1 DEPARTMENT OF DEFENSE DEFENSE OFFICE OF HEARINGS AND APPEALS In the matter of: ) ) ) ISCR Case No. 16-00059 ) Applicant for Security Clearance ) Appearances For Government: Eric Borgstrom, 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. Eligibility for access to classified information is denied. Statement of the Case On August 17, 2016, the Department of Defense Consolidated Adjudications Facility (DOD CAF) 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 (AG) effective within the DOD on September 1, 2006. On June 8, 2017, new AG were implemented and are effective for decisions issued after that date.1 1 I considered the previous AG, effective September 1, 2006, as well as the new AG, effective June 8, 2017. My decision would be the same if the case was considered under the previous AG. 2 Applicant answered the SOR on September 10, 2016, and elected to have his case decided on the written record in lieu of a hearing. Department Counsel submitted the Government’s file of relevant material (FORM). Applicant received it on October 31, 2016. He was afforded an opportunity to file objections and submit material in refutation, extenuation, or mitigation within 30 days of receipt of the FORM. The Government’s evidence is identified as Items 1 through 9. Applicant responded to the FORM, did not object to the Government’s evidence, and submitted documents marked as Applicant Exhibits (AE) A through H.2 The case was assigned to me on August 23, 2017. Findings of Fact Applicant admitted all the allegations in the SOR. After a thorough and careful review of the pleadings and exhibits submitted, I make the following findings of fact. Applicant is 44 years old. He completed a bachelor’s degree in 1996 and a master’s degree in 2008. He married in 1999 and has three children ages 15, 14, and 10. He disclosed a three-month period of unemployment in 2003 and a one-month period of unemployment in 2006, but otherwise has been steadily employed. He has worked for his current employer, a federal contractor since January 2012.3 In 2003, Applicant had debts discharged through Chapter 7 bankruptcy. The amount of liabilities claimed was $117,586. On Applicant’s May 2004 security clearance application, he lists the amount of his Chapter 7 discharge as $60,114.4 Applicant explained the reason for the bankruptcy was because he, his wife, and his mother-in- law, who was living with them at the time, lost their jobs within weeks of each other. His wife was six months pregnant at the time.5 Applicant and his wife owned and lived in House A from December 1999 until September 2014. They purchased House B, where they currently reside, in October 2014, for approximately $216,000. In Applicant’s SOR answer and during his background interview with a government investigator in October 2015, he explained that the location of House A became undesirable and unsafe. Applicant was advised by his attorney to stop paying the mortgage on House A, which would force the mortgagor to “short sale” the house. Based on his October 2016 credit report, he stopped paying the mortgage on House A in March 2015. The house failed to sell, and it was foreclosed in March 2016 and sold at auction. The defaulted mortgage is alleged in SOR ¶ 1.a ($76,345) as a charged off debt.6 2 Several of the documents have multiple pages. 3 Item 3. 4 Item 4 page 8. 5 Items 2, 3, 9; AE B. 6 Items 2, 5, 6, 9. 3 In Applicant’s FORM response, he stated from October 2015 to May 2016, he attempted to sell House A. He stated that he spoke with his attorney who advised him that in order “to engage the bank for a short sale we had to stop making the payments on the property.”7 The real estate listing shows the house was placed for sale in June 2015.8 Applicant stated in his FORM response that while waiting on a potential buyer he could no longer afford House A. Applicant had already purchased and moved into House B when he stopped paying the mortgage on House A in March 2015. He indicated he was paying the taxes and municipal fees on the property. Applicant’s October 2016 credit report reflects a charged off mortgage balance of $30,811. Applicant stated in his SOR answer and FORM response that he anticipated receiving a tax document regarding the debt. One was not provided.9 Applicant told the investigator that in April 2015 he turned all of his credit card debt over to his attorney, whose firm is a “debt relief law firm.” They would negotiate settlements with all of Applicant’s creditors. In his SOR answer, he stated that his attorney told him that his current creditors would likely raise his interest rates, presumably after the defaulted mortgage. The attorney outlined a “negotiation strategy which would close out the accounts and negotiate to pay outstanding [principal] balances.”10 Applicant provided a copy of the Debt Negotiation Service Agreement [DNSA] which he signed on March 5, 2015. Applicant lists 15 credit cards, loans, and consumer debts, totaling approximately $62,635. The debts alleged in SOR ¶¶ 1.b through 1.g are included in the list. The mortgage debt in SOR ¶ 1.a is not. Applicant’s December 2014 credit report shows all of his debts are being paid “as agreed.” His December 2015 and October 2016 credit reports show Applicant last made payments on the debts alleged in the SOR in March 2015 or April 2015. Applicant stopped paying his legitimate debts, and they were subsequently included in his settlement plan.11 The DNSA settlement plan does not make monthly payments to Applicant’s creditors. It states: 7. Settlement fees [Law Firm] employs many different strategies while negotiating with your creditors. Some strategies include settling debts early to avoid lawsuits. Other strategies include, but are not limited to, waiting patiently for debts to exceed the Statute of Limitations. Our goal is to use your funds in such a manner to secure optimum strategy of your specific needs.” 7 AE B. 8 AE F. 9 Items 2, 5, 6, 7, 9; AE B, C, D, E, F. 10 Items 2, 9; AE B. 11 AE B, C, D, E. 4 A fee in an amount equal to twenty-five percent (25%) of the difference between the confirmed creditors claim and the settlement amount shall be paid to [Law Firm] in any of the following circumstances: A. A settlement is reached with a creditor consummated by client or Firm. B. A debt is deemed uncollectible by Firm when the Statute of Limitations passes due to the Firms efforts. C. A debt is deemed uncollectible by Firm due to cancellation of debt and issuance of a 1099 by a creditor. D. A debt is deemed uncollectible by the court. E. A debt is deemed uncollectible by Firm due to any other relevant circumstances or basis under law. A settlement amount when a debt is deemed uncollectible for any of the reasons above shall be Zero Dollars ($0.00). Settlement fees are due and payable upon settlement. These fees are already included in your anticipated settlement amount and as such are part of your regular monthly payment. 8. Cancelation of Debt Client understands they may receive a 1099-C issued by the creditor for completed settlements or cancelation of debt. When a 1099-C is received, the client agrees to notify and send a copy to [Law Firm] immediately. However client understands they may be required to pay tax on the amount they saved based on the current balance at the time of settlement or cancelation of debt.12 Applicant’s December 2015 and October 2016 credit reports show he obtained a $16,000 unsecured loan in December 2014 and stopped paying it in February 2015. His October 2016 credit report shows a past-due balance on the loan of $1,318. This debt is listed in his negotiated settlement agreement with a balance of $15,570. It is not paid.13 The terms of Applicant’s DNSA require him to pay $925 monthly. He provided supporting documents to show he began these payments in March 2015, and has consistently made them through October 2016.14 A letter from the law firm dated 12 AE E. 13 Items 5, 6, 7; AE C, D, E. Any information that is not alleged in the SOR will not be considered for disqualifying purposes, but may be considered when making a credibility determination, in mitigation, and in the whole-person analysis. 14 AE D. 5 November 2016 lists the 15 accounts that it is servicing. It stated the account in SOR ¶ 1.f ($1,904) was settled. The remaining SOR debts remain open and unresolved.15 Applicant stated in his FORM response that his annual salary is $180,000, and his net monthly pay after taxes and other withholdings is $10,160. After he pays his monthly expenses, including the DSNA payment, he has approximately $2,350 in expendable income that he is saving for future expenses. Applicant provided a copy of a budget. His October 2016 credit report shows he opened an automobile loan in April 2016 for approximately $45,215. His monthly payments are $861; the current balance is $43,126; and his payments are current.16 Applicant stated in his FORM response that he received financial counseling through his attorney’s law firm on the use of credit, and his budgeting has focused on savings and using credit to repair his credit rating. Applicant provided copies of employment awards he received. He stated he works on critical projects and that his work is valued by his employer. He stated that his family is “on the best financial plan for at least the past decade.” He stated, “Working with and taking counseling from the [law firm] has shown me how to avoid falling into a future pattern of debt.”17 Policies When evaluating an applicant’s suitability for a security clearance, the administrative judge must consider the AG. In addition to brief introductory explanations for each guideline, the AG 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 national security eligibility will be resolved in favor of the national security.” In reaching this decision, I have drawn only those conclusions that are reasonable, logical, and based on the 15 AE C, D, E. 16 Item 5; AE B. 17 AE B. 6 evidence contained in the record. Likewise, I have avoided drawing inferences grounded on mere speculation or conjecture. Under Directive ¶ E3.1.14, the Government must present evidence to establish controverted facts alleged in the SOR. Directive ¶ E3.1.15 states that 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 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 or sensitive information. Financial distress can also be caused or exacerbated by, and thus can be a possible indicator of, other issues of personnel security concern such as excessive gambling mental health conditions, substance misuse, or alcohol abuse or dependence. An individual who is financially overextended is at greater risk of having to engage in illegal or otherwise questionable acts to generate funds. Affluence that cannot be explained by known sources of income is also a security concern insofar as it may result from criminal activity, including espionage. 7 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 handling and safeguarding classified information. AG ¶ 19 provides conditions that could raise security concerns. The following are potentially applicable: (a) inability to satisfy debts; (b) unwillingness to satisfy debts regardless of the ability to do so; and (c) a history of not meeting financial obligations. Applicant had over $60,000 in debts discharged through Chapter 7 bankruptcy in 2003. He participated in a strategic default on the mortgage owed on House A to force the mortgage lender to short sale the house, which failed. The mortgage on House A was foreclosed. A deficiency balance remains. Applicant intentionally defaulted on his credit cards, consumer accounts, and loans, so the creditors would negotiate settlements with the law firm he hired to resolve his debts. One SOR debt was settled. The others remain delinquent. Sufficient evidence was presented to conclude Applicant has a history of not meeting his financial obligations. In addition, sufficient evidence documents his unwillingness to satisfy debts regardless of his ability to do so. Applicant mentioned in his FORM response that he could not afford to pay the mortgage on House A. I did not find this statement credible because he had already purchased House B when he decided to stop making the mortgage payments on House A. He was working full time. He failed to provide sufficient evidence to conclude he was unable to meet his financial obligations. I find AG ¶ 19(a) does not apply. I find AG ¶¶ 19(b) and 19(c) apply. 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, a death, divorce or separation, clear victimization by predatory lending practices, or identity theft), and the individual acted responsibly under the circumstances; 8 (c) the individual has received or is receiving financial counseling for the problem from a legitimate and credible source, such as a non-profit credit counseling service, and there are clear indications that the problem is being resolved or is under control; and (d) the individual initiated and is adhering to a good-faith effort to repay overdue creditors or otherwise resolve debts. Applicant admitted all of the delinquent debts alleged in the SOR. In 2014, he made a decision to stop paying his mortgage on House A because he no longer wanted to live there. He was advised that defaulting on the mortgage would force the lender to foreclose and short sale the house, which it did. After the property failed to sell, it was auctioned off. Applicant has not resolved the deficiency balance owed on House A. He was paying all other debts, but stopped in March and April 2015, and turned them over to his attorney to negotiate settlements. There is insufficient evidence that Applicant was unable to pay the debts, but rather the evidence indicates that he did not want to pay the interest on them. The tactics used by the law firm specifically stated that it will use different strategies when negotiating with creditors, which could include waiting until the statute of limitations run. Applicant’s intentional failure to pay his just debts and potentially force creditors to negotiate settlements casts doubt on his current reliability, trustworthiness and good judgment. AG ¶ 20(a) does not apply. Applicant did not provide sufficient evidence that he was unable to pay legitimate debts. Rather, the evidence shows that he is unwilling to pay creditors, except through a negotiated settlement agreement. His DSNA contract states it could wait until the statute of limitations runs, meaning that he will not be legally responsible to pay his debt after the passage of time. The evidence shows that only one of the SOR debts has been settled. The status of the other SOR-alleged debts is unknown. Numerous debts included in the DSNA are not alleged in the SOR. Applicant has been working for his present employer since 2012, and he disclosed his annual salary is approximately $180,000. AG ¶ 20(b) does not apply because Applicant’s financial problems were not beyond his control, and he has failed to act responsibly in paying his debts. Applicant stated that he received financial and credit counseling through his attorney’s law firm. Although he is making consistent monthly payments through the DSNA, I cannot find that his financial problem is being resolved or is under control. He has intentionally reneged on legal agreements he made with his creditors. He can afford to pay his creditors, but he has chosen to force them to negotiate a settlement for less money than he legally owes. I cannot find he is making a good-faith effort to repay overdue creditors. To the contrary, he has taken out credit cards and loans, and then refuses to comply with the terms of his agreements and pay what he owes. He may not like to pay interest and can avoid it by paying the total balance owed each month. Instead, he used the credit card and loan companies’ money and then refused to repay it in accordance with its terms. Of particular concern is the $16,000 unsecured loan he obtained in December 2014, defaulted on in February 2015, and then included it in the DSNA to be settled through negotiation. Applicant stated that he expected to receive a 9 tax document regarding his defaulted mortgage debt. Issuance of a cancelation of debt is the prerogative of the creditor. Even if he received one, it does not mean that he paid the amount owed to the creditor, but rather his actions have a tax consequence. AG ¶¶ 20(c) and 20(d) do 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(d): (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 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(d) were addressed under that guideline, but some warrant additional comment. Applicant is 44 years old. He has a history of not resolving debts. In 2003, he had debts discharged through bankruptcy. In 2014, he made a decision to stop paying his mortgage on House A to force the mortgage lender to short sale the house. During this process he had purchased House B. House A was eventually sold at auction, and there is no evidence that he paid or resolved the deficiency balance owed. Applicant has also decided to stop paying credit cards, consumer accounts, and loans in accordance with original contractual terms. Instead, he entered into an agreement with a law firm to negotiate settlements for less than he owed. Applicant has a high paying job and offered no evidence that he has been unable to pay his creditors. While the employment of a debt repair company is a legal option, and in some instances provides a reasonable method for resolving debts, Applicant’s overall methods for debt management raise serious concerns about his reliability, trustworthiness, and good judgment. The record evidence leaves me with serious 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. 10 Formal Findings Formal findings for or against Applicant on the allegations set forth in the SOR, as required by ¶ E3.1.25 of Enclosure 3 of the Directive, are: Paragraph 1, Guideline F: AGAINST APPLICANT Subparagraphs 1.a-1.l: Against Applicant 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