating to AML/KYC theft. Through synthetic identity fraud, fraudsters safely wash money through these financial institutions and banks. Banks and financial institutions should conduct AML/KYC due diligence on their customers. Upon failing to follow AML/CFT compliances, companies could get penalties from the government and fear losing brand trust.

Customers lose their trust in banking and financial institutions, which have been subject to fraud and synthetic identity theft. Banks and financial institutions should use Machine learning and Artificial Intelligence to strengthen their fraud detection systems.

Banks have to take the responsibility to ensure that proper identity verification has been done to check whether a real person is executing the transactions. Identification checks are carried out using other information besides personally identifiable information like Aadhaar card, name, address, and date of birth. Banks should be implementing biometric checks while onboarding customers.

Points to prevent SIF in a Financial Institution : Biometric Onboarding, Machine Learning, and Multi-factor Authentication

Machine learning algorithms help in analyzing big data faster. As a result, they can detect fraudulent patterns more quickly. Biometric patterns of individuals are unique to each person and cannot be replicated. Whether it is handprints or the retina of the eye or the face, these cannot be replicated. When a customer onboarding using biometric information is done, it is a huge deterrent to cybercriminals and fraudsters.

Multifactor authentication is a method that requires the user to provide two or more verification factors to access an online account, a VPN, or an application. It is the core component of a strong identity and access management policy. All of these successfully reduce the possibility of a cyber attack.

How IDcentral helps an organization protect their accounts from SIF

IDcentral uses the following techniques for reducing fraud and cyber attack.

  • Immediate identity verification by matching with government databases.
  • Accurate biometric authentication. Instant notifications.
  • Paperless document verification.
  • AI-driven data extraction

To protect your organization from synthetic Identity fraud.

Check out IDcentral’s ID Verification Solution!


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