Ted Datta from Moody’s explains how to strengthen fraud defences with innovation and collaboration
In an era where fraud schemes are increasingly sophisticated and prevalent, the need for businesses, banks, and government teams to shore up defences has never been greater. In the UK, Public-Private Partnerships (PPPs) are essential in bringing together stakeholders, including big tech companies, banks, fintech firms, credit lenders, and government departments to collaborate on addressing fraud and financial crime more widely.
Why the emphasis on collaboration? The financial impacts of fraud are significant to both government and commercial revenues and individual victims. Fraud losses are estimated at more than $1 trillion globally each year, so PPPs have a crucial role to play in tackling scams and reducing losses.
Yet the threat of fraud goes beyond monetary costs – causing reputational harm, negatively affecting emotional well-being, and even impinging on individual freedoms and human rights. Sextortion fraud schemes, for instance, have become increasingly prevalent in recent times. This relatively new fraud typology, exploiting digital platforms, often targets younger people via social media to extort money, sometimes with dire consequences.
The National Crime Agency issued an urgent warning about sextortion in April 2024, when “the number of global sextortion cases reported to the US National Center for Missing & Exploited Children (NCMEC) more than doubled in 2023, rising to 26,718 compared to 10,731 the year before.”
New fraud typologies and growing risk
Sextortion is a relatively new type of fraud; however, schemes are always emerging. Moody’s screening database recorded 1,193 new entities and individuals with potential ties to romance scams in 2024, a 14% increase on the numbers recorded in 2023. In 2024, the U.S. accounted for over a third (38%) of new romance scam profiles among the top 10 countries, followed by Nigeria (14%), India (12%), the UK (11%), Malaysia (5%), China (5%), the Philippines (4%), Brazil (4%), Canada (4%) and Australia (3%).
The risk of fraud beyond Romance schemes is, of course, even greater. In 2023, Moody’s added more than 100,000 unique profiles globally for individuals or entities with a fraud-related risk code to its database, averaging nearly 274 added per day.
Links with emerging AI technology
New fraud activities can often be linked to technological innovations, with opportunities quickly spotted and abused by criminals. One such example is the use of artificial intelligence (AI) and technologies like deepfakes, which are making committing different kinds of fraud – such as identity theft – easier and more cost-efficient for fraudsters, and conversely more difficult to detect.
Criminals can leverage deepfakes to create false accounts and generate IDs. Fraudsters then use those fake profiles to establish anything from a social media profile to a bank account or even a personal connection to obtain money under false pretences.
Deepfakes can create serious challenges when it comes to due diligence, and distinguishing reality from fiction. When the normal, customary visual and auditory cues used to identify a person are manipulated, both analysts and automated solutions may find it challenging to complete accurate verification. The existing controls and technologies used in the identification space may not always be able to discern the truth.
Innovating and collaborating to build fraud defences
There are, of course, teams of people spending time, using resources, and harnessing the same technological innovations to tackle fraud.
As well as PPPs, there are industry coalitions like the Centre for Finance, Innovation and Technology (CFIT) forming to combat economic crime through enhanced verification, focusing on data-driven research and testing to verify the legitimacy and identity of businesses engaging with financial services to prevent fraud and optimize customer service.
The use of advanced technology, such as AI-led screening solutions, automated third-party risk management tools, and integrated searches on global datasets can also combine to support entity verification, due diligence, and risk monitoring investigations. All these factors help automate anti-fraud processes.
Given the amount of money at risk, the extensive requirements for managing fraud risk, and the need to monitor for fraudulent activities, public and private organizations alike are leveraging AI and machine learning (ML) to process vast amounts of data to find risks and suspicious activity. AI can help reduce false positives and identify true matches for high-risk individuals
and entities, as well as suspicious transactions or patterns of behaviour that may indicate fraud risk.
Conclusion: Strengthening fraud defences
New, emerging, and evolving fraud typologies illustrate how criminals can leverage technology, like AI and social media platforms, to adapt their approaches. However, businesses and government teams can do the same; they can leverage technical innovation, advanced screening, and unified risk-relevant data to investigate and understand where fraud risks are highest.
However, collaboration is one of the oldest and most effective means of fraud prevention. Financial institutions, for instance, have long since shared information to gain a more complete picture of suspicious activity. Plus, modern analytics fuelled by global data enable this to be done more quickly.
PPPs, industry coalitions, and cooperation between governments, corporates, banks, and tech providers can help strengthen fraud defences, and safeguard revenues, reputations, and customer trust.
