Fraud is something that people and businesses want to avoid at all costs. However, identity theft fraud is on a constant rise, and the rise seems to be constant. First party fraud, that is, individuals misrepresenting themselves, is also a major concern. In 2021, the FTC received over 5.7 million reports about identity theft and complaints about fraudulent businesses, of which close to half, 2.8 million, were of fraud. According to the FTC (Federal Trade Commission), the total losses were about $5.8 billion, a staggering 70% increase from the previous year.

There are different levels of impersonation or identity portrayal. These fraudsters are categorised into three broad categories, first party fraudsters, second-party fraudsters and third-party fraudsters.

How do fraudsters protect their identity?

Interestingly, in effect, fraudulent schemes that last over 60 months are 20 times more costly. Most first party fraudsters start small, get braver, and expand their program as it becomes more successful. Often, these first party fraudsters pose as real people doing real business or needing urgent help and scam people who fall prey to their schemes. So, how do they conceal their identity? Here are a few ways fraudsters keep their identity a secret:

·        They create fake physical documents.

·        They alter original documents to show different information.

·        They create fraudulent transactions within the accounting system.

·        They alter transactions in the accounting system.

·        Fraudsters alter or create electronic documents and files.

·        Fraudsters recreate or alter destroyed documents or destroy physical documents.

·        They make fake journal entries.

PII data Theft

Fraudsters are not always directly after money; they often find loopholes in systems, extract information, and use that information to make illicit gains. PII data theft, or Personally Identifiable Information theft/harvesting occurs when fraudsters manipulate systems or forms on web pages to collect your PII. Typically, when you log in or out of your various accounts. They may end up having access to social security numbers, PAN numbers, Aadhar card numbers, passwords, usernames, pin codes, banking information, credit card data, and addresses.

This information is then made available on the dark web, where it can be sold or traded. Such fraudsters may use this information to blackmail users or pose as users and extract funds.

What is First-party fraud?

First party fraudsters pose as someone else intentionally by giving false information for some material or financial gain. You may find first part fraud most commonly in situations where people attempt to get a loan or avail of credit.

What is Second-party fraud?

This is where an individual offers access to their identity and personal information to others, knowing that they intend to commit fraud with that information. Unlike first party fraud, this type of fraud can be complicated, and the person who allowed their details to be used can be hard to link to the act or crime.

In many situations, these fraudsters entice victims by offering promises of immense monetary gain; they collect the information they need and use it to conduct nefarious affairs.

What is Third-party fraud?

Third-party fraud is what is known as identity theft. This is where a person’s identity or personal details are used without their express consent or knowledge to conduct transactions or move money around. This extends to completely fake identities as well.

How to protect yourself against these types of fraud

Now that we know what fraudsters do and the types of frauds there are, we must learn to protect ourselves from fraud.

  1. Treat your online information with care. Install and use reliable security software, and avoid leaving personal information on your system whenever possible. Do not—under any circumstance—enter personal information into public computers, and be careful when using public networks.
  2. Keep track of all your bank accounts. Log in often, at least once daily, is recommended. This allows you to catch activity quickly and report it. Enable notifications from your banks and apps for unusual activity as well.
  3. Be careful who you share your information with. This goes for people you meet, talk to on the phone, or chat with online.
  4. Filter your phone calls. Prevent being flooded by spam calls by entering all your trusted contacts into your smartphone. By doing so, when your phone rings, the caller ID will tell you if it’s one of them. Do not answer calls from unknown callers; if it’s important, they will leave a message.
  5. If you are a business, make sure you follow all the above, but also use identity verification. Get in touch with experts who are up to date with the latest scams and fraudulent means and have access to the latest tech. Run KYC checks on all your customers, ensure your employee’s identities are verified and stay AML compliant. Implement authentication everywhere possible and leverage AI and ML to spot fishy activity.

Get in touch with HyperVerge for all your identity verification, ATO, and KYC solutions today.

Read more: fraud detection and prevention


Can companies be victims of 1st, 2nd, or 3rd party fraud?

Yes, companies can be victims of all these types of fraud. British Airways was attacked by scammers and made a huge loss.

Can a business be blamed for illicit activity even if it did not know about it?

Ignorance is, at best, a weak defense. If you have failed to follow all compliance and regulatory requirements, your business will be at risk.