1 DEPARTMENT OF DEFENSE DEFENSE OFFICE OF HEARINGS AND APPEALS In the matter of: ) ) ) ISCR Case No. 11-04513 ) Applicant for Security Clearance ) Appearances For Government: Raashid Williams, Esq., Department Counsel For Applicant: Pro se ________________ Decision ________________ O’BRIEN, Rita C., Administrative Judge: Based on a review of the pleadings, exhibits, and testimony, I conclude that Applicant has not mitigated the concerns raised under the guidelines for outside activities and foreign influence. Accordingly, his request for a security clearance is denied. Statement of the Case On May 11, 2012, the Defense Office of Hearings and Appeals (DOHA) issued to Applicant a Statement of Reasons (SOR) setting forth security concerns under Guidelines L (Outside Activities) and B (Foreign Influence) of the Adjudicative Guidelines (AG).1 Applicant submitted a notarized Answer to the SOR in which he denied the allegations under Guidelines L and B. Applicant also requested a hearing before an administrative judge. 1 Required by Executive Order 10865, as amended, and by DoD Directive 5220.6 (Directive), as amended. Adjudication of this case is controlled by the Adjudicative Guidelines implemented by the Department of Defense on September 1, 2006. 2 Department Counsel was prepared to proceed on August 6, 2012, and the case was assigned to me on August 9, 2012. DOHA issued a Notice of Hearing on August 31, 2012, and I convened the hearing as scheduled on September 20, 2012. Department Counsel offered two exhibits, which I admitted as Government Exhibits (GE) 1 and 2. Applicant testified and submitted five exhibits, which I admitted as Applicant Exhibit (AE) A through E. DOHA received the transcript (Tr.) on September 28, 2012. Procedural Ruling I take administrative notice of facts relating to the Philippines and Republic of Korea (ROK; South Korea), set forth in 22 documents submitted by Department Counsel. (Hearing Exhibit [HE] I) I also take administrative notice of a Department of State document related to the Philippines, submitted by Applicant. (HE II) The facts administratively noticed are limited to matters of general knowledge and not subject to reasonable dispute. Findings of Fact After a thorough review of the pleadings, Applicant’s response to the SOR, and the record evidence, I make the following findings of fact. Applicant, 57 years old, has been married for 30 years, and has two children, 23 and 26 years old. He holds a bachelor’s degree in political science and a master’s degree in finance. Applicant, his wife, and his children are native-born U.S. citizens. He is currently president and chief executive officer (CEO) of his own company. Since March 2010, he has also been a consultant to a defense contractor. This is his first application for a security clearance. (GE 1, 2; Tr. 29-32) For the past 20 years, Applicant’s work has focused on building infrastructure in international markets for U.S.-based telecommunications carriers. From about the mid- 1990s to 2008, he worked for a number of U.S. telecommunications companies. In the 1990’s, he worked in Russia, Poland, and Belarus. In 2004, a defense contracting company hired him to help solve issues related to secure mobile communications in the Gulf region. The same company is currently sponsoring his security clearance application. Since July 2008, he has operated his own company, which is incorporated in Singapore and functions as a consultant to other companies. Applicant testified that, “The majority of the business that I conduct is for U.S. entities, typically with a military communications network looking for services and conductivity for their networks to work in that part of the world.” Applicant testified that, to his knowledge, neither his employer’s facility security officer (FSO) nor any other authorized security official has evaluated his foreign work activities or contacts. (GE 1, 2; AE C; Tr. 21-23, 28, 30-31, 83) 3 Applicant travels at least six times per year to the Philippines, and usually also visits Hong Kong and Singapore. Between 2003 and 2010, the date of his security investigation, he traveled to South Korea, Argentina, Germany, the Netherlands, Canada, the Philippines, Singapore, Malaysia, Thailand, Hong Kong, Tonga, Japan, India, and China. Between 2007 and 2010, he attended international conferences and trade shows in Thailand, South Korea, Singapore, and France. The conferences focused on establishing, improving, and financing mobile and satellite communications in Southeast Asian countries. In 2007, he also attended a broadband conference in Malaysia, which was sponsored by the Malaysia Ministry of Communications and Information. In mid-2010, Applicant attended a four-day electronics and telecommunications conference in Seoul, South Korea, where he gave a presentation. He was not compensated for his presentation. Since December 2010, Applicant has traveled to India, Nepal, and Bhutan. (GE 1, 2; Tr. 64-67) Over the past several years, Applicant has played a significant role in, or been involved with, the following entities. Company S (allegation 1.a): Applicant is president and CEO of Company S. In 2008, Applicant formed the company in part to acquire a license to operate in Southeast Asia. Company S is incorporated in Singapore, because it receives favorable tax treatment there. It also has an operating office in the Philippines, which it shares with Company TD. Applicant co-founded Company S with Mr. D, a citizen and resident of the Philippines, because operating the business required that a local partner hold the majority ownership. Mr. D is associated with company TD, which owned a communications license that Applicant wished to acquire so that he could operate in Southeast Asian countries. Mr. D is the chairman of the board of directors of Company S. Mr. M, a citizen and resident of the Philippines, is the general manager. Applicant owns 50 percent of Company S. Applicant estimated that approximately $120,000, or 40 percent of his annual income, comes from Company S. (GE 2; Tr. 23, 33-37, 39, 42, 81) Company EC (allegation 1.b): Company EC was a publicly traded Philippine company that was no longer operational. Company EC was owned by Mr. D, and it held a telecommunications franchise license in the Philippines. In 2008, Company S invested in Company EC in order to use Company EC’s license. Company S acquired 36 percent of the company for $2.7 million, with a $200,000 deposit and a note for the remainder. In about 2009 or 2010, Company S’s share was reduced to about 20 percent. Through Company EC, Company S provides uplink facilities to U.S. government agencies. Applicant testified that he does not receive income from Company EC, and the company does not work with foreign governments. (AE B; Tr. 24-25, 42-45, 81-82) Institute ET (allegation 1.c): In 2010, several U.S. communications carriers sought to integrate a regional satellite system with a cellular telephone system so that communications could be maintained during a catastrophic natural event, such as a tsunami. Institute ET was working on the issue. During his security interview, Applicant 4 noted that this entity is owned by a South Korean citizen, and that it is funded by the government of South Korea. Applicant provided consulting service over a period of about eight weeks, working in collaboration with representatives from South Korea, Japan, and Taiwan. Applicant has not had contact since 2010 with the lead researcher or individuals with whom he worked on the project. (GE 2; Tr. 26-27, 45-48) Organization A (allegation 1.d): Organization A is a foreign bank that provides loans and grants to Southeast Asian countries, with the goal of mitigating poverty in the region. It is located in the Philippines. The U.S. government supports its work. In 2010, Applicant contracted to serve as an advisor to Organization A, which is working to build a fiber-optic network among several Southeast Asian countries. Applicant negotiates the interconnection agreements between the countries and the communications carriers. Over the course of 18 months between 2010 and 2011, Applicant earned approximately $45,000 to $50,000 for his consulting, which comprised about 20 to 25 percent of his income at the time. Although he remains under contract, the project is complete and he is no longer actively working on it. (GE 2; AE D; Tr. 25-26, 48-52) Company TD - is a consortium of 30 companies located in countries around the world. Company TD is incorporated in the Philippines, Japan, Panama, and Singapore. Several employees of Company TD are also members of the board of Applicant's Company S. Company TD is not alleged in the SOR. (Tr. 36) Company R - is a private equity group. The only relationship noted during the hearing between Applicant's Company S and Company R is that Company S uses Company R’s address for its corporate office. (Tr. 61) Company AP - Applicant formed Company AP, a U.S. Company, to develop technology in Southeast Asia. He and other family members comprise the board of directors. Company AP includes Company S, discussed previously, and Company T, an investment group. The SOR does not allege Applicant's involvement in Company AP or Company T. (Tr. 23, 33) Applicant testified that all of his clients are U.S. companies, that Company S does not work with foreign governments, and it is not involved in technology transfer. He also testified that he does not have foreign real estate or foreign bank accounts, except for a small account of $300 that he maintains in the Philippines in order to have cash available. He provided a sample three-month contract between Company S and a U.S. company that would retain Company S to serve as a liaison to establish antiterrorism training facilities in the Philippines. The contract described Company S as “uniquely positioned in the Republic of the Philippines; having a physical presence with commercial operating entities, various proprietary industry relationships, and training facilities….” The contract also indicates that, as of July 2011, Company S maintained a bank account in Hong Kong where contract compensation was to be deposited. (AE C; Tr. 28, 44-45, 71) 5 Applicant is in contact with a number of business associates who are citizens and residents of other countries, and are employed by Company S or other companies with which he works. They include the following. (Tr. 55, 59-60) Mr. D – As discussed previously, Mr. D is the co-founder of Company S and partner with Applicant, and is also chairman of the board of that company. He is a citizen-resident of the Philippines. Applicant has known him since 2008, and describes him as a “very good friend.” They are in touch about once per week. (GE 2; Tr. 34-35, 58-59) Ms. N – is the CFO of company TD, and also holds the position of CFO on the board of directors of Company S. Applicant has known her since 2008. She represented the company that sold shares of Company EC to Company S in 2008. She is a citizen of the Philippines. Applicant is in contact with her once per month. (GE 1, 2; AE B; Tr. 35- 36, 57-59) Mr. K – is a citizen-resident of South Korea. Mr. K works for Institute ET, and Applicant worked with him on that telecommunications project. Applicant has had no contact with Mr. K since 2010. (GE 2; Tr. 53-54) Mr. S – is an attorney who serves as general counsel on the board of directors of Company S. The evidence does not note Mr. S’s citizenship or residency. (Tr. 35) Ms. B – is an administrative assistant at Company TD. She assisted him in assembling his travel schedule and arrangements. She is a citizen-resident of the Philippines. Applicant has known her since 2008. (GE 2; Tr. 57) Mr. M – As discussed, Mr. M is a citizen-resident of the Philippines. He is the general manager of Company S, the general manager of Company EC2 and an employee of Company TD. Applicant has known Mr. M since 2008, and speaks with him about three times per week. (GE 2; Tr. 35-36) Ms. L – is a resident of Hong Kong, China, but Applicant is uncertain of her citizenship. She is the project manager for organization A. Applicant has known her since 2010. Applicant works with Ms. L on funding for companies that wish to purchase technology through Company S. As of 2010, Applicant was in touch with her about monthly by email and telephone. (GE 1; Tr. 61-62) Mr. C – is the founder and owner of Company R, a private equity group. He is a citizen-resident of Singapore. Applicant describes him as a colleague. He allowed Applicant to use Company R’s address in the corporate filings for Company S. As of the date of Applicant's security interview, he saw Mr. C two times per year to discuss possible business ventures for Company S. (GE 2; Tr. 62-64) 2 Applicant testified that Mr. M is general manager of both Company EC and Company S. (Tr. 35-36) 6 Ms. K – is also the director of Company S in Singapore. She is a citizen-resident of Singapore and also an employee of Company R. Applicant has known her since 2008. As of the date of Applicant's 2010 security interview, he had contact with her four times per year. (GE1, 2; Tr. 60-61) Mr. L – was the lead researcher at Institute ET and was Applicant’s point of contact when he worked with Institute ET. Applicant has not been in contact with Mr. L since 2010. Mr. L is a citizen-resident of South Korea. (GE 2; Tr. 47-48) Ms. A – is an attorney at Company TD in the Philippines. She assists Applicant with documentation he files with the Philippines regulatory agency. She is a citizen- resident of the Philippines. Applicant has known her since 2008, and is in touch with her about every other month. (GE 2; Tr. 56-57) Administrative Notice The Philippines The Republic of the Philippines (the Philippines) is a representative democracy modeled on the U.S. system. The Philippines and the United States are allies, with a history of ties dating back to 1898. Traditionally, the United States has been the country’s largest investor. The United States and the Philippines have agreed to a Partnership for Growth covering the years 2012 to 2016. It will use both countries’ resources to deal with the “most serious constraints to economic growth and development in the Philippines.” One goal is to create a transparent and predictable legal and regulatory regime that is “less encumbered by corruption.” (HE I; HE II) The nation has experienced severe economic decline since the end of World War II, as has its infrastructure and ability to provide policy and regulatory stability. In addition, the government faces threats from terrorist groups, including some on the U.S. government’s foreign terrorist organization list, such as Abu Sayyyaf (ASG) and Jemaah Islamiya (JI). ASG has kidnapped foreign tourists, and both ASG and the Rajah Solaiman Movement (RSM) present major problems for the government. A Philippine offensive against terrorists resulted in the capture or death of more than 200 terrorists since 2007. However, tensions existing between the government and the Moro Islamic Liberation Front (MILF) have resulted in MILF-sponsored bombings, assassinations, and kidnappings. Human rights issues are also a serious destabilizing concern. Violence against women, child prostitution, trafficking in persons, and arbitrary arrests and detention were common. As of 2011, the Department of State reported that serious problems exist related to killings by security forces, and political killings, including killings of journalists, by state and non-state actors. (HE I) 7 The Republic of Korea (ROK; South Korea) Following the Korean War from 1950 to 1953, South Korea experienced political turmoil that included autocratic leadership, restriction of political freedoms, military coups, declarations of martial law, and violent confrontations. Protests in the 1970s and 1980s against authoritarian rule led to political concessions in 1987, including restoration of direct presidential elections. The transition to democracy continued through the 1990s and 2000s. (HE I) Currently, South Korea is a stable, democratic republic, which has been a close U.S. ally since 1950. Thousands of U.S. military personnel are stationed in South Korea, and the two countries frequently conduct joint military operations. However, South Korea has a history of intelligence-gathering efforts against the United States and collecting protected U.S. information. In the past, it has collected information on computer systems, aerospace technologies, and nuclear technologies. Although the United States restricts the export of sensitive, dual-use technologies, South Korea has been the unauthorized recipient of such technology. (HE I) Policies Each security clearance decision must be an impartial and commonsense determination based on examination of all available relevant and material information, and consideration of the pertinent criteria and adjudication policy in the AG.3 Decisions also reflect consideration of the “whole person” factors listed in AG ¶ 2(a). The presence or absence of disqualifying or mitigating conditions does not determine a conclusion for or against an applicant. However, specific applicable guidelines are followed when a case can be so measured, as they represent policy guidance governing the grant or denial of access to classified information. A security clearance decision is intended only to resolve the question of whether it is clearly consistent with the national interest4 for an applicant to receive or continue to have access to classified information. The Government bears the initial burden of producing admissible information on which it based the preliminary decision to deny or revoke a security clearance. Additionally, the Government must be able to prove controverted facts alleged in the SOR. If the Government meets its burden, it falls to applicants to refute, extenuate or mitigate the Government’s case. Because no one has a “right” to a security clearance, applicants bear a heavy burden of persuasion.5 A person who has access to classified information enters a fiduciary relationship based on 3 Directive § 6.3. 4 See Department of the Navy v. Egan, 484 U.S. 518 (1988). 5 See Egan, 484 U.S. at 528, 531. 8 trust and confidence. The Government has a compelling interest in ensuring that applicants possess the requisite judgment, reliability, and trustworthiness to safeguard classified information. The “clearly consistent with the national interest” standard compels resolution of any doubt about an applicant’s suitability for access to classified information in favor of the Government.6 Analysis Guideline L, Outside Activities AG ¶ 36 under Guideline L indicates that Involvement in certain types of outside employment or activities is of security concern if it poses a conflict of interest with an individual's security responsibilities and could create an increased risk of unauthorized disclosure of classified information. I have considered the disqualifying conditions under AG ¶ 37, and find that the following subparagraph is relevant: (a) any employment or service, whether compensated or volunteer, with: (1) the government of a foreign country; (2) any foreign national, organization, or other entity; (3) a representative of any foreign interest; (4) any foreign, domestic, or international organization or person engaged in analysis, discussion, or publication of material on intelligence, defense, foreign affairs, or protected technology. Applicant’s work in foreign countries poses a risk of disclosure of classified information. He is the president and CEO of Company S, which is incorporated in Singapore. He receives 40 percent of his income from Company S. His partner in Company S, a foreign citizen and resident, is also the chairman of the board of directors of Company S. The general manager of Company S is also a foreign citizen and resident. Applicant's Company S invested in Company EC, which is incorporated in the Philippines. Although Applicant does not receive income from Company EC, he has a financial interest in it, because his Company S owns a 20 percent share of Company EC. Applicant also has had past and present relationships with other foreign entities. He had a business relationship with Institute ET when he provided consulting 6 See Egan; Adjudicative Guidelines, ¶ 2(b). 9 services to the institute in 2010. The institute is owned by a South Korean citizen and receives funds from the government of South Korea. During his employment at Institute ET, he worked with foreign citizens from Japan, South Korea, and Taiwan. In 2010 and 2011, Applicant was an advisor to organization A, a foreign financial entity, and earned 20 to 25 percent of his income from that work. Although the work is complete, he is still under contract to the organization. AG ¶ 37 (a) (2) applies. I considered both of the conditions that could mitigate security concerns under AG ¶ 38: (a) evaluation of the outside employment or activity by the appropriate security or counterintelligence office indicates that it does not pose a conflict with an individual's security responsibilities or with the national security interests of the United States; and (b) the individual terminated the employment or discontinued the activity upon being notified that it was in conflict with his or her security responsibilities. Applicant testified that he is unaware that his FSO or any other security official vetted his foreign activities and employment. Applicant discontinued his relationship with Institute ET more than two years ago. However, he continues to be associated with the other entities discussed under the disqualifying conditions section. AG ¶¶ 38 (a) and 38 (b) do not mitigate his relationships to those entities. Guideline B, Foreign Influence AG ¶ 6 expresses the security concern under Guideline B: Foreign contacts and interests may be a security concern if the individual has divided loyalties or foreign financial interests, may be manipulated or induced to help a foreign person, group, organization, or government in a way that is not in U.S. interests, or is vulnerable to pressure or coercion by any foreign interest. Adjudication under this Guideline can and should consider the identity of the foreign country in which the foreign contact or financial interest is located, including, but not limited to, such considerations as whether the foreign country is known to target United States citizens to obtain protected information and/or is associated with a risk of terrorism. I have considered all the conditions under AG ¶ 7 that may be disqualifying, especially the following: (a) contact with a foreign family member, business or professional associate, friend, or other person who is a citizen of or resident in a 10 foreign country if that contact creates a heightened risk of foreign exploitation, inducement, manipulation, pressure, or coercion; (b) connections to a foreign person, group, government, or country that create a potential conflict of interest between the individual's obligation to protect sensitive information or technology and the individual's desire to help a foreign person, group, or country by providing that information; and (e) a substantial business, financial, or property interest in a foreign country, or in any foreign-owned or foreign-operated business, which could subject the individual to heightened risk of foreign influence or exploitation. Applicant has numerous business contacts in Southeast Asia. He had contact with citizens of several foreign countries in 2010 when he consulted for an institute funded by the South Korean government. That relationship lasted only a few weeks, and he has not had contact with Institute ET or the foreign citizens for more than two years. However, Applicant works frequently in the Philippines, where he has an operating office for his Company S. He is close friends with Mr. D., a citizen-resident of the Philippines. They are partners in Company S, Applicant's primary source of income. Mr. M, also a citizen-resident of the Philippines, is the general manager of Applicant's Company S, and of Company EC, in which Applicant is a 20-percent shareholder. Numerous foreign citizens are involved with Applicant's company. Applicant’s ties to foreign citizens raise security concerns. Although the Philippines is a democracy, it is plagued by terrorist groups, including several on the official U.S. government list of terrorist organizations. Bombings, assassinations, and kidnappings have occurred. The presence of terrorists is a legitimate concern, because classified information is of value to them, either for their own use or to trade with enemies of the United States.7 Applicant's foreign contacts create a heightened risk of foreign exploitation or coercion, and place him in a position where he might have to choose between his foreign interests and the interests of the United States. AG ¶¶ 7 (a) and (b) apply. Applicant’s involvement with foreign companies and organizations raises security concerns under AG ¶ 7(e). He owns 50 percent of Company S, and currently receives approximately $120,000 or 40 percent of his annual income from that source. He owns a 20 percent share of Philippine Company EC, and Company S owes more than $2 million on the loan to acquire it. Applicant remains under contract to Organization A, a foreign bank, and received between $45,000 and $50,000 in income from this source between 2010 and 2011. Applicant’s livelihood, and his family’s financial welfare, are tied to his substantial foreign financial interests, which place him at heightened risk of foreign exploitation. AG ¶ 7(e) applies. 7 ISCR Case No. 02-29403 at 3 (Ap. Bd. Dec 14, 2004) 11 I have also considered the following mitigating conditions under AG ¶ 8: (a) the nature of the relationships with foreign persons, the country in which these persons are located, or the positions or activities of those persons in that country are such that it is unlikely the individual will be placed in a position of having to choose between the interests of a foreign individual, group, organization, or government and the interests of the U.S.; (b) there is no conflict of interest, either because the individual's sense of loyalty or obligation to the foreign person, group, government, or country is so minimal, or the individual has such deep and longstanding relationships and loyalties in the U.S., that the individual can be expected to resolve any conflict of interest in favor of the U.S. interest; (c) contact or communication with foreign citizens is so casual and infrequent that there is little likelihood that it could create a risk for foreign influence or exploitation; and (f) the value or routine nature of the foreign business, financial, or property interests is such that they are unlikely to result in a conflict and could not be used effectively to influence, manipulate, or pressure the individual. Applicant frequently conducts business in the Philippines, and has an operating office there for his Company S. His company also owns a 20 percent share of Company EC, which is incorporated in the Philippines. Several terrorist groups operate in the Philippines, and the country has been plagued with bombings, assassinations, and kidnappings. I cannot confidently conclude that Applicant could not be placed in a position of having to choose between foreign and U.S. interests. Moreover, Applicant has frequent and ongoing contact with foreign citizens, several of whom are key personnel in his company. One is both a business partner and a close personal friend. Applicant's foreign business interests have substantial monetary value; moreover, they constitute the source of his livelihood. Threats to these critical interests could raise a conflict of interest with his obligations to the United States, and they could be used to influence or pressure him. AG ¶ 8(a), (b), (c), and (f) do not apply. Whole-Person Analysis Under the whole-person concept, an administrative judge must evaluate the Applicant’s security eligibility by considering the totality of the Applicant’s conduct and all the relevant circumstances. An administrative judge should consider the nine adjudicative process factors listed at AG ¶ 2(a): (1) the nature, extent, and seriousness of the conduct; (2) the circumstances surrounding the conduct, to include knowledgeable 12 participation; (3) the frequency and recency of the conduct; (4) the individual’s age and maturity at the time of the conduct; (5) the extent to which participation is voluntary; (6) the presence or absence of rehabilitation and other permanent behavioral changes; (7) the motivation for the conduct; (8) the potential for pressure, coercion, exploitation, or duress; and (9) the likelihood of continuation or recurrence. AG ¶ 2(c) requires that the ultimate determination of whether to grant a security clearance must be an overall commonsense judgment based upon careful consideration of the guidelines and the whole-person concept. Under the cited guidelines, I considered the potentially disqualifying and mitigating conditions in light of all the facts and circumstances surrounding this case. Applicant’s loyalty to the United States is not in question. He does not have foreign family members: he, his wife of 30 years, and his children, are native-born U.S. citizens. He was born, educated, and currently has his home in the United States. Through Company S, he works with U.S. companies to assist in developing communications systems overseas. However, even people of integrity and good character can be involved in circumstances that raise security issues.8 Employment or involvement with foreign entities creates the risk of unauthorized disclosure of classified information. Here, Applicant is in such a situation, and is likely to continue to be so in the future. Applicant’s company is incorporated in a foreign country, he necessarily spends much of his time overseas, his partner is a foreign citizen, key players in his company are foreign citizens, and his company is intertwined with other foreign companies. All of these factors raise potential for coercion or exploitation. A fair and commonsense assessment of the available information shows Applicant has not eliminated the doubts raised under the guidelines for outside activities and foreign influence. Such doubts must be resolved in favor of the national security. Formal Findings Paragraph 1, Guideline L: AGAINST APPLICANT Subparagraphs 1.a – 1.b Against Applicant Subparagraph 1.c For Applicant Subparagraph 1.d Against Applicant Paragraph 2, Guideline B: AGAINST APPLICANT Subparagraph 2.a Against Applicant 8 ISCR Case No. 01-26893 at 9-10 (Ap. Bd. Oct. 16, 2002) 13 Conclusion In light of all of the circumstances presented by the record in this case, it is not clearly consistent with the national interest to grant Applicant access to classified information. Applicant’s request for a security clearance is denied. RITA C. O’BRIEN Administrative Judge