What is Fraud Red Team Testing?

According to NIST, a red team simulates potential adversarial attacks on an enterprise’s security. This team enhances cybersecurity by exposing the impact of successful attacks and identifying effective defense mechanisms in real-world scenarios.

Fraud red team testing adapts this concept from cybersecurity to fraud prevention. The goal is not just to outsmart existing controls but to identify them, assess their effectiveness, and ensure proper adherence. Fraud red team testing uncovers gaps in controls and highlights training opportunities – with live accounts, without impacting customers.

The Threat Landscape and Fraud Red Team Testing

The threat landscape for financial crime grows increasingly complex as fraudsters use advanced tactics to exploit vulnerabilities. These threats are fully understood through the lens of cyber-fraud threat intelligence.

• Check Fraud: Once considered traditional, check fraud has resurged, with criminals innovating new methods to counterfeit or alter checks.
• Identity Theft: This remains a significant threat, as fraudsters use stolen personal information from data breaches or phishing attacks to gain unauthorized access to financial accounts.
• Synthetic Identity Fraud: Threat actors combine real and fabricated information to create fake identities, enabling them to open accounts, commit fraud, and remain undetected for extended periods.
• Account Takeover (ATO): Cybercriminals increasingly use stolen credentials to hijack legitimate accounts, often resulting in substantial financial losses and customer impact.
• Sophisticated Scams: Scams targeting individuals, such as phishing, romance scams, and tech support fraud, grow more sophisticated, exploiting human psychology to trick victims into transferring funds or revealing sensitive information. AI will make these scams easier to execute.

The convergence of these threats highlights the urgent need for proactive defenses and continuous vigilance in the financial industry.

The Impact of Fraud Red Team Testing

Given the increasingly complex and evolving threat landscape, incorporating fraud red team testing into a financial institution’s fraud prevention program is not just a luxury—it’s a necessity. As fraudsters employ sophisticated methods like check fraud, identity theft, synthetic identity fraud, account takeover, and various other scams, traditional defense mechanisms can quickly become outdated.

Fraud red team testing allows financial institutions to simulate real-world fraud scenarios, mirroring the tactics, techniques, and procedures used by criminals.

This proactive approach helps identify gaps in existing fraud controls and highlights vulnerabilities that may not be apparent through conventional testing methods. By engaging in fraud red team exercises, organizations can better understand how their systems, processes, and people respond to actual fraud threats. This insight enables them to strengthen their defenses, adapt more rapidly to emerging threats, and ultimately protect their customers and assets more effectively. In an environment where the stakes are high and the cost of failure is substantial, fraud red team testing is a critical component of a comprehensive fraud prevention strategy.

A Day in the Life of a Fraud Red Team Tester

A day in the life of a fraud red team tester involves simulating real-world fraud scenarios to uncover vulnerabilities within a financial institution’s defenses. The day starts with creating bank accounts using simulated stolen identities and testing the ease of bypassing verification processes. Next, the tester accesses a U.S. checking account from another country, documenting the authentication steps, or lack thereof, to assess the institution’s geographic security.

Later, the tester then washes checks with brake fluid, alters payee details to mimic check fraud, and evaluates the bank’s detection systems. Finally, the tester targets and attacks a call center, simulating a social engineering campaign to test how employees resist manipulation.

The tester documents every step throughout the day and always acts with the written permission of the client’s financial institution. The goal is to give the financial institution a detailed report on potential vulnerabilities and control gaps. This work is crucial for helping organizations strengthen their defenses against real-world fraud, ultimately protecting their customers and assets.

This article was authored by Jason Bartolacci and Dom Bartolacci from Red Team 27.

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