KYC AML Guide: the Clock shows the average reeding time of the blog13 min Read


KYC AML Guide: the Clock shows the average reeding time of the blogSeptember 19, 2023

What is synthetic identity fraud?

The sophistication of cybercriminals is continually rising, as are their tactics in a world that is becoming more digital. Synthetic identity fraud is one of the rising threats. Experian stated in its Future of Fraud Forecast published in January 2023 that synthetic identity fraud, or using a "Frankenstein" identity, would continue to pose a serious threat. Individuals and businesses must understand what it is and how to protect themselves from it.

Belal Mahmoud

KYC Product Consultant

Synthetic Identity Fraud

Synthetic identity fraud is a sophisticated and extortionate type of fraud in which cybercriminals cleverly combine authentic and fake personal information to create a completely fictitious identity. These fake identifications combine true data, like social security numbers (SSNs), with false data, like names, dates of birth, and addresses. The resulting “Frankenstein ID” is then used in a variety of illegal pursuits.

The objective is to enter the system of the company by clearly presenting it and, secondly, to produce a trustworthy financial report. The traits of these products are applied for credit as soon as they are accepted in the financial sector, gradually establishing trust. Synthetic fraud is particularly dangerous because it can avoid identity verification systems by preying on groups like children, the elderly, and the homeless who don’t regularly check their credit. Because of its complexity, synthetic identity fraud is both a growing problem and a formidable foe for both people and businesses.

Emily, a cybercriminal, wants to apply for a credit card. She begins by using a legitimate Social Security number (SSN) that she discovered online. She then adds a fake name, birthdate, and address to this. With this fake identity, she went on to open a bank account and gradually created a false credit report. When Emily finally applied for a credit card, the bank approved her because they thought she was a legitimate lender.

The high reliance on personally identifiable information (PII) like SSNs for identity verification makes this kind of fraud particularly common in the US. Surprisingly, synthetic identity fraud is the fastest-growing financial crime in the US, according to McKinsey. According to the National Centre for Victim Research, 7 to 10% of US adults fall victim to identity theft every year.

Synthetic Theft vs. Traditional Theft

In Traditional Identity Theft a real person is wholly taken as part of the theft. Using this information, criminals can quickly carry out activities like skimming credit cards, making impulsive purchases, or committing other types of speedy thefts. It makes the victim as vulnerable as possible before it is discovered frequently resulting in a quick response from both the victims and the authorities. Contrastingly, synthetic identity theft relies on fabricating an entirely false identity using a combination of true and false information. Since these details are wholly fictitious, researching them is challenging.

Risks Associated with Synthetic Identity Theft

As per various reports,

  • According to Forbes, by 2024 there could be a $5 billion loss in potential revenue due to synthetic Identity theft. Avoiding Know Your Customer (KYC) screening is frequently the main objective, which has a variety of effects such as KYC and Compliance Risks, trust and reputation erosion, and legal complications

  • According to Juniper Research, synthetic identity fraud will cause $48 billion in losses annually by 2023.

  • The Aite-Novarica Synthetic Identity Fraud Report projects that in 2023, losses from synthetic identity fraud will reach $2.42 billion.

  • Approximately 155.8 million Americans’ private information was accidentally made public in 2020 as a result of security flaws in websites like Twitter and the Walgreens app.

  • Experian’s research indicates that it is responsible for 80% of credit card fraud losses and almost 20% of merchant chargebacks.

How Does Synthetic Identity Theft Operate?

Synthetic identities are used for criminal activity that extends beyond financial fraud, including receiving government benefits illegally, facilitating money laundering through bank accounts, and other illegal deeds. Additionally, a 2021 Experian report revealed a worrying trend: fraudsters are using artificial intelligence to create fake faces as a smart scam to fool the biometric verification systems used by businesses.


Creating the Synthetic Identity

The creation of a carefully constructed synthetic identity is the first step in the intricate process of synthetic identity theft. Fraudsters combine real and fake information, such as Social Security numbers (SSN), names, dates of birth, and addresses, to create hybrid identities.

Utilizing Stolen or Bought SSNs

These online chameleons frequently use real SSNs obtained from the dark web, specifically those belonging to those with no credit history, such as children, the elderly, or those who are homeless. With the help of this fundamental information, they lay the groundwork for their false identity.

Starting a Credit Application

The following phase focuses on false credit applications. These applications are initially turned down because the synthetic features lack any prior financial experience. However, applying starts the process of building a credit file, which is crucial for establishing credibility.

Perseverance Despite Rejections

The fraudsters persisted in applying for credit from various financial institutions despite the initial failures. An important turning point is finally reached when a high-risk lender approves.

Building a Credible Credit Record

By securing this initial credit line, the fraudster starts the process of establishing a reliable credit history. The foundation of this new credit profile is provided by responsible credit use, prompt repayment, and sound financial practices. It gradually takes on the appearance of a real credit user.


Some con artists choose a second “piggyback” technique. This entails obtaining permission to use an account with a strong financial track record, frequently in exchange for payment to the account holder. Fraudsters employ a variety of techniques, such as forging identity documents, establishing a social media presence, or fabricating business records to maintain an air of legitimacy.

The “Bust-out”

Fraudsters use better techniques to increase their credit lines when they have a higher credit score and more established credibility. They abruptly stopped making payments and vanished into thin air online. In some instances, they may go all in and claim identity theft to remove charges or employ fraudulent checks to pay off the balances before maxing out the credit once more.

How to Prevent Synthetic Identity Theft?

Protect your Identity


  • In the struggle against synthetic identity fraud detection safeguarding your Social Security number (SSN) is essential. How to:

  • Use caution on social media sites to stop scammers from gathering personal data from your posts, such as birthdays.

  • Keep your Social Security card in a secure location at home and avoid giving it to anyone else to protect your SSN.

  • Dispose of confidential documents by shredding or hiding sensitive information. This includes bank statements, tax returns, and official notices that contain personally identifiable information.

  • If you get an unexpected letter about a government benefit, a Social Security statement, or a pre-approved credit offer for a child, look into it further because it could be evidence of fraud.

  • Invest in comprehensive digital security software to bolster your defenses against hackers and malware and prevent the leak of your personal information and passwords.

  • Recognize phishing scams and be on the lookout for them. These calls, texts, or emails pose as trustworthy sources to steal your personal information. Pay close attention to the sender’s message and look for any typos or character changes. Links should not be clicked because they could install malicious software.

  • Check your credit report frequently and keep an eye on your credit score. Any information that is unclear or inaccurate, or a sudden decline in credit score, could be signs of synthetic theft

  • Create a fraud alert on your credit report or put a security freeze on your credit report.

Strategies for Financial Institutions

According to estimates, 95% of fake identities at financial institutions go undetected during the onboarding procedure. Losses resulting from synthetic identity theft are frequently never discovered or are merely written off as an unavoidable cost of doing business at e-commerce and retail websites. These strategies are essential for financial institutions fighting synthetic fraud:

Identity Verification

Implement a thorough identity verification (152) procedure, especially when onboarding new customers. Verify the accuracy of any identification cards issued by the government regularly. Investigate additional data sources, such as IP addresses and credit card numbers, to find discrepancies that might point to fraud.

Machine Learning and Identity Clustering

Use synthetic identity fraud detection solution that is powered by AI and ML algorithms and can quickly identify networks of accounts displaying suspicious activity. These systems offer two different levels of protection by distinguishing between accounts that have similar data but behave differently and accounts that behave similarly but have different personal information.

Biometric authentication

Introduce biometric authorization to verify customers using biological traits like fingerprints or facial images.

Transaction Monitoring

Use transaction monitoring systems to check and examine transactions for deviations from the risk profiles of the customers.

Analyzing the Digital Footprint

Use online digital footprint analysis to determine the intentions of the customer while enhancing the provided data with contact details like phone numbers and email addresses. The lack of an online footprint can raise questions.

Browser and Device Fingerprinting

Implement device fingerprinting to find tools that fraudsters are using to impersonate various users and devices. This involves identifying unusual browser configurations, dubious hardware setups, emulators, and virtual machines.

Analysis of Behaviour Using Velocity Rules

Examine user behavior by using velocity rules to examine things like how quickly KYC procedures are completed, how often specific data is entered, and more. Recognizing unusual behaviors can help you spot fraud.

Bottom Line

In the digital age, synthetic identity fraud poses a serious threat to both individuals and businesses. By confirming the veracity of customer identities and spotting suspicious behaviors that may indicate fraudulent synthetic identities, KYC (Know Your Customer) and AML (Anti-Money Laundering) regulations play a crucial role in preventing synthetic identity theft.


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Belal Mahmoud
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Belal possess over 8 years experience in the KYC Identity Verification industry. He has consulted KYC solutions for over 20 new economy companies at DIFC and ADGM while ensuring a seamless technical integration and helped in jurisdictional compliance audits.