A case involving synthetic identity fraud, credit card bust-out scheme and money laundering

Late last month, the U.S. Department of Justice (DOJ) U.S. Attorney’s Office of the Eastern District of New York announcedeleven defendants had been charged with defrauding banks to the tune of approximately $3 million.  How?  By using fake or “synthetic” identities to get credit cards, running up charges and not repaying the issuing financial institutions.  Three of the defendants then laundered the proceeds to conceal the source of the funds.

Synthetic identity fraud happens when a criminal creates an identity instead of stealing a real person’s identity.  It generally involves mixing real and fake personal identifier information such as names, dates of birth, addresses and social security numbers to create an entirely new identity.  For example, the synthetic identity could have a legitimate address and the social security number could appear valid, but the social security number, name and date of birth combination do not match with any one person.

A bust-out scheme is generally when someone applies for credit (credit cards, retail cards, home equity) using a synthetic identity.  They build good credit by making timely payments, obtaining credit line increases and with increasing usage. They then max out all available lines of credit, with no intention of repaying and drop the account. These then go into collections and turn into charge-offs and a loss for the financial institutions.


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