Identifying Fake Documents [A Complete Guide]

Despite the digital advancements in the BFSI industry, including online banking, contactless payments, and loan process automation, fraudulent documentation is on the rise.

Criminals are becoming increasingly sophisticated, using technologies like AI, ML, OCR, photo editing software, and 3D printing to create highly credible fake documents.

Today, the proliferation of such documents has grown at an incredible rate. A recent Veriff Identity Fraud Report revealed that a significant chunk of financial fraud -13.7% - in 2023 was specially documented fraud.

Identifying counterfeit documents has become a critical skill to protect your business from potential fraud and financial loss.

Whether you’re a bank, credit union, brokerage firm, or insurance company, we’re sharing the best practices and strategies to help you identify fake documents and protect your business from possible fraud.

What is Document Fraud?

Before jumping into document fraud prevention strategies, let’s find out what exactly document fraud is.

Document fraud is the act of illegal activity that includes the creation, alteration, and duplication of fake or manipulated documents.

A fraudster can use these fake documents to deceive financial institutions to gain some kind of financial benefit, such as opening a bank account, obtaining loans, and encashing a cheque.

In the BFSI sector, this can be a major problem as it deals with things like stolen credit card documents, fake bank statements, or altered signatures.

Imagine someone trying to get a bigger loan by making up a fake employment verification letter. They’d whip up a letter that looks like it’s from a real employer, showing a high salary or steady job. The goal? To trick the lender into believing they’re financially solid, so they’ll approve a bigger loan.

This kind of fraud can be tricky to spot. Sometimes, fake documents are clear-cut; they might not have official seals or accurate numbers. Other times, however, it might be far more difficult to find, especially if the fraudster is skilled.

Therefore, protecting your business from financial loss and reputation harm relies heavily on your awareness of and ability to identify document fraud.

Fake Documents Vs. Forged Documents

Are they really the same? Not actually!

Here’s a look at what distinguishes the two types of phony documents and how spotting them requires different approaches.

Fake Documents: when a whole document is not genuine

Fake documents are identity documents that are entirely fabricated and don’t have a genuine counterpart. They are created from scratch and can be a copy or even a non-existing thing.

For example, a person creates a fake bank statement showing a high balance to secure a loan. This document never existed in the bank's records and was entirely made up.

Key Points:

• No real document exists.
• Entirely fictitious.
• Created to deceive by presenting false information.

Fake documents are comparatively easy to spot. These documents often contain noticeable errors like incorrect logos, mismatched fonts, and layout issues that differ from genuine documents.

Financial organizations can identify fake documents by cross-checking against official records or databases.

Forged Documents: When a document is genuine but has some alterations

On the other hand, forged documents are altered versions of real documents. They start as legitimate documents, but someone changes them to deceive others.

For example, the closing balance of a person's bank statement was $5000, but he altered it to increase the balance to $12500 and then submitted this modified document to get a loan. The original document was genuine, but the details were tampered with.

Key Points:

• A real document is altered.
• Involves modification or copying of legitimate information.
• Intended to deceive by changing real details.

Changes made to forged documents are often minor and carefully done to avoid detection, such as altering a number or a small section of text.

Unlike fake documents, forgeries can be difficult to spot with the human eye. Detecting such documents often requires in-depth verification processes, comparing multiple pieces of information, or using specialized forensic tools.

Most Common Types of Document Fraud and Forgery

Document fraud and forgery in finance can take many forms. Here are the most common types with simple examples:

#Type 1- Altered Financial Statements

The original financial statements are genuine, but certain figures are changed to present a false financial health.

👉A company modifies its financial reports to show higher revenues or lower expenses, aiming to secure loans or attract investors.

#Type 2- Counterfeit Checks

The check appears legitimate but is entirely fabricated to defraud the bank and the account holder.

👉Creating a completely fake check using forged bank details to withdraw money from a real account.

#Type 3- Freehand Simulation

The forger mimics the genuine signature by hand, making it appear as though the original person had signed the document.

👉Manually copying someone's signature on a check to authorize a transaction without their permission.

#Type 4- Tracing

The forger traces over an authentic signature to replicate it exactly, making it difficult to distinguish from the original.

👉Tracing over someone's signature on a document using a lightbox or similar method to create a nearly identical copy.

#Type 5- Electronic Manipulation

Digital tools are used to modify existing documents, changing specific details while keeping the rest of the document intact to make the changes less noticeable.

👉Using image editing software to alter figures on a scanned financial statement to show higher income or lower debt.

#Type 6- Fabricated Loan Applications

All the information provided in the loan application is fictitious, designed to deceive the lender into approving the loan.

👉A person submits a loan application with completely made-up income details and fake employment verification documents.

#Type 7- Altered Invoices

The invoice itself is real, but the amounts have been altered to deceive the recipient.

👉Modifying the amount on an invoice to either overcharge a client or reduce the amount owed to a supplier.

#Type 8- Generated Document Fraud

Creating a fake bank statement using AI technology such as ChatGPT  to produce original documents from scratch

👉The entire document is generated using digital tools, making it look very realistic even though it's completely fake.

Importance of Document Fraud Detection for BFSI Businesses

If you’re someone who runs a BFSI business, identifying forged documents and using an advanced fraud detection system is more crucial than ever. Here’s why it matters:

1. Preventing Financial Losses

One of the most significant impacts of fake documents is financial losses.

Fraud detection in banking is crucial for maintaining financial security and trust. From securing loans to withdrawing funds to buying insurance, fraudsters often forge documents to commit various illegal activities.

Identifying these documents beforehand helps your financial institutions stop these fraudulent transactions from occurring. Eventually, you can lessen possible losses and safeguard financial assets.

2. Maintaining Regulatory Compliance

BFSI businesses operate under strict regulatory standards, including anti-money laundering (AML) and Know Your Customer (KYC) regulations.

Detecting fake documents helps your organization remain compliant with these laws. Regulatory compliance helps avoid legal penalties, fines and sanctions that can damage your organizations’ operations and reputations.

3. Protecting Reputation

A financial institution that has a solid reputation is viewed as more trustworthy, ethical, and able to provide top-notch services.

Fraud incidents can seriously harm your institution's credibility and the trust customers and the market have in you.

To avoid these fraud-related crises and maintain your image as a secure and reliable organization, it's essential to effectively spot forged documents. This is key to attracting and keeping customers.

4. Enhancing Customer Trust

61% of customers recommend a business they trust to their friends. Financial organizations earn this trust by seriously protecting their assets and personal data.

If they catch fake documents effectively, it shows customers they’re on top of things and genuinely care about keeping their information safe.

This kind of trust is key for building lasting relationships and loyalty with increasing digital onboarding—people are more likely to stay with a company they know is reliable and secure.

5. Reducing Operational Risks

False documentation can cause a number of operational problems, such as financial irregularities, legal issues, and resource mismanagement.

Identifying these papers early on reduces risks and makes corporate processes safer and more seamless.

Document workflow automation helps ease the document verification process. This helps you avoid costly errors, maintain operational efficiency, and focus on providing quality services to your customers.

6. Safeguarding Against Financial Crimes

Fake documents are often used in larger schemes involving money laundering, terrorism financing, and other financial crimes. Finding these documents is essential to stopping these kinds of illicit activity.

Your organization is vital to preventing criminal abuse of the financial system and promoting general financial stability and security by recognizing and rejecting phony papers.

The Role of AI in Document Fraud Detection

You can leverage AI technology to significantly improve fraud detection, identify patterns, and predict fraudulent activities more accurately.

Here’s how Intelligent Document Processing is transforming fraud detection in the BFSI sector-

1. Advanced Document Analysis

AI brings a new level of precision to document analysis. It scans and reviews documents, examining every detail—from text to images. AI can spot inconsistencies that might indicate fraud by analyzing patterns, fonts, and layouts,

For example, it can identify if the font style in a document doesn’t match the typical style used by a bank.

This means that even subtle signs of tampering can be detected quickly, which helps in catching fraudulent documents before they cause harm.

2. Deep Learning Pattern Recognition

Deep learning boosts fraud detection by analyzing large sets of data. It learns from real and fake documents examples to spot patterns and unusual signs of fraud.

For instance, if deep learning systems identify certain traits common in forgeries, they can recognize similar traits in new documents.

Because deep learning models continuously learn and adapt, they stay updated with new and evolving fraud techniques. This ongoing learning makes ML a powerful tool for catching emerging forms of document fraud.

3. Real-Time Anomaly Detection

AI is great at analyzing documents in real time. It reviews and assesses them instantly, enabling immediate detection of any fraud.

If a document has any unusual or suspicious elements, AI can flag it on the spot. This quick response is crucial for stopping fraudulent activities before they’re finalized.

For example, if a bank gets a loan application with altered figures, AI can spot the discrepancy immediately, helping to prevent financial losses.

4. Integration with External Databases

AI-powered software can cross-reference documents with external databases to verify them.

For example, if an applicant submits a government issued id document to buy a loan, AI can check this claim against the agency’s database to confirm its authenticity.

If you cross-check documents with AI tools, you can be confident that they are genuine and not forged. AI enhances the accuracy of fraud detection by integrating with multiple data sources. This makes it significantly harder for fake documents to slip through unnoticed.

5. Continuous Improvement and Adaptation

One of AI’s biggest advantages is its ability to evolve and improve continuously. As fraud tactics become more advanced, AI systems can update their algorithms to recognize these new methods.

This ongoing learning ensures that AI remains effective even as fraudsters develop more sophisticated techniques.

For example, if fraudsters begin using advanced photo-editing methods, AI can adjust its detection algorithms to spot these new forms of manipulation, providing ongoing protection against document fraud.

Safeguard Your Organization with Arya AI’s Document Fraud Detection Solution

In today’s world, where document fraud is increasingly sophisticated, protecting your organization from fraudulent activities is crucial.

Arya AI Document Fraud Detection solution is a game-changer for securing your operations. Using advanced AI algorithms, Arya.ai can spot and prevent fraud in a wide range of document formats, from IDs and passports to invoices.

Here’s how Arya can safeguard your organization:

• Efficient High-Volume Processing: The tool handles tons of documents quickly and efficiently, so your organization can manage high quantities without any performance issues.
• Smooth Integration: The platform blends effortlessly with your existing systems, boosting your workflow without causing any disruptions.
• Thorough Analysis: Arya’s advanced AI has already analyzed over 25 million documents, offering reliable results that help minimize the risk of fraud slipping through.
• Less Manual Work: By leveraging deep learning algorithms to spot fraudulent patterns, Arya.ai reduces the need for manual reviews by 85%, saving you time and cutting costs.
• High Accuracy: With an impressive accuracy rate of over 95%, Arya.ai makes sure your fraud detection is precise and trustworthy.

By choosing Arya AI, you equip your organization with a robust tool to detect and prevent document fraud, protecting your business from potential risks.

Contact us today to test it out for FREE.