Why IP fails | Defending against fraud in the online landscape

Back to basics

What is an IP address?

An Internet Protocol (IP) address is a series of numbers that identifies a unique device on a network. Like a social security number – but for computers, phones and tablets. Mostly, IP addresses are used to allow computers to communicate with one another, but sometimes they are used to locate and identify individuals and devices.

So, what’s the problem?

IP address technology has just celebrated its 40th birthday, first deployed in 1983. No suprises, a lot has changed since the early ‘80s. IP addresses are no longer reliable tools for locating people accurately.

However, IP addresses remain the foundation upon which internet regulation is built. Consider these four areas:

1. Financial risk management:

Most financial institutions still rely on IP addresses to address fraud, risk assessment, and compliance. But the continual increase and advancement of identity technologies mean that simply monitoring IP addresses and using VPN detection alone limits institutions’ ability to ensure user compliance and effectively manage risk.

3. Cybertips and investigations:

Many national hotlines use IP address device identification and user location data to analyze and distribute cybertips to local law enforcement agencies. While investigators may have access to an online offenders’ IP addresses, this data source is often and easily manipulated, which creates obstacles in identifying and prosecuting criminals.

2. Suspicious activity reports:

Suspicious activity reports (SARs) are a fundamental point of upholding the integrity of all financial systems worldwide. Yet, currently, SARs (in the US and much of the rest of the world) only include IP data as their sole cyber indicator for location.

4. Consumer protection:

Across numerous industries, IP addresses have long been considered to be synonymous with location, leaving many consumers susceptible to scams and fraudulent behaviour such as account takeovers.

In reality, relying on IP data alone is an outdated strategy that leaves firms, organizations, and even federal departments exposed.

915,000

children were victims of identity fraud from July 2021 – 2022 in the US That is 1 in 80 children.

Identity fraud and theft grew more between 2019 and 2022 than ever before in the US, including 400,000 reports that consumers’ information was misused to apply for financial documents or benefits.

Why is this a problem?

Anonymizing tools

Nowadays, anonymizing tools easily conceal a user’s IP address, which would otherwise be unique to each device and reveal its general location.

Commonly used anonymizing tools:

1.VPNs

Three out of ten internet users utilize VPNs. This widely available tool acts as an intermediary to encrypt internet traffic and redirect it through a specially configured remote server run by a VPN host.

2.Proxies

Unlike VPNs, proxies do not encrypt internet traffic; instead, they send it to a proxy which then forwards it to the internet. It retrieves data from the internet source on behalf of the user’s request.

3.Tor

The Tor network (short for The Onion Router) leverages an overlay network and routes traffic through various nodes, wrapping it in encryption each time. As such, a computer that uses a Tor browser does not communicate directly with the website’s server.

Mobile transactions

Consumer needs for digital financial products and services have been accelerated. An American Bankers Association (ABA) report found that since the beginning of the pandemic, 71 percent of Americans use mobile or online banking to manage their bank accounts.

Why is this a problem? Mobile IP addresses are grouped by the service provider and service type, which means the IP address of a mobile device using cellular data does not provide geolocation insight.

Impact on law enforcement and online safety

In 2020, international law enforcement agencies shut down a VPN service, Safe-Inet, that enabled hundreds of thousands of illegal online transactions involving images of child abuse and other illicit activity.

Location-altering technologies are often leveraged by cybercriminals to carry out illicit activities while evading law enforcement detection. Advanced cybercriminals may employ a variety of location obfuscation tools, such as:

Remote Desktops
Proxy Servers
Tor Exit Nodes
Emulators
Jailbroken or Rooted Devices

Darknets, encryption services, and peer-to-peer file-sharing services are tools that have created an easily accessible safe harbour for offenders and have enabled them to commit crimes. The WeProtect Global Alliance affirms that even online predators with minimal technical knowledge can obstruct law enforcement investigators by simply using anonymizers.

Advanced detection and collaborative analytics between law enforcement and the private sector are necessary for creating safer online environments. Online platforms not only have the capability but also the responsibility to help regulators and law enforcement identify suspicious activity occurring online.

What can we do about it?

The combination of these pressing issues calls for action to combat and reduce cybercrimes.

Safeguards available

Anonymizer detection

Anonymizer detection tools, such as VPN and Proxy databases, play a critical and active role in the fight against cybercrime.

Multi-sourced geolocation

Device-based geolocation data points, such as GPS, GSM, and Wi-Fi Triangulation, are far more accurate and robust data points that indicate location.

Stop IP overreliance

Finally, these widespread issues can be addressed by tackling the root cause. Data standards for location tracking should not rely, at least not solely, on IP addresses.

Having a strong risk profile that employs quality data sources enhances an institution’s ability to verify and authenticate digital identity accurately, while ensuring that non-compliant consumers and cybercriminals can be deterred and detected.

Conclusion

We’re not reinventing the wheel

Certain industries, such as online sports betting and content streaming, are already deploying the available safeguards to secure their platforms and content from fraudsters. Indeed, Financial Action Task Force (FATF) 2020 Guidance on Digital Identity highlighted geolocation as an example of a user data point that enables regulated entities to capture essential authentic information.

Taking these measures will ensure we: