In light of the growing challenges faced by financial institutions in detecting and mitigating against fraud schemes that use deepfake media to circumvent KYC processes, FinCEN has issued an Alert to help identify such schemes, including associated typologies and red flag indicators.
The alert, which forms part of a wider U.S. Department of the Treasury initiative to educate financial institutions on the opportunities and challenges associated with the use of Artificial Intelligence, highlights how criminals are increasingly using Generative AI (GenAI) technology to create ‘deepfakes’ (synthetic content which is highly realistic yet inauthentic including video, pictures, audio and text), for the purposes of creating fraudulent identities to circumvent financial institutions’ customer identity verification processes.
Use of deepfake media is on the rise
FinCEN’s Alert highlights that it has observed an uptick in Bank Secrecy Act (BSA) Suspicious Activity Reports which describe the suspected use of deepfake media, beginning in 2023 and continuing throughout 2024.
This includes criminals using AI tools to alter or create fraudulent identity documents in order to circumvent identity verification and authentication methods and CDD controls and, in some cases, successfully open accounts which they have gone on to use to receive and launder the proceeds of fraudulent schemes.
Detecting deepfakes
According to FinCEN’s analysis of BSA data from financial institutions GenAI /synthetic content in identity documents is often picked up through a re-review of customer identity documentation.
The examination of image meta data and the use of software to detect possible deepfakes or specific manipulations can help to spot deepfakes.
FinCEN advises financial institutions to take a holistic view of the identify verification process, highlighting that ‘whilst not conclusive of inauthentic documents’ the following factors can be indicative of the need for additional scrutiny:
- Inconsistencies between documents submitted
- Inability to authenticate all aspects required for their KYC profile, including identity and source of income
- Inconsistency between ID documents and the rest of the customer’s profile
Beyond accounting opening, Enhanced Due Diligence on accounts which exhibited other indicators of suspicious activity (including IP addresses that were inconsistent with the customer’s profile or unusual patterns of activity) also played a part in detecting deepfake documentation.
Mitigating against deepfakes
FinCEN advises that the use of Multifactor Authentication (MFA) and live verification checks can help to reduce the chances of illicit actors successfully using inauthentic deepfake identity documents to circumvent verification checks, as inconsistencies in their responses can highlight the use of fraudulent identities.
A holistic examination of all documentation provided during the onboarding process combined with maintaining a complete picture of a customer’s behavioural patterns can also help to pinpoint where identity documentation might require further investigation.
Implications for private markets fund managers
As private market managers raise capital more frequently from a broader investor base, the volume of KYC documentation which must be collated, reviewed and verified has surged. Taken together with the widespread digitisation of KYC processes, fund managers must stay alert to the deepfake risks flagged in this alert.
Effectively reducing vulnerability to deepfake media requires a combination of technology (e.g. tools to examine metadata, MFA) and experienced KYC professionals with knowledge of what to look for with respect to identity documentation and an awareness of what unusual patterns of behaviour can look like.
For private markets managers with stretched internal compliance resources, partnering with a service provider with a highly experienced team and the scale to invest in best in class identity verification technology can provide and efficient and cost effective solution to mitigating against emerging KYC risks.
How IDR can help
With over 53,000 pre-approved investor profiles already on our trusted hub and deep expertise in KYC processes and documentation, IDR’s KYC and MLRO solutions can provide assistance to your in-house AML team including:
- Expert review of documentation – we’ll authenticate all your investors once to the highest international standards, with our experienced KYC analysts carrying out a review of all documentation provided.
- Tokenised investor passports – Once approved on IDR’s platform, investors share a tokenised KYC passport securely via our trusted hub. Fund managers and service providers can have the confidence that the information they are receiving is authentic and fully up to date.
- Data held securely – all underlying data is held securely within our platform, mitigating against opportunities for data to be compromised.
- Expert advice and support – Our MLRO team can work with your in-house compliance to review suspicious activity and assist with reporting, helping to ensure that potentially fraudulent identity schemes, whether they involve deepfakes, or other methods are identified and flagged with the relevant FIUs.
Suspicious Activity Report filing request
FinCEN requests that financial institutions reference this alert in SAR field 2 (Filing Institution Note to FinCEN) and the narrative by including the key term “FIN-2024-DEEPFAKEFRAUD”.
For further information, reach out to Askender Ouazzani or Louis Dodd.
