discovering, investigating and preventing application fraud
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Discovering, Investigating Discovering, Investigating and Preventing Application and Preventing Application
FraudFraud
Presents…
National Fraud Center
AgendaAgenda
• Introduction-Application Fraud and Privacy
• Anti-Money Laundering Requirements Within The Banking, Securities and Insurance Industries
• Operational Best Practices to Reduce ApplicationFraud
• The Red Flags of Application Fraud
• Employment Application Fraud
• Concluding Remarks and Q&A
Application Fraud and Application Fraud and PrivacyPrivacy
Norman A. Willox Jr.
Chief Privacy Officer, LexisNexis, and Chairman
of the National Fraud Center
SocietSocietyy
Who’s Responsible Who’s Responsible for Dealing With for Dealing With
Fraud?Fraud?
Government
Citizens
Industry
Law Enforcement
ProactiveReactive
• No single Entity
• Public/Private Partnership
• Laws/Regulations Education
• Balanced Approach
What Data What Data Process Process Helps?Helps?
Decisions
Knowledge
InformationTim
e
Cost
Data
Proactive Reactive
Authentication Authentication and Identity Fraudand Identity Fraud
Data Needed
Personal Identity Data
• Name• Address• Telephone #• Sanctions
• Previous Addresses• Previous Telephone #s• SSN• High Risk Address
• DOB• Employment• Driver License #• Demographics
Corporate Identity Data
• Principals names• Corporate Address• Corporate Phone #s• State of incorporation
• Tax ID #• UCC’s• Duns #
Privacy and Privacy and Personal Personal
Identifying DataIdentifying DataRegulation
FCRACredit Report
• Credit Granting• Insurance Underwriting• Pre-employment
Gramm-Leach BlileyCredit Headers
• Name• Address• Phone #s• SSN
• To Protect against fraud, unauthorized transactions, claims or liabilities
• Required institutional risk control
• Persons holding a legal interest relating to the consumer
• Acting as a fiduciary or representative for the consumer
• Comply with federal, state or local laws
• Necessary to effect, administer or enforce a transaction that a consumer authorizes
Uses
Consumer opt out
Other Privacy Other Privacy Laws and Laws and
RegulationsRegulations
• Drivers Privacy Protection Act (DPPA 1996)
• Children's Online Privacy Protection Act (COPPA 1999)
• Right to Financial Privacy Act (RFPA 1999)
• Health Insurance Portability & Accountability Act !
(1996)
• E.U. Data Protection Act
Foundation Principles• Notice• Choice• Access
• Security• Enforcement
• Audit
What is Next?What is Next?
• FTC to enforce and further evolve current regulations
• Privacy advocates vs. Security debate
• Further compliance and enforcement of E.U requirements
• Global pressure to internationally comply
• Urgent need to educate all policy makers and influencers as to unintended consequences of or actions and responsible uses
Money Laundering in Money Laundering in the Year 2001the Year 2001
James VaulesCEO
National Fraud Center
National Fraud Center
“The world financial system has become a ‘money launderer’s dream.’”
- Pino Arlacchi, Under Secretary-General of the UNExecutive Director - Office for Drug Control and Crime Prevention
Source: Interpol
National Fraud Center
Good NewsGood News
• Approximately US$500 million will be recovered through anti-money laundering measures (Source – Interpol)
• Renewed emphasis to determine the source of suspicious funds.
• Several new anti-money laundering initiatives before Congress
National Fraud Center
• World’s third largest ‘business’ (Source: Interpol)
• International drug trade is valued at approximately $500 billion (Source: Interpol)
• Approximately $200 billion of drug money is laundered each year (Source: Interpol)
• $1 billion spent annually on detection and enforcement (Source: Interpol)
• Recent terrorist events demonstrated weaknesses in the detection process
Bad NewsBad News
National Fraud Center
• Fight underlying crime that generates the dirty money
• Keep public and corporate officials honest
• Protect integrity of the financial system
3 Reasons to Combat 3 Reasons to Combat Money LaunderingMoney Laundering
National Fraud Center
Specific Unlawful Act (SUA)
Placement
Layering
Integration
Money Money Laundering in Laundering in the Year 2001the Year 2001
National Fraud Center
• Initial entry of illicit money into the financial system
• Transfers to/from the financial system
• Cross-border cash flow
3 Choke Points 3 Choke Points for the Laundererfor the Launderer
National Fraud Center
A real life example
Traditional Money Traditional Money Laundering Laundering
SchemeScheme
National Fraud Center
• Cash-less transactions
• Electronic trading
• Computerized clearing
Source: Interpol
Megabyte MoneyMegabyte Money
National Fraud Center
• Electronic transfer of values– Internet– Stored Value Smart Cards– No regulated third party (bank)
• Rapid• Degree of anonymity
• Eliminate physical movements of large sums of cash
• Little or no paper trail• Not personnel intensive• International infrastructure• Global basis
CyberpaymentCyberpaymentss
National Fraud Center
• International sharing of information• Infrastructure to identify suspicious criteria• Differentiation of cyberpayments from broader
Internet traffic flow• Public-private collaboration• Challenge to keep up with rapidly evolving
technology• Government access to cyberpayment data• Jurisdictional issues
– Federal– State– Local
Law Law EnforcementEnforcement
National Fraud Center
• Wolfsberg Principles• Gramm-Leach-Bliley Act• Know Your Customer Policy• Federal Sentencing Guidelines• Annunzio-Wyle Anti-Money Laundering Act• OFAC Regulations• Foreign Corrupt Practices Act• Economic Espionage Act• Bank Secrecy Act• Financial Action Task Force• Organization for Economic Cooperation and Development
Driving Due DiligenceDriving Due Diligence
National Fraud Center
Process Flow
NationalFraud Center
InformationResources
OutputData
More DataNeeded?
NationalFraud Center
YES NO
ClientRequest
via Internet
Hard CopyReport
GeneratedClient
DueDiligenceComplete
Name
Address
Property &Assets
UCC
SocialSecurity
Media
Judgment,Suits & Liens
Internet
Employment
Proprietary
Databases
Civil
Licenses
Bankruptcy Associations& Affiliations
Criminal
History
Education Credit
Web Enabled Web Enabled Due DiligenceDue Diligence
National Fraud Center
NFC Due NFC Due Diligence Diligence ProcessProcess
Online Data
Offline Data
Interpretation(Investigator and Analyst)
Final Report
National Fraud Center
Operational Best Operational BestOperational Best
Practices to Reduce Practices to Reduce Application FraudApplication Fraud
Todd AmpeRisk Consultant
RiskWise
ScreeningScreening
Existing Application Screening Tools• Credit Report Data• Internal Customer
Data• External Data• Manual Processes
Emerging ApplicationScreening Tools• Data Validation• Higher Risk
Identification• Data Verification• Fraud Scores
ValidationValidation
Validation Results
• Invalid Social
Security #
• Invalid Address
• Invalid Phone
Fraud Rate
• 22.1%
• 10.4%
• 6.1%
ResultsResults
Higher Risk Results
• Social Security Number = Deceased, Bankrupt
• Address = Non USPS, P.O. Box
• Phone = Cellular, Fax #, Disconnected
Fraud Rate
• 23.4%
• 11.6%
• 7.3%
VerificationVerification
Verification Results Apps Bad Rate
Nothing Verified 8,033 31.4%Name and SSN Only 12,107 25.7%Partial Verify - One Source 13,741
12.5%Partial Verify - Multi Source 5,202 9.4%Full Verify - One Source 25,768 4.8%Full Verify - Multi Source 14,111 2.6%
* Fraud / Early default in first six months
Score Risk
1 Highest
2 Higher
3 High
4 Moderate
5 Low
3.8 : 1
9.9 : 1
22.6 : 1
93.0 : 1
199.6 : 1
Total 60.4 : 1
Good / Bad Odds*
* Fraud / Early default in first six months
Customers Determine the Level of Manual Review
FraudDefender
Bankcard Sample Results
Application Fraud Loss Trends77% improvement after full implementation of Riskwise verification.
Application Fraud Charge-off per New Account
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
Mar-00 Apr-00 May-00 Jun-00 Jul-00 Aug-00 Sep-00 Oct-00 Nov-00 Dec-00 Jan-01 Feb-01
The Red Flags of Application The Red Flags of Application FraudFraud
William FisterPublic Records Expert
LexisNexis
• Definition of Fraud
• Red Flags of Fraud
• Tools Available for Raising the Red Flags
• Internet Facts, Sites and Drawbacks
• Commercial Resources
OutlineOutline
Intentional or reckless misrepresentation or omission of a material fact which is reasonable and believable and which
when relied upon results in injury.
FraudFraud
• Multiple current addresses• Excessive short term address changes• Holes in address history• Name variations• Multiple SSN• Evidence of financial distress• Litigiousness
Red FlagsRed Flags
• Relationships to known problem people, addresses or businesses
• Inconsistencies in the information provided
• Work and residence addresses not proximate
• Phone number outside reasonable address scope
Red FlagsRed Flags
• Public Records
• Publicly Available Data
• Self Reported or Created Information
• Third Party Prepared Information
• Compilations
Tools for Tools for Raising the Red Raising the Red
FlagsFlags
• Government Sponsored Sites– Sometimes remote access– Sometime free of charge
• Internet Sites
• Proprietary Databases– Nationwide searches– Group Searches– Linked Records
How and How and Where?Where?
• Access• Speed• Advertising• Reliability• National Searches• Security• Search engine limitations
Internet Internet DrawbacksDrawbacks
• Search Techniques– Keyword – Concept (clustering techniques)
• Database built by spiders or direct submittal by Web developer
• Focus on keyword density, meta-tags, position of keywords
Internet Search Internet Search EnginesEngines
• Out of date and incomplete
• “Cheat” techniques
• Most sites spending on marketing and advertising rather than technology
• Search sites sell their rankings
• Search sites deliberately exclude competitor sites (Yahoo/Mining Company)
Search Engine Search Engine DrawbacksDrawbacks
DEPEW
RHETT
12035
brookston
• Yahoo People Search– yahoo.com/search/people
• WhoWhere– whowhere.com/
wwphone/phone.
• Switchboard– switchboard.com
• Four11 Phone Directory– four11.com
• TelDir.com– teldir.com
• Big Book– bigbook.com
• Database America – databaseamerica.com
• Ultimate White Pages– theultimates.com
• Lookup USA– lookupusa.com
– WorldPages– worldpages.com
People Finder People Finder ProductsProductsSpecific Sources -- “Free”Specific Sources -- “Free”
William Fister
OH
williamfister
oh
• Use high quality data and maintain currentness• Normalize data prior to linking • Using proven methods of cryptology to improve
the accuracy and integrity of the link• Constructed comparing parts of every document
to every part of every other document• Reconcile and scrub the errors and reprocess• Show the original source• Interactive research tool, not a dead end
The Future ---The Future ---LexisNexisLexisNexisTMTM SmartlinxSmartlinxTMTM
Easy to Use Search Forms
No mandatory fields
Seven Resorts
Just type in your search request and
press the
Search key.
Real Property
Name variations expand research
options
Jump links take you directly to other parts
of the report
Press the Real
Property link
Hypertext Link to Source Document
• Government sources are an inexpensive option with reliable information but inconvenient and hard to access remotely and fragmented
• Internet sources are an inexpensive option and easy to access but information can be unreliable and fragmented and there is no accountability
• Proprietary sources are easy to access, group and value-add the data and use latest technology but can be expensive
Recap
Effective Verification of Effective Verification of Employment Application Employment Application
InformationInformation
Nick JohnstonConsultantPeopleWise
• Use the key data elements on the application to uncover the red flags
• Name• Home Address• Telephone Number • Social Security Number• Education History (dates attended)• Employment History (from when to when)
Verifying Application Information
Using a false ID to get hired
“Lira Carmona assumed the identity of a deceased person and used the Social Security Number of the
deceased individual to gain employment and remain illegally in the United States.”
-US Attorney General - 5/02/2000
Case Study
• Applicable for most positions
• Conviction must be relevant to the position
• Request only after a conditional offer of employment has been made
When to use:
Criminal Background
Checks
Criminal history undisclosed
“An Oakland jury has awarded nearly $11.5 million in damages against a carpet cleaning company that sent an ex-convict into an upper Rockridge home, where he
murdered a pediatrician.”
-San Francisco Examiner - 11/17/2000
Case Study
Complying:
• Obtain disclosure and written consent
• Provide certification to the Consumer Reporting Agency
• Provide documents before taking adverse action
• Provide notice after adverse action
The Fair Credit Reporting Act
• Verify basic information on all applications first to locate any red flags
• Have policies and procedures in place when requesting criminal background checks
• Understand and comply with the FCRA and all state laws when requesting consumer reports
Recap
Thank YouThank You
QuestionsQuestions
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