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