Fraud use cases for graph analytics

Researchers found that losses due to fraud cost organizations worldwide more than 80% of the UK’s entire GDP(1) (up to USD 5.127 trillion!). In times of the COVID pandemic, 93% of anti-fraud professionals anticipated an increase in fraud over the next year, and 51% predicted the increase will be significant(2). 

Fraudsters continue to exploit new technology to undermine and target businesses and individuals. In the industry, anti-fraud professionals often describe their fight against fraudulent activity as an ‘arms race’(1) that forces businesses and public organizations to constantly find new lines of defense to protect themselves and their stakeholders.

Keeping track of these constantly evolving threats is a particularly onerous problem for business leaders(1). Not only are new threats emerging at an increasing speed, but compliance and risk leaders are under pressure to manage costs and identify, invest, and implement new technologies to strengthen their anti-fraud arsenal and keep up with increasingly sophisticated fraudsters, often operating in organized networks. 

In that regard, fraud detection and graph analytics is a match made in heaven. A lot of fraud use cases require identifying suspicious connections whereas graph analytics is designed to analyze complex connections from big data at scale. In this article we will provide a series of examples where graph analytics can be used to fight back against fraud.

synthetic identity fraud

The problem: When criminals want to defraud a bank or launder money, they typically try to cover their tracks. One approach in doing so is to create fake identities to commit their wrongdoings. A synthetic identity is a fake identity mixing real or fake information (such as a real social security number or a fake name) that does not belong to a single real person. Detecting synthetic identities can help stop criminals before they commit financial crime.

How graph analytics can help: Graph analytics can help detect rings of clients interconnected across personally identifiable information such as an address, a phone number, a date of birth, an IP address, etc.

These 3 individuals are all sharing common information. This looks like synthetic identities controlled by a single group or person.

entity resolution

The problem: In an ideal world, each individual or company in your databases would be unique. Chances are though that it’s not the case. Maybe the John Smith that exists in the retail bank database has a different ID than the John Smith of the consumer credit database or of the John Smith in the company owners database that you bought, despite the fact that these 3 individuals are actually the same person. Avoiding this sort of duplication is a complex problem in an IT system with different silos.

How graph analytics can help: Graph analytics can detect common links across different entities to help identify potential duplicates. Maybe even though our 3 John Smiths have different IDs they all share the same date of birth, the same address and the same phone number. If so, chances are that they are indeed the same person.

3 John Smiths from 3 different databases all share the same address and phone number. Maybe they’re the same person?

fraud investigation

The problem: Sometimes a tip or a fraud detection system may flag a client or behavior as suspicious. A critical thing to assess in this case is whether this single suspicious situation is isolated or not. The client may be part of a larger criminal ring or the behavior may be part of a bigger scheme. Without more information, it’s important to explore as many leads as possible. This requires exploring what the client or behavior are connected to. This can be a very cumbersome process when the data is scattered across different tabs. Who is a person connected to directly and indirectly via financial transactions? This requires opening a first tab with the person’s transactions and their recipients. Then you’d need to open the same sort of tab for each recipient.

How graph analytics can help: Graph analytics facilitates the dynamic exploration of relationships within a large dataset. It’s possible to explore and visualize who and what a client is connected to across information as diverse as an address, a phone number, an email, transactions, etc. Detecting accomplices becomes faster.

Fraud Investigation

John Smith is connected to 4 individuals.

social benefits fraud

The problem: Some fraud networks abuse the system of unemployment benefits. It’s possible for example to use a legitimate employment document and tweak it to claim employment benefits on behalf of multiple persons. The persons involved may keep a % of the stolen money and share the rest with the scheme’s organizers.

How graph analytics can help: Since the scheme revolves around reusing legitimate documents to create multiple fake ones, links between the perpetrators naturally occur. The fraudsters may be connected to the same company and oftentimes are interconnected across phone numbers, addresses, bank accounts or IP addresses. 

Social Benefits Fraud

3 persons are claiming employment benefits based on work with the same company. They are using the same phone number and bank account in their applications. There’s a high risk that these claims are fraudulent.

vat fraud

The problem: By arranging a series of international transactions between cooperating companies, it’s possible to claim a VAT refund without ever paying the VAT in the first place. It’s estimated that it costs £170bn/year in the European Union.  

How graph analytics can help: Operating the scheme requires a company that can charge the VAT tax to a client and then disappear without ever transferring the money to the tax authority. Fraudsters thus need to take over or create multiple companies. Oftentimes these companies end up sharing pieces of information: a registry address, a director, a contact number, etc. If a company disappears without paying the VAT tax, graph analytics can be used to identify other potentially suspicious companies to react before further damage occurs.

VAT Fraud

Goods are transiting through a company outside of the EU and 2 European companies. These companies are connected via a shared address and a joint director. Are these companies corporate shells used as part of a VAT fraud scheme?

medicare fraud

The problem: Corrupt practitioners can bill for services they haven’t provided. Institutions such as Medicare pay those bills. It’s particularly hard to stop this when the practitioners claim those services were performed on older patients. 

How graph analytics can help: Graph analytics can help spot anomalies such as patients seeing multiple doctors for the same procedures, practitioners sharing many common patients or doctors billing the same services multiple times to the same patient.

Medicare Fraud

6 different patients are seeing 2 different doctors. Are these real activities or are the doctors part of a fraud network that bill services for unsuspecting patients?

fake car accident fraud

The problem: Generating fake insurance claims can be a way for fraudsters to make money. An individual can take a car insurance policy, then claim a refund on a non existing car accident with the help of a car repair shop.

How graph analytics can help: Scaling the fake car accidents require multiple policyholders, multiple cars and multiple car passengers. Graph analytics can help identify if within an insurance company’s client database multiple people are interconnected across cars, individuals, repair shops or claims. The larger the network, the more likely that fraud is going on. 

Fake Car Accident Fraud

2 distinct claims 4 persons. 2 of these persons, Silva and Cecile, are somehow involved in the 2 claims. The different individuals are also connected to the same garage and the same doctor. There’s a high risk that the accidents are fake.

credit card skimming fraud

The problem: A credit card skimming device copies a credit card when it’s slid into a card reader at an ATM, gas pump or other point of sale. The device owner can then use this information to make fraudulent transactions (eg make a purchase online).

How graph analytics can help: The fraudulent transactions enabled by the skimming device are eventually reported as such by the cards owner. Are there common points of sale among the various transactions reported as fraudulent? These connections can reveal when and where the credit cards were originally stolen. The skimming scheme can then be stopped.

Credit Card Skimming Fraud

Silva, Cecile and Joan all have reported a suspicious transaction within the last few days. They all have been at McBurg recently. Could their credit card information have been stolen there?

referral abuse fraud

The problem: Referral programs incentivize individuals to promote a product or company to their personal networks (eg “win $200 if a friend creates an account”). These programs can be targeted by fraudsters who act as a group to generate referrals in order to capture the monetary rewards. Meanwhile, the company is not generating any business out of these fake clients.

How graph analytics can help: In referral programs, a client refers other people as potential clients. What if some people are tied via personal information (IP address, bank account, address) to other people within the network or to other networks of referrers? Graph analytics can help identify these connections and thus uncover entire networks of referral abusers.

Referral Abuse Fraud

Based on the IMSI number, we can see that a first phone was used to register Silva, Cecile and Joan. In turn they referred 4 clients that all used the same phone to create their accounts. Could these 7 distinct persons be in fact just 1 or 2 fraudsters?

internal fraud

The problem: Employees handling credit loans can defraud the bank they work for. Accomplices can ask the bank for loans (using real or fake information) that the employee then accepts. The money can then be shared among the scheme’s perpetrators who never pay back the bank.

How graph analytics can help: Is a given employee tied to multiple bad loans? Are there connections among clients with loans? Is there information within the loans shared across multiple loan applications? Graph analytics can help uncover those similarities and expose fraudsters.

Internal Fraud

Janice has granted 3 loans that have defaulted recently. Is this only an issue with the clients? The clients and Janice are all interconnected via a web of addresses and phone numbers. There’s a chance that they’re conspiring in a fraud scheme.

procurement fraud

The problem: Any company spends money to operate, giving an opportunity to fraud networks to take advantage of weak controls in procurement processes to fly under the radar among numerous procurement activities. What if a rogue employee coordinates with a supplier to defraud the company? There’s potential for substantial money losses.  

How graph analytics can help: If the employee has ties with the supplier such as a shared address or actually controls the supplier indirectly, graph analytics can help identify such connections.

Conflict of Interest

A contract has recently been awarded by Louisa to Globex. Louisa is sharing a similar address with Globex. Has she disclosed this relationship?

public contract fraud

The problem: Public tenders are meant to enable an open competition to ensure low prices. What if the competition is rigged? Maybe a corrupt employee is cooperating with criminals to syphon off money. In this case, multiple organizations may take part in the tender to give the impression of competition but may actually collude to charge a higher price. 

How graph analytics can help: The companies taking part in the public tender may be connected via capital links, common directors or intermediate shareholders. Graph analytics can reveal those links and uncover the corruption.

Public Contract Fraud

A tender has been launched recently. While there’s an appearance of competition with 3 companies bidding on the contract, the fact that the companies have a shared address and a shared director makes it likely that there is a collusion risk.

covid loan fraud 

The problem: Many countries have set up programs such as the Paycheck Protection Program (PPP) to provide funds to companies impacted by COVID 19. Such programs offer an opportunity for fraudsters who use forged documents to send multiple fraudulent applications to the PPP and receive funds.

How graph analytics can help: The forged applications often have common information. The IP address used to fill the applications can be the same. The company’s owner, the bank accounts, the addresses can also be shared. Graph analytics can help identify those identical information and unmask the criminals. 

COVID Loan Fraud

A single computer was used to register 3 loan applications for 3 distinct companies. Is someone trying to generate fake applications for fraud purposes?

account takeover fraud

The problem: some cyber criminals send emails impersonating banks to harvest the credentials of their targets. This approach is called phishing and allows criminals to access their victims’ bank accounts and empty them. This represents a major threat for financial institutions in terms of brand equity and can severely damage the relationship with their customers. 

How graph analytics can help: when a phishing attack occurs, there’s usually more than one account which is compromised. Graph analytics can help spot a new IP address being used to access multiple user accounts or a new bank account which is added as a recipient of funds by multiple user accounts.

Phising

3 bank accounts usually accessed via 3 distinct IPs have been accessed by a new IP that has tried to transfer money to a new bank account. Could the new IP and bank account belong to someone trying to steal money?

conclusion

The scenarios in which graph analytics can be beneficial in helping to detect fraud cases continues to grow. As criminals become more and more sophisticated in how they abuse financial institutions or tax agencies, so too do the tools that help fight back against them. White collar criminals don’t stand a chance when anti-fraud teams are equipped with graph analytics. To learn more, feel free to contact us!

 

 

(1) Jim Gee, & Prof. Mark Button, The Financial Cost of Fraud – The latest data from around the world, 2019, The Centre for Counter Fraud Studies – University of Plymouth, Crowe

(2) Fraud in the Wake of COVID-19: Benchmarking Report- September 2020 edition, 2020, Association of Certified Fraud Examiners

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