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The Fed has issued a white paper that examines the phenomenon of synthetic identity fraud, which it estimates is the fastest-growing type of financial crime in the U.S.

“Synthetic identity payments fraud is a fast-growing but little-understood problem that affects individuals, financial institutions, government agencies, and private industry,” the paper said.

Unlike traditional identity theft, which involves a fraudster stealing an existing identity, synthetic identity fraud involves crafting a new identity with a combination of real and fake information, such as combining a real government-issued ID with a fake name or birthday.

Perpetrators then obtain credit under the new identity, which they are able to use to run up charges before skipping out on their bills.

“Fraudsters increasingly use synthetic identities to commit payments fraud, which can escape detection by today’s identity verification and credit-screening processes,” the paper noted. “Because the identity was not real to begin with, there is limited recourse in tracing the perpetrators and holding them responsible…”

The report added that synthetic identity fraud is difficult to detect because fraudsters often use information from children, the elderly, or homeless, who are unlikely to access their credit information and spot an issue.

The prevalence of online data breaches also makes the sort of information that these schemes require readily accessible to criminals.

“Fraudsters are more sophisticated and organized, crime rings are run as lucrative businesses, data breaches are frequent and the availability of [personal information] on the dark web is staggering,” the paper noted.

As a result, the Fed indicated that the problem is likely to worsen.

“We expect fraudsters will continue to commit this type of crime due to the lack of victims reporting fraud, difficulty in detection and high payoffs for fraudsters – compounded by increased digitization of the financial system,” it said.