Fraud Rings Rampant in U.S., Especially Southeast

 
 
By Robert Lemos  |  Posted 2012-11-20
 
 
 

A study of more than a billion applications for credit cards, bank cards and cell phone accounts uncovered about 2.9 million fraud events linked to 10,000 identity-fraud rings, information protection firm ID Analytics stated in a report.

The research examined the interconnections between the people committing fraud and found that some 10,000 groups, consisting of identity fraudsters who are collaborating to commit the crime, exist in the United States. Rather than sophisticated organized criminal groups, most rings are small and consist of family members working together. In addition, while many believe that identity fraud is an urban crime, most groups came from rural areas, especially in the Southeastern United States, said Stephen Coggeshall, CTO for ID Analytics, which released the report Nov. 14.

"Urban areas have the higher fraud rates, and that makes sense, but what surprised me in the fraud rings—people collaborating together to commit identity fraud—the higher activity tends to be in rural areas," he said. "In particular, there is a 'Belt of Fraud' from the Virginia through the Carolinas, across Alabama and into Mississippi."

This is the first time that anyone has done a systematic study of collusion and collaboration in identity fraud, Coggeshall said. ID Analytics offers services to businesses to verify the legitimacy of credit applications. About 2 percent of all applications are fraudulent, the company said.

Previous surveys of identity theft have found that the crime peaked in 2009, but costs for victims continue to climb. Smartphone users tend to have a higher incidence of identity fraud, due to lost and stolen devices, according to Javelin Strategies, an analyst firm.

The study used data from January 2009 to September 2012, looking at people committing three types of identity fraud: identity theft, a crime in which the fraudster attempts to use a victim's identity information; synthetic identity fraud, in which the perpetrator creates a new identity; and identity manipulation, in which the fraudster attempts to change small components of their identity information to avoid linking the application to a bad credit history. Lost and stolen accounts were not part of the study, ID Analytics said.

Most identity-fraud rings used a combination of identity theft and information manipulation to avoid being connected to their crimes, the report stated. Many fraudsters used dozens of Social Security numbers that were just variations of their own number, Coggeshall said.

A large number of the groups—although Coggeshall would not say what portion—consisted of small circles of families and friends. While there were fraud rings that included more than a hundred people acting together, those were rare, he said.

"There are many examples in these rings that shared the same last name, living together at the same address," Coggeshall said. "So these were clearly families, so they were siblings, parents and children, maybe cousins, who were acting together."

The study allows ID Analytics officials to keep track and profile the different fraud rings and perhaps improve their ability to determine whether an identity or application is at risk from fraudsters. While identity thieves tend to target the bank card, cell phone and retail card industries, the wireless carriers suffer from the most fraudulent activity, the report stated.

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