Connecting state and local government leaders
COMMENTARY | Fraud will continue at scale as criminals become better networked, using the dark web to share tips including how to fool selfie verification tools.
In North Carolina, an attorney fraudulently obtained more than $2.5 million from at least 12 financial institutions and the U. S. Small Business Administration, including more than $1 million in Covid-relief funds. In California, seven members of a Los Angeles-based fraud ring illegitimately obtained nearly $20 million from the Paycheck Protection Program and other Covid-relief funds.
In both cases, perpetrators used a flourishing type of fraud known as synthetic identity fraud, or “Frankenstein fraud,” to fool legacy public sector verification systems. Money meant for struggling businesses and families was instead siphoned away and spent on luxury goods and beachfront properties.
The unfortunate truth: Covid-relief losses due to synthetic identity fraud will never be fully recovered. What we can do is take steps to prevent and limit the threat of synthetic identity fraud in the public sector in the future.
Unless we act, fraud will continue at scale as criminals become better networked, using the dark web to share tips including how to fool selfie verification tools. As opposed to traditional identity theft—where a real person’s identity is stolen and used without their knowledge—synthetic fraudsters create new identities that can be cultivated over time, for months or even years. This could mean combining a real Social Security number with a fake name and address or using one’s real name, address and date of birth with a stolen Social Security number. The most targeted group for synthetic fraud is children.
Over the last two years, synthetic identity fraudsters have plundered pandemic relief programs. An estimated $163 billion has been stolen in unemployment relief, and only approximately $4 billion has been recovered to date. That’s less than 3%.
The Role of Governments
So what can state and federal officials and other leaders do to better protect government services from synthetic fraud?
First, we must fight fire with fire and use artificial intelligence and machine learning to build up an advantage. Criminals are using these technologies to identify weaknesses and create fake profiles. We must fight back with new technologies, like graph-defined identity verification, which help establish good identities and root out fake ones. This means looking beyond performing binary matches against data traditionally held by credit bureaus which can be susceptible to synthetic identity fraud, and leveraging data science based approaches that evaluate people as a whole to render a risk-based decision.
Second, we need clear labeling of what is synthetic identity fraud and what isn’t. The lack of consistent definitions undermines the ability of agencies to share data and information about what they are seeing. Uniform labeling will remove ambiguity and increase early fraud detection through data-driven decision-making about the most effective methods of combating fraud.
Third, we must form a network or a Center of Excellence, or CoE, where public sector officials and private sector experts can come together and share best practices, data and technologies that reduce fraud at speed and scale.
Of course, data-sharing transparency and preserving public trust must be paramount. Not doing so means fighting increasingly sophisticated criminals with one hand tied behind our back.
It would be foolish to believe there is one solution when it comes to preventing synthetic fraud. Fraud will keep evolving. To get ahead of the fraudsters, we must be willing to take a data-driven approach to identity verification and work together to put in place innovative solutions. If we do, we can safeguard our critical public sector programs and instill public confidence in government’s ability to get the right services to the right people and begin to slow the epidemic of synthetic fraud.
Jordan Burris is a senior director of product market strategy for the public sector at Socure. Burris previously served as chief of staff in the White House’s Office of the Federal Chief Information Officer.