1 DEPARTMENT OF DEFENSE DEFENSE OFFICE OF HEARINGS AND APPEALS In the matter of: ) ) ) ISCR Case No. 15-04266 ) Applicant for Security Clearance ) Appearances For Government: Mary M. Foreman, Esq., Department Counsel For Applicant: Pro se ______________ Decision ______________ RICCIARDELLO, Carol G., Administrative Judge: Applicant failed to mitigate the security concerns under Guideline F, financial considerations. Applicant’s eligibility for a security clearance is denied. Statement of the Case On January 4, 2016, the Department of Defense (DOD) issued to Applicant a Statement of Reasons (SOR) detailing security concerns under Guideline F, financial considerations. The action was taken under Executive Order (EO) 10865, Safeguarding Classified Information within Industry (February 20, 1960), as amended; DOD Directive 5220.6, Defense Industrial Personnel Security Clearance Review Program (January 2, 1992), as amended (Directive); and the adjudicative guidelines effective within the DOD for SORs issued after September 1, 2006. Applicant answered the SOR on January 21, 2016, and elected to have his case decided on the written record. Department Counsel submitted the Government’s file of relevant material (FORM). The FORM was mailed to Applicant, and it was received on March 30, 2016. Applicant was afforded an opportunity to file objections and submit 2 material in refutation, extenuation, or mitigation within 30 days of receipt of the FORM. Applicant did not object to the Government’s evidence identified as Items 2 through 7, and they were admitted into evidence without objection. Applicant submitted documents that were marked as Applicant Exhibits (AE) A and B, and they were admitted into evidence without objection. The case was assigned to me on December 27, 2016. Findings of Fact Applicant admitted all of the allegations in SOR. After a thorough and careful review of the pleadings and exhibits submitted, I make the following findings of fact. Applicant is 49 years old. He married in 1995 and has four children, ages 22, 21, 18, and 16. He began employment with a federal contractor in June 2014. Before then he was self-employed.1 Applicant filed Chapter 7 bankruptcy in November 2011, and his debts were discharged in April 2012. On his security clearance application (SCA), in response to the inquiry “provide the amount (in U.S. dollars) involved in the bankruptcy,” he disclosed $183,000.2 During his background interview in July 2014, Applicant explained that he did not recall the full details of all accounts included in his bankruptcy, but they included credit cards and mortgages. He refinanced his primary residence at the same time as the bankruptcy, and it was not included in the court action. He stated he was never delinquent on any debts or accounts included in the bankruptcy, but stopped making payments on three mortgages (his primary residence and two investment properties), in order to facilitate refinancing his primary residence and selling the investment properties through a short sale. He indicated he resolved the investment properties through short sales. He filed bankruptcy to clear all balances and debts left when the short sale did not yield as much as he owed on the properties. He stated that in accordance with his attorney’s advice he included all of his accounts in the bankruptcy. He did not reaffirm any accounts other than his primary residence.3 Applicant’s bankruptcy documents reflected that he had real estate assets of $472,051, and $271,408 of personal property. Bankruptcy Schedule D reflected $854,791 was owed to creditors holding a secured claim (unsecured portion was $185,250) and $666,402 for creditors holding unsecured nonpriority claims. His total liabilities were listed as $1,521,194.4 1 Item 3. 2 Item 3. 3 Items 4, 5, 6, 7. 4 Item 7. 3 Applicant confirmed with the government investigator that in addition to his real estate mortgage debts that were discharged, he had other debts discharged. These debts included second mortgage loans, credit cards, cell phone bills, two timeshare debts, a boat loan, gas credit card, and a Jet Ski loan. He disagreed with some accounts presented to him by the investigators. He indicated that he continued to make payments on several accounts, including loans on four or five cars, cell phones, one boat, and one Jet Ski. He also stated that the only debt he reaffirmed in the bankruptcy was for his primary residence. Schedule F from the bankruptcy documents reflect accounts as noted above, and also debts for auto taxes, unemployment compensation, medical bills, an auto loan deficiency, a nonsufficient check, cable television, insurance, property taxes, and numerous accounts for various services and utilities.5 In Applicant’s answer to the FORM, he stated: This bankruptcy was the result of investing in [state] real estate properties. After purchasing two homes the [state] real estate market declined. I was forced to short sale these homes resulting in losses to the bank. The bank issued me a 1099C Cancellation of Debt for $600,000 from the losses adding the $600,000 as income to my yearly income as well as trying to collect the amount short due from the mortgage.6 A federal tax lien was filed against Applicant in approximately June 2011 for $35,055. Applicant entered into an agreement with the Internal Revenue Service (IRS) in August 2012, agreeing to make monthly payments of $370 toward the delinquent tax and applying any future tax refunds toward the debt. A September 2015 letter from the IRS confirms it applied Applicant’s 2014 tax refund to the 2009 balance owed, reflecting a balance of $6,415. Applicant’s response to the FORM indicated that his continued monthly payments in 2016, along with his 2015 tax refund satisfied the remaining balance owed on this tax lien. He provided a letter from his accountant reflecting the amount anticipated for his 2015 federal tax refund.7 A state tax lien was filed against Applicant in approximately August 2012. Applicant entered an installment agreement with the state agreeing to make monthly payments of $326. He provided documents to show he complied with the agreement and had one remaining payment in July 2015. A letter from his accountant shows he was entitled to a refund from his state for tax year 2015.8 In Applicant’s response to the FORM, he stated: 5 Items 3, 4, 7. 6 Item 2. 7 Answer to SOR with attachments; AE A, B. 8 Answer to SOR with attachments; AE A, B 4 [I]t was required by law to disclose any and all outstanding debt, which would include but not limited to current loans/and or mortgages whether they were being paid current by myself or was part of our bankruptcy discharge. At the advice of our attorney [Mr. X, of city, state] ALL chapter 7 bankruptcy laws were adhered to by our counsel.9 Applicant did not provide any information regarding his current finances or budget. Regarding his business debt, he stated that after the recession, his business declined with the cost of fuel, and he had to downsize and adjust his business. Applicant did not provide specific information regarding what if any debts from his business were included in his bankruptcy or any other specifics about his business or its financial state.10 Applicant stated that he was current on all of his accounts and his attorney advised him to include them in his bankruptcy. He did not provide any documents to support his statements. He stated that he has “no intention of taking on further risks that could jeopardize my credit as this bankruptcy still requires me to answer for how this happened.”11 Policies When evaluating an applicant’s suitability for a security clearance, the administrative judge must consider the adjudicative guidelines (AG). In addition to brief introductory explanations for each guideline, the adjudicative guidelines list potentially disqualifying conditions and mitigating conditions, which are used in evaluating an applicant’s eligibility for access to classified information. These guidelines are not inflexible rules of law. Instead, recognizing the complexities of human behavior, these guidelines are applied in conjunction with the factors listed in the adjudicative process. The administrative judge’s overarching adjudicative goal is a fair, impartial, and commonsense decision. According to AG ¶ 2(c), the entire process is a conscientious scrutiny of a number of variables known as the “whole-person concept.” The administrative judge must consider all available, reliable information about the person, past and present, favorable and unfavorable, in making a decision. The protection of the national security is the paramount consideration. AG ¶ 2(b) requires that “[a]ny doubt concerning personnel being considered for access to classified information will be resolved in favor of national security.” In reaching this decision, I have drawn only those conclusions that are reasonable, logical, and based on the evidence contained in the record. Likewise, I have avoided drawing inferences grounded on mere speculation or conjecture. 9 AE A. 10 AE A. 11 AE A. 5 Under Directive ¶ E3.1.14, the Government must present evidence to establish controverted facts alleged in the SOR. Under Directive ¶ E3.1.15, an “applicant is responsible for presenting witnesses and other evidence to rebut, explain, extenuate, or mitigate facts admitted by applicant or proven by Department Counsel, and has the ultimate burden of persuasion as to obtaining a favorable security decision.” A person who seeks access to classified information enters into a fiduciary relationship with the Government predicated upon trust and confidence. This relationship transcends normal duty hours and endures throughout off-duty hours. The Government reposes a high degree of trust and confidence in individuals to whom it grants access to classified information. Decisions include, by necessity, consideration of the possible risk that an applicant may deliberately or inadvertently fail to safeguard classified information. Such decisions entail a certain degree of legally permissible extrapolation as to potential, rather than actual, risk of compromise of classified information. Section 7 of EO 10865 provides that decisions shall be “in terms of the national interest and shall in no sense be a determination as to the loyalty of the applicant concerned.” See also EO 12968, Section 3.1(b) (listing multiple prerequisites for access to classified or sensitive information). Analysis Guideline F, Financial Considerations The security concern relating to the guideline for financial considerations is set out in AG & 18: Failure or inability to live within one=s means, satisfy debts, and meet financial obligations may indicate poor self-control, lack of judgment, or unwillingness to abide by rules and regulations, all of which can raise questions about an individual=s reliability, trustworthiness and ability to protect classified information. An individual who is financially overextended is at risk of having to engage in illegal acts to generate funds. This concern is broader than the possibility that an individual might knowingly compromise classified information in order to raise money. It encompasses concerns about an individual’s self-control, judgment, and other qualities essential to protecting classified information. An individual who is financially irresponsible may also be irresponsible, unconcerned, or negligent in handing and safeguarding classified information.12 12 See ISCR Case No. 11-05365 at 3 (App.Bd. May 1, 2012). 6 AG ¶ 19 provides conditions that could raise security concerns. The following are potentially applicable: (a) inability or unwillingness to satisfy debts; and (c) a history of not meeting financial obligations. Applicant had a large amount of debts discharged in bankruptcy in 2012, which he was either unwilling or unable to pay. He had a federal and state tax lien entered in 2011 and 2012, respectively. There is sufficient evidence to support the application of the above disqualifying conditions. The guideline also includes conditions that could mitigate security concerns arising from financial difficulties. The following mitigating conditions under AG ¶ 20 are potentially applicable: (a) the behavior happened so long ago, was so infrequent, or occurred under such circumstances that it is unlikely to recur and does not cast doubt on the individual=s current reliability, trustworthiness, or good judgment; (b) the conditions that resulted in the financial problem were largely beyond the person=s control (e.g., loss of employment, a business downturn, unexpected medical emergency, or a death, divorce or separation), and the individual acted responsibly under the circumstances; (c) the person has received or is receiving counseling for the problem and/or there are clear indications that the problem is being resolved or is under control; and (d) the individual initiated a good-faith effort to repay overdue creditors or otherwise resolve debts. Applicant resolved the federal and state tax liens from 2011 and 2012, which were the result of mortgage debts that were canceled on two properties he purchased for investment. AG ¶ 20(c) applies to SOR ¶¶ 1.b and 1.c because these debts are resolved. Applicant attributed his Chapter 7 bankruptcy to these two real estate investments that he was unable to maintain due to the decline in the market. He indicated he stopped making payments on the mortgages so he could short sale the properties. The record does not contain specific information regarding the properties, such as when they were purchased, the purchase price, the amount of first and second mortgages, down payments, whether they were rented, for how long, and why Applicant could not pay the mortgages. Applicant alluded to a downturn in his business as a cause for his financial problems, but did not provide specific information as to his 7 finances at the time. Applicant stated that he was current on all of his accounts and was advised by his attorney to include them in his bankruptcy. He did not provide any documents to support his statements. When questioned by a government investigator, Applicant could not recall specific information about his debts, but indicated the accounts were included in his bankruptcy. The bankruptcy documents reflect that he had over $600,000 of unsecured nonpriority claims. The accounts included numerous credit cards, a gas credit card, auto taxes, a boat loan, two timeshares, property taxes, unemployment compensation, utilities, and many other debts. It appears that all of these accounts were discharged. There is insufficient evidence to determine the reason why these accounts were discharged if they were not delinquent or why he did not reaffirm them. It is unclear why Applicant noted on his SCA that his bankruptcy was for $183,000, when his documents indicate a much higher amount. He failed to provide sufficient information to explain that inconsistency. Applicant attributed his financial problems to a downturn in the real estate market. He also mentioned that his business suffered a downturn. These were conditions beyond his control. For the full application of AG ¶ 20(b) he must have acted responsibly under the circumstances. I am unable to conclude that including debts that were not delinquent in one’s bankruptcy as a responsible method for managing debts. Applicant did not provide sufficient amplifying information about his business, income, finances, or the numerous accounts he included in his bankruptcy. Applicant failed to provide sufficient evidence to conclude he acted responsibly regarding his debts. AG ¶ 20(b) has minimal applicability. There is no evidence Applicant participated in financial counseling, but likely did as part of his bankruptcy filing. No evidence was provided regarding Applicant’s current finances, income, expenses, and business. There is insufficient evidence to conclude his current finances are under control. AG ¶¶ 20(c) also partially applies regarding his financial counseling. Having one’s debts discharged in bankruptcy may be a legitimate and legal means to resolve debt, but after reviewing the evidence in this case I do not find it amounts to a good-faith effort to repay creditors. AG ¶ 20(d) does not apply. Whole-Person Concept Under the whole-person concept, the administrative judge must evaluate an applicant’s eligibility for a security clearance by considering the totality of the applicant’s conduct and all the circumstances. The 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 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 8 for the conduct; (8) the potential for pressure, coercion, exploitation, or duress; and (9) the likelihood of continuation or recurrence. Under AG ¶ 2(c), the ultimate determination of whether to grant eligibility for a security clearance must be an overall commonsense judgment based upon careful consideration of the guidelines and the whole-person concept. I considered the potentially disqualifying and mitigating conditions in light of all the facts and circumstances surrounding this case. I have incorporated my comments under Guideline F in my whole-person analysis. Some of the factors in AG ¶ 2(a) were addressed under that guideline, but some warrant additional comment. Applicant is 49 years old. He adhered to installment plans to pay his federal and state tax liens. It has been almost five years since his debts were discharged in Chapter 7 bankruptcy. Applicant failed to provide sufficient evidence regarding his bankruptcy and the substantial debt that was discharged. He indicated that he included all of his debts in the bankruptcy because he was required per his attorney’s advice. Although that may be accurate, it does not negate the fact that his bankruptcy discharged a large number of consumer debts for timeshares, a boat, a jet ski, credit cards, along with mortgage loans, debts for services, utilities, medical, unemployment compensation, and auto and property taxes. By including them in a Chapter 7 bankruptcy, he reaped the financial benefit of not having to pay debts he incurred, and avoided his responsibility to manage his finances. While bankruptcy is a legal means of resolving one’s debts, it does not necessarily demonstrate financial responsibility, reliability, or good judgement. At this time, he has not established a reliable financial track record. He failed to meet his burden of persuasion. The record evidence leaves me with questions and doubts as to Applicant’s eligibility and suitability for a security clearance. For all these reasons, I conclude Applicant failed to mitigate the security concerns arising under Guideline F, financial considerations. Formal Findings Formal findings for or against Applicant on the allegations set forth in the SOR, as required by section E3.1.25 of Enclosure 3 of the Directive, are: Paragraph 1, Guideline F: AGAINST APPLICANT Subparagraph 1.a: Against Applicant Subparagraph 1.b: For Applicant Subparagraph 1.c: For Applicant 9 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’s eligibility for a security clearance. Eligibility for access to classified information is denied. _____________________________ Carol G. Ricciardello Administrative Judge