Synthetic identity fraud is a growing concern, with losses surpassing $35 billion in 2023, as reported by the anti-fraud collaboration platform, FiVerity. The Federal Reserve is actively monitoring this issue due to its responsibility to safeguard the payments system, which is at risk from such fraudulent activity.

The rise of generative artificial intelligence (Gen AI) has introduced new challenges and opportunities in combating synthetic identity fraud. Gen AI, unlike traditional AI that focuses on pattern recognition and predictions, creates new content. This capability allows fraudsters to automate the creation of fake identities using combined pieces of real personal information.

Synthetic identity fraud differs from traditional identity theft in that it does not involve stealing the identity of a real person. Instead, fraudsters assemble various pieces of real personally identifiable information to create a new, fake identity. These fake identities, or "synthetics," are then used to commit financial fraud in various ways, such as acquiring and maxing out credit cards or accessing emergency government benefits during the pandemic.

Some argue that synthetic identity fraud is a victimless crime since no real person’s identity is directly harmed. However, this view overlooks the broader societal impact and the challenges of detection, particularly with the advancements in Gen AI.

"Gen AI creates new content," experts say, highlighting its role in automating the generation of stolen identities. The abundance of breached data available online further facilitates this process. Fraudsters can use Gen AI to make fake identities appear legitimate, create records of synthetic parents, and even produce realistic deepfakes.

Despite the challenges posed by Gen AI, it also offers potential solutions. AI and Gen AI can aid in detecting fraud by identifying the lack of depth in synthetic identities compared to real ones. Real individuals have extensive digital footprints, including email addresses, phone numbers, and credit histories, which can be verified using AI tools.

The Federal Reserve emphasizes the importance of vigilance over panic in addressing this issue. "Gen AI has made synthetic identity fraud more potent, but that’s true for every type of fraud,” authorities note, urging for continued diligence. The Fed plans to update its synthetic identity fraud toolkit and collaborate with industry partners to enhance detection and prevention efforts.

The Federal Reserve encourages those interested in learning more to contact their media relations team and explore available resources for further insights into synthetic identity fraud and the role of Gen AI.

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