Advanced technology today has made strides in protecting businesses. However, it has likewise enabled fraudsters to easily create false documents for personal gain. They might use these capabilities to purchase property and engage in other illegal activities.

For instance, the US reported 395,948 cases of government documents and benefits fraud in 2021. Fortunately, employing the right know-your-customer (KYC) and know-your-business (KYB) practices can help your business detect fraudulent documents. Read on to discover how you can continue to protect your organization from customers who use fake documents.

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What are fake documents?

Fake documents are files attempted to be passed off as official documents created by legitimate sources or government entities.

Often, these materials are created to falsely represent individuals or businesses as genuine, authentic, or official when they are not. Creating fake documents can range widely in type and purpose, including but not limited to the following types of documents:

• Identity documents used for identification and travel such as passports, driver's licenses, and ID cards
• Educational certificates for job applications and opening accounts in financial institutions like diplomas and degrees
• Business documents to verify legitimacy including invoices, bank statements, and tax documents
• Legal documents to prove business operations such as contracts and agreements
• Official documents that accredit professionals and businesses like compliance certificates

Fake documents are similar in nature to forged documents, and both intend to pass off unofficial documents as genuine. However, they differ in the sense that a forged document can come from a legitimate source but is modified.

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The importance of identifying fake documents

Identifying when a customer has submitted a fake document poses many risks, especially for financial institutions. Presenting a fake document can also be considered identity fraud and can expose your business to illegal activities.

When you identify and prevent the submission of a fraudulent document you can:

• Prevent financial fraud and customer risks
• Protect your clients' personal information
• Maintain your business's legal and regulatory compliance
• Contribute to public safety and national security
• Uphold your business's reputation and integrity

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Types of document fraud

Document fraud can take many forms, targeting a wide array of documents for various illegal purposes. Each type of document fraud has its own set of legal consequences and challenges. Being aware is the first step to detection and prevention.

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Here are some of the most common types of document fraud.

Document fabrication

Fabrication refers to creating entirely fake documents with no real references or basis designed to mislead or deceive. People may resort to this kind of document fraud when they have little to no evidence to support their case. Fabricated documents can be just about anything, including everything from fake medical records to fabricated legal documents.

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Forged documents

Forgery is a type of document fraud that involves creating a false document by altering an existing one without legal authorization. The primary intent is to mislead or gain some form of advantage through deceiving authorities or institutions. There are many ways one can conduct forgery.

Some of the most well-known methods of forgery include:

• Tracing or signing someone else's signature in official documents
• Manipulated financial statements that reflect false financial information
• Creating fake IDs with different photos to impersonate individuals
• Modifying official government records like dates and names

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Counterfeit documents

Counterfeit documents refer to replicas of existing documents or items, especially those that hold financial value, such as money, checks, or financial securities. They may appear similar to document fabrication. However, they require a more sophisticated level of production from technology to materials in order to appear identical to the legitimate government or legal documents.

Unlike forged documents, which involve altering an existing document, counterfeit documents are produced from scratch to closely mimic the appearance and features of the original.

They are often created to deceive authorities to access locations and organizations.

Its replications have security features like holograms, watermarks, and specialized inks. Some types of documents that counterfeited documents mimic include the following:

• Passports
• Licenses
• Visas
• Other identification documents

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Identity theft

Identity theft is a type of fraud in which someone else’s personal information is used without permission. Similar to forgery or counterfeit documents, identity theft can be committed using altered official documents or completely new fake documents that may be easily deemed official.

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Identity theft can have many intentions including creating fake documents or using forged documents to open bank accounts, apply for loans, or conduct other financial transactions in another person’s name.

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Document tampering

Tampering involves modifying a document to change its meaning or purpose, often to hide information or create a false impression. Often, fraudsters blot out information, use correction fluid, or digitally alter documents. Individuals going through application processes might do this.

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False statements

False statements are also seen in application processes. This is done by submitting documents that contain intentionally false or misleading information to authorities, insurance companies, employers, or other entities. Individuals might attempt to lie on official forms or applications, such as tax returns, insurance claims, or loan applications.

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Document alteration

This type of fraud occurs when someone changes an existing document to benefit unlawfully. This involves editing specific details in official documents to mislead authorities. For example, altering the amount on a check, changing grades on an academic transcript, or modifying the terms of a contract falls under fraudulent alteration.

Combating document fraud involves a combination of legal enforcement, technological measures, and awareness to mitigate the risks and impacts associated with fraudulent documents.

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How to identify fake documents

Identifying fake documents isn't just about having a combination of skill, expertise, and a sharp eye. KYB and KYC are fundamental components of compliance processes that aid financial institutions in preventing fraud, money laundering, and other illicit activities.

When it comes to examining fake documents, there are several factors you will want to consider.

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Review the document's characteristics

In order to truly know the individuals and businesses who become your clients, knowing their identity with due diligence and enhanced due diligence (EDD) goes a long way. This means reviewing the legitimacy of your customers through government-issued IDs, business licenses, driver's licenses.

Genuine or authentic documents have a standard level of quality. Some characteristics that are worth cross-checking include:

• Quality of paper and printing
• Missing numbers
• Altered elements
• Inauthentic logos

This is good practice for screening out any forged document, too.

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Verify information

Financial institutions' regulatory compliance requires verifying the authenticity of business and individual documents. Failure to do this will not only incur penalties but also expose your business and customers to risks.

Fake documents will have inconsistencies across public records. It is important to check for data entry errors, misspellings, and other discrepancies. Using digital verification for signatures to verify authenticity will help greatly.

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Use fraud detection software

Using fraud detection software can provide you with access to all the right practices for protecting your business. With the right tool, you get an expert verification service for KYC and KYB, plus you'll have access to advanced technology that can scan for trends and techniques often used by fraudsters in fake documents with new fraud detection technology.

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Some benefits you gain from using a fraud detection software include:

• Enhanced accuracy and efficiency when reviewing document authenticity
• A better chance of detecting more sophisticated creations of fraudulent documents
• Regulatory compliance to ensure the highest standard of document verification
• Scalability to handle an increased volume of documents as your business grows
• Adaptability to new trends and patterns of fraud with the use of artificial intelligence (AI) and machine learning (ML)

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Establish standard procedures

KYC and KYB processes need risk management practices in place to help maintain the prevention and detection process. With an established set of procedures to screen risks earlier in the onboarding process, you can completely avoid any chance of exposing the business and your clients to risks.

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Stay vigilant on trends and techniques

There are many emerging trends and techniques for creating false documents in the digital age. Staying aware of techniques that use AI and ML for creating fake signatures and Photoshop to forge documents can make all the difference.

Some other significant trends you should continue to keep an eye out for are social engineering, hacking, and online templates and services.

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Protecting your business against fake documents

Fake documents can pose a threat to your business and clients. Falsified information can be used for illegal practices and unlawful personal gain. As technology advances, so do the methods employed by fraudulent document creators, which makes it even more imperative to screen for fake documents as they come in.

Implementing the right KYB and KYC practices is a great method to aid in combating any attempts at document fraud. Vespia offers a solution that utilizes AI transaction monitoring and rule-based monitoring for KYB and KYC methods to aid in the fraud detection and prevention process.

If you're eager to implement this process, schedule a demo to see how you can integrate Vespia into your workflow.

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