|By Gorka Sadowski||
|December 5, 2013 03:06 PM EST||
(Today, Part 3: anatomy of collusion-based first party bank fraud, a.k.a. how fraudsters work together to defraud a bank. Do not try this at home!!)
While the exact details behind each first-party fraud collusion vary from operation to operation, the pattern below illustrates how fraud rings commonly operate:
- A group of two or more people organize into a fraud ring
- The ring shares a subset of legitimate contact information, for example phone numbers and addresses, combining them to create a number of synthetic identities
- Ring members open accounts using these synthetic identities
- New accounts are added to the original ones: unsecured credit lines, credit cards, overdraft protection, personal loans, etc.
- The accounts are used normally, with regular purchases and timely payments
- Banks increase the revolving credit lines over time, due to the observed responsible credit behavior
- One day the ring "busts out", coordinating their activity, maxing out all of their credit lines, and disappearing
- Sometimes fraudsters will go a step further and bring all of their balances to zero using fake checks immediately before the prior step, doubling the damage
- Collections processes ensue, but agents are never able to reach the fraudster
- The uncollectible debt is written off
In order to illustrate this scenario, let's take a (small) ring of 2 people colluding to create synthetic identities:
- Tony Bee lives at 123 NW 1st street, San Francisco, CA 94101 (his real address) and gets a prepaid phone at 415-123-4567
- Paul Favre lives at 987 SW 1st Ave, San Francisco, CA 94102 (his real address) and gets a prepaid phone at 415-987-6543
Sharing only phone number and address (2 pieces of data), they can combine these to create 22= 4 synthetic identities with fake names as described in Diagram 1 below.
Diagram 1: 2 people sharing 2 pieces of data and creating 4 synthetic identities
Diagram 1 shows the resulting fraud ring, with 4-5 accounts for each synthetic identity, totaling 18 total accounts. Assuming an average of $4K in credit exposure per account, the bank's loss could be as high as $72K.
As in the process outlined above, the phone numbers are dropped after the bust-out, and when the investigators come to these addresses, both Tony Bee and Paul Fabre (the fraudsters, who really live there) deny ever knowing John Smith, Frank Vero, Mike Grat or Vincent Pourcent.
Pretty lethal, right? Next time, let's see what we can do to catch these guys in real-time.