2022 will be the year that the “good guys”’ finally have the necessary tools to get in front of the “bad guys.” But as we know, fraudsters have access to innovative technology used for exploiting deepfake imagery, a relatively new financial vehicle in crypto, and credit card authorized tradelines and vintage email marketplaces to strengthen synthetic identities.
It will be up to the good guys to take advantage of technology in order to tackle vulnerabilities and emerging fraud patterns. The government and private industry will also need to streamline collaboration around information sharing for ever-changing exploits and develop standards to instill consistency in technology innovation.
Let’s take a closer look at some more observations in the battle against the bad guys and how to combat these fraudsters in 2022:
Imposter scams will triple
In an imposter scam, a dishonest person lies and tricks consumers into sending money to them. Bad actors may call consumers on the phone or send an email or text. Imposters scam consumers by telling them they won a prize and have to pay fees to receive it, owe money to the IRS, have committed a crime and have to pay a fine or even act as tech support and work to help with a problem on the consumer’s computer, among other scam types. The victim is then asked to buy a gift card, wire money or add money to a crypto or bank account. The demand deposit account (DDA) account is generally set up as a synthetic identity, stolen identity or money mule.
The most recent annual FTC report released in February 2021 indicated that imposter scams were the second highest complaints tracked by the FTC, and the highest fraud type. In 2020, one in five consumers were impacted who lost a total of $1.228 billion in 2020. That’s double the 2019 rate of one in ten affected that totaled $667 million in losses. This fact was a distance second to the massive increase in ID Theft complaints from 2019 to 2020.
However, it is widely believed that this sharp increase is tied to “credit washing”, and that the real headline here is the increase in imposter scams, especially those scams attacking the young and old. The FTC report coming out in 2022 will probably reflect another doubling in the number of consumers and dollars impacted. We’d even go out on a limb here and suggest that these numbers will triple.
The telephone is still the preferred method for imposters to reach their victims. Eight in ten (79%) of the adults surveyed by AARP said they were first targeted and/or victimized by an imposter scam via phone. Granted, this data may be skewed by age, but all indications are the phone is the tool of choice for imposter scams.
To receive and move money, imposter scammers use everything from crypto, gift cards, DDA, savings accounts, and payment apps like Zelle, Venmo, and Cash App. Because of the broad consumer education about the use of gift cards by scammers, we predict that use of crypto and bank DDA and savings accounts will increase by imposters in 2022.
Deepfake and “impersonations” will create havoc for the uninformed
Deepfake technologies are getting better and becoming downright mainstream. In October of 2021, Adobe even released a limited technology of their own, called Project Morpheus. Deepfake technology is getting so good and has become so widely available that Facebook continues to invest heavily in research of technologies to guard against future threats. So far, the research is mostly focused on finding patterns within the deepfakes by reverse-engineering the methods used to create deepfake imagery. This raises issues in fraud detection rates because the fraud models can’t detect the patterns until they see many of the same pattern, and bad actors can easily manipulate patterns such that they can limit the ability to detect them.
For instance, the winning algorithm in Facebook’s most recent deepfake detection competition was only able to detect a little more than 65% of the deep fake it analyzed. For the uninformed, deepfakes will already be able to maneuver around standard document validation and “liveness” detection and they are getting better and better.
If you are a lender automating verifications using document validation services, please ensure that your solution provider has done the hard work to get ahead of bad actors who are putting in the work to overcome your defenses. Lenders who are uploading images to the web are asking to be beat. Deepfakes, even bad ones, are difficult to detect unless the camera on the phone is actively in use via a SDK.
There will be an increase in government/industry partnering to educate consumers about fraud
COVID brought about substantial change for almost every industry and organization in the world, including the public sector. The U.S. government saw a massive increase over the last few years in the amount of fraud attempts to entitlement programs, stimulus packages, and tax scams.
Consider these efforts by the U.S. government:
- White House action. In May 2021, the White House launched an initiative on Identity Theft Prevention and Public Benefits. The initiative is designed to bring a whole-of-government approach to stopping criminal syndicates before they can prey on relief funds that belong to the American people, and helping individuals who have experienced identity theft recover money that belongs to them.
- Joint Financial Management Improvement Program (JFMIP). The JFMIP – a collaboration between government agencies such as the Department of Treasury, the Office of Management and Budget, the Office of Personnel Management, and the U.S. Government Accountability Office is working to evaluate what could be implemented in terms of identity verification to mitigate the instances of fraud / improper payments realized through the pandemic. In spring, it is anticipated that they will release a report with recommendations for improving identity verification programs at other agencies.
- Paycheck Protection Program (PPP) fraud. Researchers concluded that around 1.8 million of the program’s 11.8 million loans — more than 15 percent — totaling $76 billion had at least one indication of potential fraud.
- Unemployment fraud. The U.S. Department of Labor Inspector General Office in late March estimated that at least $89 billion of the estimated $896 billion in federal unemployment program funds could be paid improperly, with a significant portion attributable to fraud. This is based on a historic improper payment rate of at least 10%. Others have estimated that the losses to unemployment fraud could exceed $400M, or 50%.
- Government imposter scams. While not a financial impact to the federal government, bad actors heavily use IRS, SEC, DOJ and FBI guises to perpetrate scams against consumer victims. Each of these agencies is paying a great deal of attention to these scams and working to educate consumers.
- Department of Justice. In October and November of this year, U.S. law enforcement took action to address 4,750 money mules who operated in every state in the country. These actions more than doubled the number of actions taken during last year’s effort.
- Internal Revenue Service (IRS). Following it’s annual IRS Security Summit in late October, the IRS reminded families, teens and senior citizens about the continued importance of protecting personal and financial information. The Security Summit works to protect taxpayers from criminals that file fraudulent returns for refunds.
- Department of Homeland Security (DHS). DHS reported that terror organizations exploit synthetic identities to launder money as well as obtain cell phones, airline tickets and false identification documents needed to acquire passports. These events won’t show up as a financial loss to the bank with an open synthetic account.
- Financial Crimes Enforcement Network (FinCEN). FinCEN has recognized the negative impacts of synthetic and other types of internet-enabled fraud schemes and have issued new Anti-Money Laundering (AML) and Countering the Financing of Terrorism National Priorities recently, which call out the need to better manage synthetic fraud.
- The Boston Federal Reserve. The Fed partnered with industry experts earlier this year to define synthetic fraud and are currently building out tools to help deploy the synthetic definitions and optimal fraud labeling across the industry.
With all this activity, combined with concern and governance for entitlement and consumer and business stimulus programs, the U.S. government is highly motivated to cultivate additional partnerships with industry leaders in 2022.