The fraudster’s new game face
By Ro Paddock, Head of Anti-Financial Crime at Fourthline
The last 12 months witnessed change to every aspect of our lives. Consumer behaviour was permanently reshaped and expectations shifted in everything from commerce and entertainment to banking. The adoption of digital wallets and mobile banking skyrocketed whilst the use of cash in-store declined.
Alongside this positive change, criminals capitalised on new opportunities and consumer behaviour changed by lockdowns. Our data showed that identity fraud attempts increased by 15 per cent in 2020 over the previous year. According to most experts and industry analysts, money laundering – which is largely facilitated by fraudulent account openings — soared to record highs in 2020. In Europe alone, LexisNexis Risk Solutions estimates that the annual cost of financial crime compliance in Europe was $137 billion in 2020.
Through the looking glass
Attempts at committing financial crime are becoming more sophisticated and the challenges in combatting fraud are only getting bigger. Lewis Carroll’s ‘Through the Looking Glass’ helps us understand that it can take “all the running you can do to keep you in the same place,” and there is no doubting the applicability of this statement in relation to digital identity fraud.
Fraudsters have not only become better at forging official government-issued ID but are also more aware of an individual’s digital identity in general. There are regularly cases where false identification documents correspond exactly with information given on social media accounts, including full name, date of birth, place of birth and connections with fake family and friends. These synthetic foundations help criminals build a credible backstory for their fraudulent identity.
Facing off against fraudsters
While the pandemic progressed, CGI tools used in movie production and gaming started being exploited by criminals as they deployed advanced silicone masks and deep fakes to try to assume the identity of someone else. Similar masks were used in a number of European countries. Some of these masks are easy to spot because they often forge the identity document at the same time. But in other instances, spotting the usage of masks or a deep fake is more complex and requires a combination of trained financial crime analyst and advanced AI techniques.
Industry opinion diverges vastly in its assessments of the threat of deep fakes to the financial system. According to the Carnegie Endowment for International Peace, a lack of data has stymied the discussion. It’s more important than ever that organisations share insights and data so we can more closely understand the level of risk to financial institutions at an individual level and to the financial stability of the system as a whole.
Counting the cost of identity fraud
According to UK Finance, the banking industry stopped £1.6 billion (US$2.2 billion) of attempted fraud losses in 2020. Whilst this figure relates to all fraud and not only identity fraud, it points to a wider trend: the increasing challenges facing financial institutions at a regulatory and compliance level. In order to meet these, banks are having to further invest in financial crime fighting manpower and technology. Ashley Hart, head of fraud at TSB, says that his team have grown 10 to 15 per cent since the start of the pandemic in an attempt to expand its investigative capacity. Further, the emergence of new fraud technologies, namely deep fakes and silicone masks, requires fraud investigation departments to invest in developing new detection techniques. What was once seen as merely an operational cost for banks is now considered a board-level issue.
As fraudulent attempts become progressively more complex, the industry needs to move away from simple document verification and take a more holistic approach to data verification. One which includes checks across identity, liveliness, documentation, biometric data, device metadata and watchlists is increasingly important. With fraudsters changing their approach on a near daily basis, financial institutions need real-time intel and analysis of fraud patterns. Beyond the obvious cost that financial crime imposes on society, banks face huge reputational, financial and political damage by allowing criminals access to create fraudulent accounts.
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