DEPARTMENT OF DEFENSE DEFENSE OFFICE OF HEARINGS AND APPEALS In the matter of: ) ) ) ------------------------------------ ) ISCR Case No. 15-07122 ) ) Applicant for Security Clearance ) Appearances For Government: Aubrey De Angelis, Esq., Department Counsel For Applicant: Pro se _____________ Decision ______________ WESLEY, Roger C., Administrative Judge: Based upon a review of the pleadings, exhibits, and testimony, I conclude that Applicant mitigated the security concerns regarding his financial considerations. Eligibility for access to classified information is granted. Statement of Case On October 6, 2016, Department of Defense (DoD) Consolidated Adjudications Facility (CAF) issued a Statement of Reasons (SOR) detailing reasons why DoD adjudicators could not make the affirmative determination of eligibility for a security clearance, and recommended referral to an administrative judge to determine whether a security clearance should be granted, continued, denied, or revoked. The action was taken under Executive Order (Exec. Or.) 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 recently amended (Directive); and the Adjudicative Guidelines (AGs) implemented by DoD on September 1, 2006.1 Applicant responded to the SOR on November 4, 2016, and requested a hearing. The case was assigned to me on January 27, 2017, and scheduled for hearing on April 5, 2017. At the hearing, the Government's case consisted of five exhibits (GEs 1-5). Applicant relied on three witnesses (including himself) and nine exhibits (AEs A-I). The transcript (Tr.) was received on April 13, 2017. Procedural Issues Before the close of the hearing, Applicant requested permission to withdraw his admission to SOR allegations ¶¶ 1.a and 1.b as they pertain to Applicant’s alleged failure to timely file his 2010 federal and state tax returns. For good cause shown, Applicant’s withdrawal motion was granted. Applicant’s admissions to the remaining allegations covering tax years 2011 and 2012 were left standing. Summary of Pleadings Under Guideline F, Applicant allegedly (a) failed to timely file his federal and state income tax returns for tax years 2010-2012; (b) incurred a delinquent mortgage on a mortgage balance of $408,497, and (c) accumulated two delinquent consumer debts exceeding $400. Allegedly, these listed delinquent debts remain outstanding. In his response to the SOR, Applicant admitted all of the allegations with explanations. He claimed he filed past-due federal and state tax returns and has no deficiency due on his foreclosed mortgage. He claimed that he forgot about the two consumer debts alleged in SOR ¶¶ 1.d and 1.e, but has since paid them in full. Applicant further claimed he twice tried loan modifications to reduce his payments to workable levels and unsuccessfully sought lender approval of a short sale before resigning himself to foreclosure. Applicant claimed that he and his wife have been working diligently to restore their credit, have a budget and money in the bank, and no longer live beyond their means. Findings of Fact Applicant is a 41-year-old information technology (IT) technician for a defense contractor who seeks a security clearance. The allegations covered in the SOR and admitted by Applicant are incorporated and adopted as relevant and material findings. Additional findings follow. 1 Effective June 8, 2017, by Directive 4 of the Security Executive Agent Directive (SEAD 4), dated December 10, 2016, National Security Adjudicative Guidelines for all covered individuals who require initial or continued eligibility for access to classified information or eligibility to hold a sensitive position were established to supercede all previously issued national security adjudicative criteria or guidelines. Procedures for administrative due process for contractor personnel continue to be governed by DoD 5220.6, subject to the updated substantive changes in the guidelines, effective June 8, 2017. 2 Background Applicant married in July 1997, and he has two children (ages 19 and 7) from this marriage. (GE 1; Tr. 59) Applicant completed his high school education in June 1994. (GE 2) He enrolled in a vocational class program in 2015 and has been taking classes. (GE 2) He reported no post-high school degree or diploma. (GE 2) Applicant enlisted in the U.S. Marine Corps in December 1994 and served five years of active duty. (GEs 1-2) He received an honorable discharge in December 1999. Applicant has worked for his current employer since March 2014. (GEs 1-2) Between October 2005 and August 2013, he worked for another defense contractor as an IT specialist. (GE 1) Applicant’s finances Applicant presented with some history of financial difficulties. Records document he ran up considerable pre-marital credit card debt and petitioned for Chapter 7 bankruptcy protection in January 1997. (GE 5; Tr. 61) He received a bankruptcy discharge in May 1997. The trustee reported no assets for distribution to the creditors. (GE 5) Between 2010 and 2012, Applicant failed to timely file his 2010-2012 federal and state income tax returns. (GE 2 and AE B; Tr. 26-28) He attributed his filing failures to excessive travel that created strains in his marriage. (GE 2) Applicant received refunds from the Internal Revenue Service (IRS) on his late-filed tax returns for tax years 2010- 2012. (AEs A-D) He resolved his late filing of his 2010-2012 federal and state tax returns prior to his receipt of the SOR in October 2016. (AEs A-D) Applicant documented his timely filing of 2013-2015 federal and state tax returns with granted extensions. Transcripts of his returns for these years reveal no owed taxes for these tax years. (AEs E-G; Tr. 26-28, 37) His furnished documentation confirmed that he owed taxes only for tax year 2015. (AE G; Tr. 29) In 2008, Applicant and his wife purchased a home following Applicant’s promotion with increased monthly income. (GEs 3-4) They purchased the home for $408,000, which included an $8,000 Veterans Administration (VA) funding fee. They financed the entire purchase price with a first home mortgage which called for monthly payments of $2,400. (Tr. 54-55, 63) By 2009, they found that the scheduled payments on the home they purchased were more than they could afford and ceased making payments. (GE 2; Tr. 55-56) Later in 2009, they sought a loan modification from the lender. Under the terms of the loan modification, their monthly mortgage payments increased to $2,700. (GE 2; Tr. 57) Finding these revised loan payments to be more than they could handle, Applicant and his wife sought a second loan modification from their lender in or about 2010 (exact date not recalled). (GE 2) The new loan modification they obtained increased their 3 payments to $3,000 a month. (Tr. 56) Applicant was able to make these new payments for a few months before deciding they were too much for his budget and ceased making payments. (GEs 2-4; Tr. 56-57) Thereafter, Applicant moved out of the house and in with his parents. (GE 2; Tr. 57) In turn, he alerted the lender of his actions while he attempted to obtain lender approval for a short sale. (GE 2; Tr. 30-31) In August 2014, the lender foreclosed its first mortgage covering Applicant’s home. (GEs 2-4; Tr. 31) Records confirm that the property was sold at public auction for $360,000, leaving a shortfall of almost $50,000. (GE 2) Applicant received no post-sale deficiency demands from the lender, and he bears no post-foreclosure liability. (GEs 2-4; Tr. 31) Besides the delinquencies Applicant incurred on his home mortgage before the loan went into foreclosure in 2014, Applicant accrued two small delinquent consumer debts: one (SOR debt ¶ 1.d) for $362 owed on a car loan and another (SOR debt ¶ 1.e) for $75 owed to a jewelry retailer. (GEs 2-4) Applicant assured that these two small debts have been resolved and no longer appear on his credit report. (AE H; Tr. 31-32) His assurances are accepted. Currently, Applicant and his wife live within their means, utilize a budget, and pay their credit cards on time. (AE H) Applicant’s wife has a pension, and Applicant has a 401(k) retirement account that he regularly contributes to. (Tr. 60) The account currently has an $18,000 balance. Endorsements Applicant’s cybersecurity manager credited Applicant with demonstrated reliability, trustworthiness, and good judgment in his dealings with him. (AE I) His training system support manager similarly praised him for his exhibited outstanding work ethic, dedication, professionalism, ability to perform, and security trustworthiness. (AE F) He stressed Applicant’s tireless efforts in upgrading his company’s computer system to the latest security requirements. (AE F; Tr. 70-72) Both of Applicant’s managers acknowledged their awareness of Applicant’s past financial difficulties and his plans to resolve them. (AE F; Tr. 73-74) Co-workers who have worked with Applicant for many years and are familiar with his financial history hold him in high regard..They characterize him as a reliable and trustworthy professional who performs beyond the call of duty. (AE F; 78-80) P o l i c i e s The SEAD 4 lists new AGs to be used by administrative judges in the decision- making process covering security clearance cases. These guidelines take into account factors that could create a potential conflict of interest for the individual applicant, as well as considerations that could affect the individual’s reliability, trustworthiness, and ability to protect classified information. These guidelines include conditions that could raise a security concern and may be disqualifying” (disqualifying conditions), if any, and many of the conditions that could mitigate security concerns. These guidelines must be considered 4 before deciding whether or not a security clearance should be granted, continued, or denied. The guidelines do not require administrative judges to place exclusive reliance on the enumerated disqualifying and mitigating conditions in the guidelines in arriving at a decision. Each of the guidelines is to be evaluated in the context of the whole person in accordance with SEAD 4, App. A, ¶ (2)(c). In addition to the relevant AGs, administrative judges must take into account the pertinent considerations for assessing extenuation and mitigation set forth in SEAD 4, App. A, ¶ 2(a) of the AGs. These AGs are intended to assist the judges in reaching a fair and impartial commonsense decision based upon a careful consideration of the pertinent guidelines within the context of the whole person. The adjudicative process is designed to examine a sufficient period of an applicant’s life to enable predictive judgments to be made about whether the applicant is an acceptable security risk. See SEAD 4, App. A, ¶ 2(d) The following AG ¶ 2(d) factors are pertinent: (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 chances; (7) the motivation for the conduct; (8) the potential for pressure, coercion, exploitation, or duress; and (9) the likelihood of continuation or recurrence. Viewing the issues raised and evidence as a whole, the following individual guidelines are pertinent in this case: Financial Considerations The Concern: Failure 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 greater risk of having to engage in illegal or otherwise questionable acts to generate funds . . . AG ¶ 18. Burden of Proof By virtue of the principles and policies framed by the guidelines, a decision to grant or continue an applicant's security clearance may be made only upon a threshold finding that to do so is clearly consistent with the national interest. Because the Directive requires administrative judges to make a commonsense appraisal of the evidence accumulated in the record, the ultimate determination of an applicant's eligibility for a security clearance depends, in large part, on the relevance and materiality of that evidence. See United States, v. Gaudin, 515 U.S. 506, 509-511 (1995). 5 As with all adversarial proceedings, the judge may draw only those inferences which have a reasonable and logical basis from the evidence of record. Conversely, the judge cannot draw factual inferences that are grounded on speculation or conjecture. The Government's initial burden is twofold: (1) it must prove by substantial evidence any controverted facts alleged in the SOR, and (2) it must demonstrate that the facts proven have a material bearing to the applicant's eligibility to obtain or maintain a security clearance. The required materiality showing, however, does not require the Government to affirmatively demonstrate that the applicant has actually mishandled or abused classified information before it can deny or revoke a security clearance. Rather, the judge must consider and weigh the cognizable risks that an applicant may deliberately or inadvertently fail to safeguard classified information. Once the Government meets its initial burden of proof of establishing admitted or controverted facts, the evidentiary burden shifts to the applicant for the purpose of establishing his or her security worthiness through evidence of refutation, extenuation, or mitigation. Based on the requirement of Exec. Or. 10865 that all security clearances be clearly consistent with the national interest, the applicant has the ultimate burden of demonstrating his or her clearance eligibility. “[S]ecurity-clearance determinations should err, if they must, on the side of denials.” See Department of the Navy v. Egan, 484 U.S. 518, 531 (1988). Analysis Security concerns are raised over Applicant’s history of failing to file federal and state tax returns for tax years 2010 through 2012, and his accumulation of a delinquent mortgage and two small consumer debts exceeding $400,000. Applicant’s tax-filing lapses and incurred delinquent mortgage and consumer debts warrant the application of three of the disqualifying conditions (DC) of the guidelines: DC ¶ 19(a), “inability to satisfy debts,” DC ¶ 19(c), “a history of not meeting financial obligations,” and DC ¶ 19(f), “failure to file or fraudulently filing annual Federal, state, or local income tax returns or failure to pay annual Federal, state, or local income tax as required.” Holding a security clearance involves the exercise of important fiducial responsibilities, among which is the expectancy of consistent trust and candor. Financial stability in a person cleared to access classified information is required precisely to inspire trust and confidence in the holder of the clearance. While the principal concern of a clearance holder’s demonstrated financial difficulties is vulnerability to coercion and influence, judgment and trust concerns are also implicit in financial cases. While extenuating circumstances account for many of Applicant’s difficulties in obtaining workable mortgage payments with his lender that were compatible with his budget, they do not adequately explain his failures to timely file his federal and state tax returns. Taking into account all of the circumstances associated with his accumulated delinquent debts and late tax filings, Applicant’s circumstances merit only partial 6 application of MC ¶ 20(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, a death, divorce or separation, clear victimization by predatory lending practices, or identity theft), and the individual acted responsibly under the circumstances.” Applicant has since documented his filing of his federal and state tax returns for tax years 2010-2012. In all three instances, he received tax refunds. IRS transcripts for these tax years reveal IRS approvals of the voluntary returns he filed for these tax years in 2015. Further, he documented his timely filing of his federal and state tax returns for tax years 2013-2015. Applicant’s assurances of his having no exposure risks to any potential deficiency balance following the foreclosure of his first mortgage are fully supported by governing laws and judicial precedents in his state. Under his state’s organic law governing non- judicial foreclosures of residential properties, first mortgages and purchase-money mortgages are excepted from liability for deficiencies that result from non-judicial foreclosure sales. Section 580b of the state’s code of civil procedure prescribes that first mortgages and second mortgages devoted to financing the purchase of a residence in the state exclude any deficiency rights to creditors utilizing the state’s non-judicial foreclosure procedures. Cf. Roseleaf Corp. V. Chieroghino, 59 C. 2d 35, 39-42 (1963) From what is known from the record, Applicant’s home lender utilized non-judicial foreclosure procedures in its foreclosure of its first mortgage on Applicant’s residence. Based on Applicant’s produced tax transcripts for tax years 2010-2012, his developed evidence of paying his two small consumer debts, and his demonstrating his exception from any deficiency liability following the foreclosure of his first mortgage, Applicant has demonstrated good progress in resolving raised financial concerns. Application of MC ¶ 20(d), “the individual initiated and is adhering to a good-faith effort to repay overdue creditors or otherwise resolve debts,” and MC ¶ 20(g), “the individual has made arrangements with the appropriate tax authority to file or pay the amount owed and is in compliance with those arrangements,” are fully available to Applicant. To be sure, the timing of filing of federal and state tax returns in DOHA proceedings is critical to an assessment of an applicant’s trustworthiness, reliability, and good judgment in following rules and guidelines necessary for those seeking access to classified information. See ISCR Case No. 14-06808 at 3 (App. Bd. Nov. 23, 2016); ISCR Case No. 14-01894 at 5 (App. Bd. Aug. 18, 2015) Applicant’s tax filing corrections and debt repayment actions on those listed debts for which he was liable enable him to meet the Appeal Board’s requirements for demonstrating financial stability. ISCR Case No. 07-06482 (App. Bd. May 21 2008); see ISCR Case No. 05-11366 at 4 n.9 (App. Bd. Jan. 12, 2007)(citing ISCR Case No. 99-0462 at 4 (App. Bd. May 25, 2000)); ISCR Case No. 99-0012 at 4 (App. Bd. Dec. 1, 1999). From a whole-person standpoint, Applicant’s attention to filing his late federal and state tax returns for tax years 2010-2012 and timely filing of his federal and state 7 2013-2015 tax returns and payment of the only two delinquent debts he was liable for reflect positive initiatives undertaken by Applicant to restore his finances to stable levels. His corrective efforts reflect positively on his willingness to satisfy IRS and state filing and payment rules and regulations and his only two remaining debts. The favorable impressions Applicant has forged with his managers and coworkers are notable and worthy of recognition and praise. They reinforce the positive displays of judgment Applicant has demonstrated in undertaking the corrective actions he has taken with his tax returns to bring him into compliance with IRS and state tax filing rules and regulations. His collective tax filing actions to date help Applicant to establish a meaningful track record for filing and paying his filing and consumer debt obligations. See ISCR case No. 07-06482 at 2-3 (App. Bd. May 21, 2008)(internal citations omitted). Considering all of the circumstances surrounding Applicant’s corrective tax filing efforts, his avoidance of any deficiency liability relative to the foreclosure of his first mortgage, and the payments on his only two listed consumer debts, his actions to date in addressing his finances are sufficient to meet mitigation requirements imposed by the guideline governing financial considerations. No different conclusions would result under the AGs in place prior to June 8, 2017. Favorable conclusions are warranted with respect to the allegations covered by subparagraphs 1.a-1.e of Guideline F. Formal Findings In reviewing the allegations of the SOR and ensuing conclusions reached in the context of the findings of fact, conclusions, conditions, and the factors listed above, I make the following formal findings: GUIDELINE F (FINANCIAL CONSIDERATIONS): FOR APPLICANT Subparas. 1.a-1.e: For Applicant Conclusio n s In light of all the circumstances presented by the record in this case, it is clearly consistent with the national interest to grant or continue Applicant’s security clearance. Clearance is granted. Roger C. Wesley Administrative Judge 8 9 10