Increase in FinCEN fraud reports reveals growing urgency for digital identity

Digital identity could be key in the growing problem of identity related cases of fraud. The FinCEN Identity Project found that 1.6 million (42 percent) of the 3.8 million suspicious activity reports (SAR) from 2021 data are related to identity fraud, amounting to $212 billion in all identity fraud related reports, according to a report that will soon be released.

SAR fraud report rates have been steadily rising for a decade and only worsened after the pandemic. For instance, fraud accounted for an estimated $100 billion to $135 billion of unemployment insurance benefits paid during the pandemic – 11-15 percent of the total amount paid.

Public sector fraud cases “increased the attack rate of account opening attempts with identity theft and synthetic fraud on the banking side,” says Mary Ann Miller, fraud and cybercrime executive advisor and VP of client excellence at Prove Identity, in an interview with Biometric Update.

In 2022, over 350,000 SARs reported to FinCEN are tied to identity theft, and over 600,000 SARs reported the use of fraudulent identification records, according to comments from Jimmy Kirby, acting deputy director at FinCEN. The majority of SARs were digital identity-fraud related.

Banks are required to verify customers’ names, addresses, social security numbers, and dates of birth to confirm identity, which can easily be circumvented. “Those four pieces of information are out there on every consumer period,” said Miller. “What we need to do is move to tools that actually answered the question ‘Is Mary Ann Miller [for instance] presenting Mary Ann Miller’s information in the flow?'”

As more financial services move toward an online environment, attack rates are rising, fintechs and early stage neobanks “have not had an opportunity…to have the years of experience of building up their fraud and identity capabilities,” she notes.

Moreover, among fintechs, there is “a big appetite to grow… but there needs to be an acknowledgement of the fact that unless you have good identity, processes and procedures and technology, that a lot of that growth can be fraud.” For instance, in 2022, PayPal admitted that 4.5 million accounts were illegitimately created.

In response to these new challenges, those from private and public sectors, as well as fraud and cybersecurity subject matter experts together to address identity verification. FinCEN’s Innovation Initiative works to bring together all players to identify the best tools to combat identity fraud.

Prove identity establishes that a customer is in possession of their phone, that it’s a trusted device, and the identity associated with the phone in real time to confirm identity without selfie biometrics. “That real-time process ensures the consumer is presenting their own information and is a critical process to modernize digital identity,” says Miller.

This post was updated at 5:17pm Eastern on September 21, 2023 to include a revised figure from FinCEN.

Article Topics

digital identity  |  financial services  |  FinCEN  |  fraud prevention  |  identity verification  |  Prove  |  synthetic identity fraud