DATE: May 31, 2002
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SSN: -----------
Applicant for Security Clearance
APPEARANCES
FOR GOVERNMENT
William S. Fields, Department Counsel
FOR APPLICANT
Arnold S. Schickler, Esq.
SYNOPSIS
While associated as the president and CEO of a defense contractor (Company A), Applicant was indicted (along with the defense contractor and other officers) for inflating labor claims on terminated subcontracts to be reimbursed. Applicant and the other defendants were also made defendants in a number of civil suits arising out of the same conduct covered in the indictment. By virtue of a global settlement reached in June 1998 between the Government and the defendants, Company A (a company of about 800 employees) pleaded guilty to one count of violating 18 U.S.C. Sec. 1001 (a felony) and agreed to pay a fine, reimburse the Government for the costs of its investigation and settle the civil claims with a $6.5 million payment. The criminal charges and civil claims against Applicant and the other individual defendants were, in turn, dismissed with prejudice. The settlement agreement didn't foreclose the AF from processing debarment and suspension actions, which it did (for five years ending in December 1998). Neither Applicant nor any of his fellow defendants were found by the AF's inspector general to have been implicated in any wrongdoing associated with the acts covered by the indictment and civil suits.
Based on the reports of the company insurance carriers disbursing reimbursement checks to discharge the agreed claims in the global settlement, no acts of wrongdoing can be attributed to Applicant or any of the other covered members of Company A's director and officer insurance policies. No active involvement or culpable knowledge can be attributed either to Applicant arising out of the subject matter covered in the indictment and the civil suits based on a thorough review of the entire record presented. Applicant brings a reputation suffused with deep trust-based associations with the Government in highly classified projects involving time and frequency controls and other critical technology associated with the Government's missile and satellite programs. Trustworthiness endorsements of Applicant come from company colleagues, representatives of both Government and private customers, and the former prosecuting US Attorney.
Company A demonstrates considerable rehabilitation as an active Government contractor. Not only has Company A continued to accept work on DoD contracts under waivers since the issuance of the indictments, but it has since returned to regular Government contracting, all indicative of the company's rehabilitation. Considering all of the evidence in the record, Applicant exhibits himself to be reliable and trustworthy and free of any implicated wrongdoing in any of his company's concluded criminal and civil actions. Clearance is granted.
On October 2, 2001, the Defense Office of Hearings and Appeals (DOHA), pursuant to Executive Order 10865 and Department of Defense Directive 5220.6 (Directive), dated January 2, 1992, issued a Statement of Reasons (SOR) to Applicant, which detailed reasons why DOHA could not make the preliminary affirmative finding under the Directive that it is clearly consistent with the national interest to grant or continue a security clearance for Applicant, and recommended referral to an administrative judge to determine whether clearance should be granted, continued, denied or revoked.
Applicant responded to the SOR on October 16, 2001, and requested a hearing. The case was assigned to this Administrative Judge on December 18, 2001, and on January 3, 2002, was scheduled for hearing. A hearing was convened on February 7, 2002, for the purpose of considering whether it would be clearly consistent with the national interest to grant, continue, deny or revoke Applicant's security clearance. At hearing, the Government's case consisted of four exhibits; Applicant relied on three witnesses (including himself) and twenty-eight exhibits. The transcript (R.T.) of the proceedings was received on February 15, 2002.
During the hearing, Government moved to amend sub-paragraph 1.d of the SOR to delete Applicant and the other Company A officers as individuals debarred by the AF in October 1998 and, as such, conform to the evidence. There being no objections from Applicant, and good cause being demonstrated the amendment motion was granted. Applicant, in turn, amended his answer to deny his ever being formally debarred by the AF.
Prior to the close of the hearing, Applicant requested leave for the record to be kept open to permit him the opportunity to supplement the record. There being no objections, and good cause being shown, Applicant was granted an additional seven (7) days in which to supplement the record. Government was granted three (3) days to respond. Within the time permitted, Applicant supplemented the record with a resume of a Mr. E, Company A cost estimates at termination of its sub-contract with Company B, Company A's annual reports for the years 1989 through1994, an October 1, 1994 memorandum from Company B's subcontract manager and a November 27, 1995 deposition of Company B's subcontractor manager. Government's offering no objections to these submitted exhibits, and good cause being shown, Applicant's submissions are admitted as exhibits DD through HH.
Applicant is a 66-year old founder, former president and chief executive officer of his defense contractor (Company A) who seeks restoration of his security clearance.
Summary of Allegations and Responses
Applicant is alleged to have been at all times relevant an employee and officer (founder, president and chief executive officer) of Company A since approximately November 1961, and president and chief executive officer of the company when a Government investigation was initiated in late 1989, following reported allegations that he and other employee/officers of Company A caused labor records to be falsified to support inflated claims on terminated sub-contracts, for which he was to be reimbursed. Allegations ensue that these investigated claims resulted in significant Government losses in the amount of at least $12 million dollars. Applicant's Company A, himself and others are further alleged to have been indicted in November 1993 by a grand jury, after which he was arrested and released on bond. The indictment allegedly charged defendants (including Applicant) with conspiracy to defraud the Government, four counts of major fraud against the Government, and 13 counts of false statements to the Government, all violations of Title 18 of the US Code. Allegedly, a superceding indictment issued in April 1994, adding another count. Allegedly, a plea agreement was entered into in June 1998, wherein Company A entered a guilty plea for violation of one count of 18 U.S.C. Sec. 1001 (false statements), a class C felony. For its guilty plea (according to the SOR allegations), Company A was fined in the amount of $400,000.00, assessed a statutory penalty of $200.00, and required to reimburse the Government for its cost of litigation in the amount of $1.1 million, and pay the sum of $6,500,000.00 to settle other civil actions. Applicant and the other named defendants in the indictment were allegedly dismissed with prejudice.
Additionally, the SOR alleges Company A, Applicant and the other named defendants were suspended in December 1993 from doing business on Government contracts with the AF, following their indictment the previous month, in addition to having their security clearances suspended in March 1994.
Alleged indictment-related civil complaints brought against Applicant, Company A and other officers of the company include one filed in July 1995 by the Government claiming Company A submissions of false claims on Navy and AF contracts and ensuing damages attributable to these false claims, and two other civil suits pending against him and/or Company A that had not been been resolved.
And Applicant, along with Company A and two other officers in the company's employ, were allegedly debarred by the AF in October 1998 from doing business on Government contracts for a period of five years: the period of debarment was retroactive (to December 1993) and thus expired in December 1998.
For his response to the SOR, Applicant admitted to (a) the alleged indictments of Company A and the named officers in 1993, (b) suspension of Company A and the four named officers by the AF from doing business on Government contracts with it, and (c) suspension of his own security clearance in March 1994. He admitted, too, to the various civil suits being filed against Company A, himself and other officers (inclusive of the Government's suit, a qui tam action (the G action), and stockholder derivative actions), all of which he claims were dismissed, either independently as to himself, or later as a condition of the global settlement. He admitted to being debarred by the AF in October 1998. Applicant denied, however, engaging in conduct involving questionable judgment, untrustworthiness, unreliability, lack of candor, or unwillingness to comply with rules and regulations that could indicate that he could not properly safeguard classified information. He denied
that any of the indictments or suits filed against him constituted evidence that he could not be trusted to safeguard classified litigation
Applicant claims mitigation in his answer as well: He adds numerous claims about his influential executive role as a CEO and chief scientist in guiding Company A (a leading sole source provider of precision quartz and atomic timing systems for virtually all of the Country's satellites and space probes) over the past two decades. While claiming never to have improperly safeguarded classified information, he disclaims any wrongdoing or responsibility for the Global Settlement Stipulation and cites to provisions in the Global Settlement that confirm the absence of any finding of wrongdoing by Applicant and the other dismissed defendants: a principal inducement for his accepting Company A's claimed cost-benefit rationale for buying Company A's peace with a plea agreement with the Government.
Relevant and material factual findings
The allegations covered in the SOR and admitted to by Applicant are incorporated herein by reference adopted as relevant and material findings. Additional findings follow.
Born in Poland and a survivor of the holocaust, Applicant emigrated to the US in the fifties where he became a naturalized US citizen and completed his undergraduate and graduate training in the sciences: engineering, physics and mechanics. The founder of Company A, Applicant has delivered over 200 lectures on the subject of frequency and time control to Government agencies and is a nationally recognized expert in the field of time and frequency controls for missiles and satellite designs, holding a numerous patents himself (see R.T., at 73-75). Through his corporate leadership and scientific capabilities, he is credited with a vital role in Company A's rise to its prominent status as a sole source supplier of critical technology for the Government. Often a sole source contractor, Company A provided precision quartz and atomic timing systems for virtually all of the Country's satellites and space probes (including over a 100 successful space launches). Its technology contributions to the defense/space effort include the whole range of logistic support: over 15,000 instruments and systems delivered to the field or to missile system clocks and satellite timing devices (see corroborating exs. R through T).
In his long stewardship of Company A, Applicant has stressed the company's integral technology for the Country's space launches, for which the company was recognized with over 50 awards and letters of recognition. As his company's president and CEO, Applicant placed prime emphasis on the ethic of getting the job done within budget (R.T., at 84-85, 88-89). He is credited with being personally responsible for much of the architecture and design of Company A's many produced systems in secured communications, weapon delivery and surveillance (see R.T., at 79-80). Accounting systems in place oft-tracked programs already initiated for the Government on short notice: illustrative of company mission priority (see R.T., at 84-86). Applicant's management responsibilities, however, did not include his direct overseeing of bids, work order preparations, labor time claims, or anything related to the administration of Company A's contracts and sub-contracts with the company's customers (see R.T., at 139-40). The employee completing the subject Form 1435 reported to the program manager, who, in turn, reported to Applicant (see R.T., at 140).
From 1988 through the present, Company A was a company principally devoted to the business of manufacturing certain electronic devices for end use by the US in its satellite and NASA space exploration programs: From its inception, it has delivered close to $800 million worth of quality business for the Government (see R.T., at 76-77). Company A was known as the principal supplier of precision quartz and atomic timing systems for US satellites and space probes. Company A also produced its technology for an essential part of many military missile communications and satellite systems, including missile system clocks, for DoD. During Applicant's tenure as Company A's president and CEO, he has been his company's chief scientist and guiding force of his company's rise to technological prominence in the classified world of missiles, satellites and deep space exploration. In recognition of its efforts and achievements, Company A has received numerous awards and letters of appreciation from its Government customers.
DoD investigation of Company A
Following up on reports of Company A's overcharging of DoD on the former's numerous Government sub-contracts with Company B, three front-line investigative agencies (viz., Air force Office of Special Investigations (AFOSI), the Naval Criminal Investigative Service (NCIS) and the FBI initiated a joint investigation in December 1989. Investigation disclosed that Company A (a company of around 800 employees at the time) had overcharged DoD on the subcontracts Company A had with Company B, in addition to tendering defective pricing to DoD on several advanced missile contracts and certain standards contracts (see ex. 3).
As a part of the joint investigation, search warrants were issued covering all aspects of the terminated subcontracts at issue. Contemporaneously with the issuance of these warrants, current and former interfacing employees of Company B and the other concerned prime contractors, in addition to sub-contract personnel of the other programs Company A was involved in, were interviewed by agents of the AF's inspector general.
A grand jury was impaneled in 1989 to investigate overcharges submitted by Company A and its officers (inclusive of Applicant) on its sub-contracts with Company B, as well as on its missile program and cesium standards contracts.
Returned indictments, suspensions and suits against Company A and its officers
As the result of the joint investigation, Company A and four of its principals were indicted on 18 counts, including major fraud claims. When the indictment was issued, Government also filed a civil complaint requesting damages based on the acts contained in the indictment. A superceding indictment was, in turn, filed in June 1994, which added a count to the original counts, which were incorporated anew.
The indictment and superceding indictment charged Company A, Applicant and other Company A officers, including its president and program manager, with one count of conspiracy to defraud the Government by obtaining the payment of false, fictitious and fraudulent claims, four
counts of major fraud against the Government, and thirteen counts of false statements to the Government, in violation of 18 U.S.C. Sec. 1001.
Following the issued indictments against Company A and the other defendants, the AF suspended (in December 1993) Company A and the other indicted officers/employees (Applicant included) from doing business on Government contracts (see ex. 4). In March 1994, Applicant's DoD security clearance was also suspended by the AF. Several meetings and discussions ensued between the AF and Company A to see if an agreement could be reached to terminate the suspensions, but to no avail due to ongoing AF concerns (ex. 4). Company A went to court to seek a preliminary injunction and declaratory relief re: the AF's suspension of the indicted defendants from doing business with the AF. The district court, however, upheld the suspension, citing in a lengthy opinion the security needs of the AF in maintaining the suspension pending the outcome of the indictments (see ex. 3). The district court granted summary judgment in the AF's favor in 1997.
Civil suits initiated against Company A and its officers/employees
While the criminal indictments were still pending, the Government filed (in July 1995) a civil complaint against Company A and other officers and employees of the company (Applicant included), claiming Company A, aided by the other named defendants, submitted false claims on Navy and AF contracts covering a classified missile program over a five-year period spanning 1988 to 1993. According to the Government's complaint filed in November 1993, the defendants falsely stated production costs and submitted false claims and statements concerning Company A's estimated costs (primarily labor costs) related to the manufacture and sale of electronic components and devices utilized in space satellites. By submitting inflated estimated costs instead in connection with its terminated sub-contracts, the complaint claimed Company A, aided by the other named defendants, not only falsified its estimated project costs, but impaired any meaningful negotiations between the company, the prime contractor and the AF over the amount of cost reimbursement Company A was reasonably entitled to.
Other civil actions ensued against Company A, Applicant and other officers and employees of the company as an outgrowth of the criminal indictments. Two qui tam actions were filed against Company A and certain of the company's officers alleging fraud under the false claims act and related theories by plaintiffs 1 and 2. Only the 2 action named Applicant, however, as a defendant. Filed in October 1993, this action specifically claimed that the named defendants (Applicant included) created and utilized false cost data in order to justify Company A's cost estimates on bid packages submitted to contractors, which inflated the prices and fees Company A charged for replacing parts in identified classified space programs (see ex. Z-2). This case was stayed by the federal district court presiding over the action in April 1997, pending resolution of the criminal matter affecting some of the named civil defendants (see ex. B).
Besides the 2 action, stockholders of Company A filed derivative actions against the company and its officers and directors (Applicant included) seeking money damages for misconduct covered by criminal indictment of the same defendants in November 1993.
After receiving notice of the above civil complaints, Applicant and the other named defendants made claim for their defense and reimbursement if warranted under their D & O insurance policies (see exs. Y-1 and Z-1).
The global settlement agreement
In June 1998, Company A entered into a plea agreement with the Government: Under the plea agreement, Company A pleaded guilty to violating one count of 18 U.S.C. Sec. 1001 (a class C felony). Besides pleading guilty to a false claim count, Company A agreed to an order directing it to pay (a) a criminal fine in the amount of $400,000.00, plus a statutory assessment of $200.00, (b) payment of $1,100,000.00 in reimbursement of the cost of the Government's investigation, and (c) payment of separate sums of $5,000,000.00 and $1,500,000.00 to settle other civil actions: the Government's own civil fraud action and the certain qui tam action (the 2 action), in which the Government had intervened in, for a total of $6,500,000.00 in civil settlement payments.
The global settlement agreement also provided for dismissal of the indictments against Applicant and the other named defendants, but only after the terms and conditions imposed on Company A had been satisfied. The global settlement made no effort to disturb the AF's suspension and debarment actions against Company A and the dismissed defendants. This being said, the settlement agreement contains no incriminating admissions or acknowledgments by any of the dismissed defendants, Applicant included. The agreement concludes by affirming that "nothing in this agreement nor any payment made pursuant hereto constitutes evidence of an admission of liability by any person or entity and shall not be construed to be an admission by any person or entity with respect to any issue of law or fact," save for what is covered with respect to Company A's guilty plea (see plea agreement in ex. 3).
Following execution of the global agreement, the Government stipulated it had no intentions of instituting any other actions civil fraud actions against Company A (see ex. K), and has not.
Settlement of other civil complaints and reimbursement agreements
After notifying the carriers of the pending criminal and civil claims against them, Applicant and his fellow directors and officers of Company A, along with Company A, provided their insurance companies copies of all of the relevant pleadings, documents and information relative to the pending litigation, along with their associated claims for reimbursement. Others seeking indemnities (Applicant included) filed reimbursement claims against their carriers (X and Y, respectively). Amicable negotiations produced an overall settlement of filed claims against carrier X in November 1998, following the concluded global settlement with the Government and the other civil claims, that included full policy limits reimbursement from one carrier in the amount of $4.5 million for the coverage provided for the years spanning 1989 and 1990, and 1990 and 1991, respectively (see exs. 3, N-1/N2, and Y-2).
Negotiations with carrier Y over Company A's reimbursement claims were more protracted, though, and did not produce a settlement of the pending criminal and civil claims covering the two remaining years of coverage (spanning 1991 and 1993) until February 2001following initiated reimbursement suit against the carrier: $3 million for the covered 1991 to 1993 insured years (see exs. 3, N-1/N2 and Z-2). Each settlement (i.e., with both the X and Y carriers) was reciprocated by general releases and hold harmless commitments from each of the settling claimants (Applicant included) and dismissal of the suits against them.
Post-settlement debarment of Company A and individual officers
Because neither the global settlement agreement nor the district court's decision precluded the AF from initiating and maintaining debarment and suspensions (inclusive of security clearances) against Company A and its dismissed officers (inclusive of Applicant), the AF went forward with its debarment action, but limited its formal debarment to Company A only, while keeping its clearance suspensions in place for the duration of the debarment action.
In October 1998, the AF debarred Company A and suspended its four dismissed officers (inclusive of Applicant) from doing business on Government contracts for a period of five years (see ex. L). The period of debarment and suspension credited the affected parties with the period of contract suspensions already completed. As a result, the respective debarment and suspensions expired on December 12, 1998, as to all of the covered parties.
Evidence affecting Applicant's reliability and trustworthiness
The language of the global settlement agreement itself contains no incriminating or exonerating language that can either detract or aid a trustworthiness showing. Expressly contained in the agreement is a provision that none of the conditions or payments agreed to may be considered as evidence of guilt as to any of the individual defendants. DoD was afforded access to the Justice Department's evidence under the terms and conditions of the plea agreement, and did make some use of the plea agreement in crafting its own internal investigation (see ex.3). Inspector general reports produced as a part of Government's exhibit 3 provide really nothing incriminating as to Applicant or any of the other defendants, for that matter. Significantly, the inspector general's September 1998 report goes so far as to confirm that "No management control deficiencies were identified during the course of this investigation" (ex. 3, at 79).
Afforded an opportunity in the global settlement agreement for allocution, Company A's successor CEO at the time (Mr. C) described the history of the subcontracts at issue in the settled indictment claims. Under the terms of Company A's subcontract with Company B (the prime contractor), Company A was entitled to compensation for hours worked by Company A employees on a covered classified project, plus a percentage added to that amount representing overhead and general administrative costs. Mr. C went on to describe how Company A's program office submitted its reimbursement claims on a document referred to as "the form 1435" (ex. 3). Acknowledging that Company A knowingly and wilfully falsified the number of labor hours and costs it estimated in the Form 1435, Mr.C affirmed also that the Form 1435 misstatements were material, because they deprived the Government and Company B auditors from properly reviewing and negotiating Company A's reimbursement claim (see R.T., at 105).
At hearing, Mr. C elaborated on the inflated labor costs included in Company A's Form 1435 submission that was the subject of the indictments: Essentially, the classified contract specifically covered by the Form 1435 was one of many classified projects under sub-contract with Company B and the AF (compare exs. R, S and T). In the form submission (believed to have been executed by Company A's program manager), the Company's contract division pro rated a disproportionate number of hours from other contracts as a best estimate allocation on what was considered by Company A to be a fixed contract (compare ex. EE with R.T., at 143-45, 165), and to this extent inflated the actual number of hours devoted to the project covered by the Form 1435 under scrutiny. Because this mis-allocation hampered the auditing and negotiating abilities of the AF and Company B with respect to Company A's claims, it constituted a fraud on the Government (see R.T., at 143-45). Still, there is nothing incriminating to Applicant in Mr. C's allocution.
Joined by Mr. W (a long time employee of Company A with knowledge of Applicant's business practices with the company), Mr. C strongly vouchsafes for Applicant's trustworthiness and reliability, while assuring that his company's internal investigation produced no evidence of any Applicant complicity or knowledge of the covered overcharge claims submitted by Company A (compare ex. 3; R.T., at 161-63). Mr. C joined Company A in 1990 following a distinguished military career and a brief period of overseas business consulting after his military retirement in 1987 (R.T., at 148-49). Joining Company A's board, he soon learned of the ongoing criminal investigation into Company A's claims. Relying in part on his own military experience, he and other Board members formed an oversight committee to look at the internal and outside audits.
Finding no obvious irregularities in the company's unqualified outside audits (see R.T., at 158-59), Mr. C and his board turned to undertaking a review of the Company's ethics training with a view to improving presentation and documentation of their Government programs (see R.T., at 156-57). With the formed investigative committee, the company engaged a credentialed outside program specialist to undertake an independent engineering audit. While insufficient to avert inferences of fraud attributable to its filing of false claims, the audit validated the company's claims the Government received full value on the subject contracts (see exs. W, DD and EE; R.T., at 92).
When the indictments were returned in November 1993 and Applicant and several of Company A' high ranking officers took leaves of absence from their executive duties with the company (documented by the minutes of the company's convened December 1993 special board meeting), Mr. C accepted Company A's chairmanship (see ex. CC). And for the next several years, he devoted his energies to navigating the company's suspensions and debarments, while at the same time steadying its commercial business side. By all accounts, he has been successful in rehabilitating Company C (both with its Government contract business and its commercial efforts).
Applicant is highly regarded for his reliability and trust by not only by Mr. C and Mr. D who had associated with him at Company A, but by representatives of customers who have dealt with him (both Government and private) and by one of the prosecutors representing the Government in the criminal proceedings involving Applicant and Company A (see exs. O through T).
Company A's demonstrated rehabilitation
Company A continued to receive waivers from the AF following its 1993 indictment to continue to produce critical components on classified projects in subcontractor roles with the DoD's certified general contractors (see ex. D). The company has continued to provide work for DoD and the Country's space programs on classified projects (albeit down considerably from the 90 percent concentration of Government work it previously enjoyed) since its contract suspension was lifted in 1998 and by all accounts is well regarded in both its classified Government work and its non-classified commercial operations (see R.T., at 128-29).
The Adjudicative Guidelines of the Directive (Change 4) lists "binding" policy considerations to be made by Judges in the decision making process covering DOHA cases. The term "binding," as interpreted by the DOHA Appeal Board, requires the Judge to consider all of the "Conditions that could raise a security concern and may be disqualifying" (Disqualifying Conditions), if any, and all of the "Mitigating Conditions," if any, before deciding whether or not a security clearance should be granted, continued or denied. The Guidelines do not require the Judge to assess these factors exclusively in arriving at a decision. In addition to the relevant Adjudicative Guidelines, judges must take into account the pertinent considerations for assessing extenuation and mitigation set forth in E2.2 of Enclosure 2 of the Directive, which are intended to assist the judges in reaching a fair and impartial common sense decision.
Viewing the issues raised and evidence as a whole, the following adjudication policy factors are pertinent herein:
Concern: Conduct involving questionable judgment, untrustworthiness, unreliability, lack of candor, dishonesty, or unwillingness to comply with rules and regulations could indicate that the person may not properly safeguard classified information.
Disqualifying Conditions:
DC 1 Reliable, unfavorable information provided by associates, employers, coworkers, neighbors, and other acquaintances.
DC 6 Associations with persons involved in criminal activity.
Mitigating conditions:
MC 1 The information was unsubstantiated or not pertinent to a determination of judgment, trustworthiness, or reliability.
MC 7 Association with persons involved in criminal activities has ceased.
By dint of the precepts framed by the Directive, a decision to grant or continue an Applicant's request for 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 common sense 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. As with all adversary 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 any controverted fact[s] alleged in the Statement of Reasons and (2) it must demonstrate that the facts proven have a nexus to the applicant's eligibility to obtain or maintain a security clearance. The required showing of nexus, 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, consideration must take account of accessible 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 burden of proof shifts to the applicant for the purpose of establishing his or her security worthiness through evidence of refutation, extenuation or mitigation of the Government's case.
Applicant comes to these proceedings with a long and meritorious record of contribution to the Nation's missile and satellite programs, but with alleged involvement in a defense contractor that overcharged the Government in a series of cost estimates submitted for reimbursement. While the extensive allegations contained in the SOR address Applicant' involvement in criminal indictment and civil fraud claims, they are framed in personal conduct theory covered by Guideline E, and do not, as such, incorporate the criminal guidelines of Guideline J. The SOR in this case alleged no actual or constructive knowledge by Applicant of any of the underlying conduct subject to the various indicted offenses and related civil law suits and suspension actions, and no suggested application of criminal conduct to any of the covered actions. Government's allegations were not only pursued exclusively in personal conduct theory, but were reaffirmed by Department Counsel in closing summation.
Still, security concerns are raised about Applicant's high level association with his employer (Company A), who pleaded guilty to one count of filing a false statement in violation of 18 U.S.C. Sec. 1001, who was (along with Applicant) suspended from doing business on Government contracts for a five-year period spanning 1993 and 1998, and who was formally debarred, in addition to being named in several related suits.
Corporate liability for the criminal and civil actions of individual officers, employees and agents found to have been committed while exercising authorized powers in its behalf is entrenched in American jurisprudence and where applicable requires no proof that the officer, employee or agent was expressly authorized by the corporation to act. Cf. New York C & H R.R. Co. v. United States, 212 U.S. 481 (1908); United States v. Richmond, 700 F.2d 1183, 1195n.9 (8th Cir. 1983); United States v. Cincinatti, 689 F.2d 238, 241-42 (lst Cir. 1982); United States v. Dye Const. Co., 510 F.2d 78, 82 (10th Cir. 1975). Criminal and civil misconduct affixed to the corporation may be imputed to individual officers, employees and agents, provided they can be shown to have participated in, knew of , or had reason to know of the misconduct. Cf. Harkin v. Brundage, 276 U.S. 36, 52 (1928). These principles of corporate imputation provide the cornerstone of the AF's contract procurement and administration regulations (see FAR 9.407-5(a); FAR 9.406-5(a); FAR 9.407-2 (c).
For any attribution of involvement or material knowledge of corporate criminal wrongdoing to be made to a high ranking corporate officer, the evidence at the very minimum must be sufficient to attribute enough actual or constructive knowledge to the subject officer to justify his taking corrective steps himself, alerting others in his chain of command, or failing either, to promptly disassociate himself from the corporate organization. Neither strict liability nor rebuttable presumption finds any place in accepted principles of corporate responsibility and accountability: criminally or civilly.
That Applicant was neither convicted, debarred, nor found civilly liable or accountable for any wrongdoing arising out of Company A's pleaded wrongs covered by the global settlement is, for sure, not dispositive of his own claimed innocence, or even judgment lapses. Nothing in either the global settlement agreement or any of the other underlying documentation prevented the AF or DoD from pursuing suspension against Applicant for any found individual wrongdoing arising out of his associations with Company A and the conduct ascribed to the latter. But this takes evidence of attributable wrongdoing, for which neither the AF's inspector general nor the Government in this case have been able to produce.
The only probative facts relating to any Applicant involvement or culpable knowledge of the misconduct covered by the indictments, suits and AF suspension actions are limited to the AF's findings relative to its preliminary suspensions in December 1993. These preliminary findings are predicated on charges and allegations covered in the indictments and civil suits filed, which the AF reviewed, and not on the basis of any independent witness accounts or documents that can be culled and gleaned from the record. These preliminary findings were, in turn, superceded in part by the global settlement later consummated between the parties. True, the AF was not precluded from processing suspensions and debarment by the terms of the global settlement, and the AF did so proceed. But these actions were lifted in December 1998 (suspension only as to Applicant) free of any lingering issues, and with credit extended for the past time served under the suspensions.
Neither the AF's inspector general report nor the produced outside audits of Company A covering the five-year period spanning 1989-1994 make reference to any individual wrongdoing by either Company A or Applicant. Because, however, Company A did plead guilty to one felony count of 18 U.S.C. Sec. 1001 as the result of its submission of a Form 1435 to the Government and the prime contractor containing false statements relative to its estimated costs incurred on the covered classified project, Government may invoke two of the disqualifying conditions of the Adjudicative Guidelines for personal conduct: DC 1 (reliable unfavorable information) and DC 6 (association with persons involved with criminal activity).
Applicant has consistently denied any individual wrongdoing associated with the his activities with Company A. He draws considerable corroboration of his assurances, not only from the absence of probative evidence to the contrary, but by a rich confluence of corroborative evidence supporting his own assurances: influential vouchsafing of trust by not only Mr. C who supervised his own internal investigation after assuming the reins of Company A in the wake of the indictments and Mr. D who joined Company A's board in the post-settlement period, but by a Company A manager (Mr. W) who interfaced with Applicant at all relevant times; indemnity of settlement sums paid to the settling civil complainants by the D & O insurance carriers covering Company A and its directors and officers (unlikely were any knowing and wilful wrongdoing by the covered directors and officers found); the trustworthiness endorsement received from the prosecuting US Attorney; the absence of any noted individual wrongdoing by Applicant or any of his fellow officers in the produced outside audits covering the five-year period spanning 1989-1994, the AF's finding of no management deficiencies in its inspector general's report, and, finally, the Government's resumed contracting with Company A following the AF's lifting of its suspension bar.
Company A (a company of about 800 employees when the Government's investigation commenced), moreover, has been credibly shown to have rehabilitated itself with the aid of ethics training oversight and engineering restructuring, regained its role as a contractor doing business with the Government, and experienced no repeat of conduct that could be characterized as either of a criminal or unethical nature. Applicant not only refutes any Government concerns of his being involved in any culpable conduct in connection with his Company A duties, but he has manifestly avoided any tangible misconduct of any kind since the covered incidents of almost a decade ago. As a rehabilitated corporate entity, Company A can no longer be considered associated with criminal activity. Applicant, accordingly, may rightfully take full advantage of two of the mitigating conditions of the Adjudicative Guidelines for personal conduct (MC): MC 1 (information not substantiated or pertinent to trustworthiness assessment) and MC 7 (association with persons involved in criminal activity has ceased).
Considering the record as a whole, Applicant carries his evidentiary burden in establishing his security eligibility. He not only refutes the Government's security-related concerns of his involvement or material knowledge of any criminal conduct involving Company A that could raise judgment and trust questions about himself, but he mitigates security concerns associated with his employment as a high level officer with Company A during the period of Company A's admitted false statements. Favorable conclusions warrant, accordingly, with respect to sub-paragraphs 1.a through 1.e of Guideline E.
In reaching my recommended decision, I have considered the evidence as a whole, including each of the factors and conditions enumerated in E.2.2 of the Adjudicative Process of Enclosure 2 of the Directive.
In reviewing the allegations of the SOR in the context of the FINDINGS OF FACT, CONCLUSIONS and the FACTORS and CONDITIONS listed above, this Administrative Judge makes the following separate FORMAL FINDINGS with respect to Appellant's eligibility for a security clearance.
GUIDELINE E (PERSONAL CONDUCT): FOR APPLICANT
Sub-para. 1.a: FOR APPLICANT
Sub-para. 1.b: FOR APPLICANT
Sub-para. 1.c: FOR APPLICANT
Sub-para. 1.d: FOR APPLICANT
Sub-para. 1.e: FOR APPLICANT
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.