Synthetic identity fraud occurs when criminals create an identity out of pieces of real and/or fictitious information to commit a dishonest act for personal or financial gain. While the fake identity often is an “individual,” criminals may seek more lucrative opportunities with synthetic business fraud.
Typically, companies have access to higher credit or loan amounts than consumers, making them more attractive to criminals. This can result in larger losses when a default on repayment occurs. Criminals use these synthetic businesses to deceive financial institutions into opening accounts to access credit, loans and other banking products. Traditional fraud controls and detection methods may not consistently identify these fake companies.
How are synthetic businesses created?
Criminals use stolen, manipulated or manufactured information — such as an address, telephone number and business officer’s name — to create a fake company. Criminals then register the “business” with an agency in the state where the firm will “operate,” often registering their businesses online for accessibility and convenience. Lack of in-person verification may make it easier for criminals to submit fabricated information. In addition, a business entity can apply online or use other methods to request an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). To further support the “business,” criminals may create a company website and use social media to display fictitious contact information and fake customer reviews.
The payoff: criminals use the fake business to draw cash from lines of credit and other loans; open business accounts to receive and move money from illicit activities (i.e., money laundering); and submit fake invoices to legitimate companies for goods or services that were never provided.
Potential synthetic business fraud red flags include:
- Inconsistent business information — for example, business details don’t match public records, including state business registration records
- Suspicious account activity, such as larger-than-typical dollar amounts and volume of transactions for a new business
- Unusual business behavior, including high revenue claimed for a newly registered business
Financial institutions can help safeguard their portfolios against synthetic business fraud by leveraging lessons learned from combating synthetic identity fraud. Often, organizations use a multi-layered approach, such as focusing on identifying potential risks based on a review of company information, account activity and company behavior.
Visit the Synthetic Identity Fraud Mitigation Toolkit (Off-site) to learn more about synthetic business fraud and related topics.
