DATE: March 29, 2005

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SSN: -----------

Applicant for Security Clearance

DECISION OF ADMINISTRATIVE JUDGE

ELIZABETH M. MATCHINSKI

APPEARANCES

FOR GOVERNMENT

Daniel F. Crowley, Esq., Department Counsel

FOR APPLICANT

Pro Se

SYNOPSIS

Applicant has a history of financial delinquency, caused in large part by excessive gambling from the late 1990s to at least 2002. While more than $60,000 in unsecured debt has been discharged in a Chapter 7 bankruptcy filed in March 2003, he and his spouse continued to gamble recreationally to at least August 2004, at a net loss of about $2,000 for the year. Applicant is now pursuing counseling for his gambling, but it is too soon to conclude that his financial problems are not likely to recur. Clearance is denied.

On February 23, 2004, the Defense Office of Hearings and Appeals (DOHA) issued a Statement of Reasons (SOR) to the 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 the Applicant. ⁽¹⁾ DOHA recommended referral to an administrative judge to conduct proceedings and determine whether his clearance should be granted, continued, denied, or revoked. The SOR was based on financial considerations (Guideline F).

On April 5, 2004, Applicant filed a response to the SOR and requested a hearing before a DOHA administrative judge. The case was assigned to me on August 9, 2004. On September 1, 2004, a hearing was scheduled for September 17, 2004. At the hearing convened as scheduled, ten government exhibits and 13 Applicant exhibits were admitted into evidence. Applicant testified, as reflected in a transcript received on September 29, 2004.

FINDINGS OF FACT

DOHA alleges Applicant was indebted as of February 2004 to seven creditors in the aggregate $76,935 on accounts written off in or before September 2002; had been granted a discharge through Chapter 7 bankruptcy in June 2003; and engaged in gambling from approximately 1980 to summer 2003 with adverse effect on his finances. Applicant denied he was still indebted to the creditors alleged in ¶ ¶ 1.a, 1.b, 1.c, 1.d, 1.e, and 1.g, as the debt in ¶ 1.a had been written off and the account closed after his bankruptcy, and the others had been discharged in the bankruptcy. Applicant admitted there was a lien on his home because of the debt alleged in ¶ 1.f, but he was making payments; that he had been granted the bankruptcy discharge; and that he gambled frequently beginning in 1997 with negative impact on his finances by 2000. Citing an improvement in his financial situation since the bankruptcy, Applicant denied he was a security risk. Applicant's admissions are accepted and incorporated as findings of fact. After a complete and thorough review of the evidence, I make the following additional findings:

Applicant is a 48-year-old accounting/contracts manager with a Master of Business Administration degree who has worked for his current employer, a defense contractor, since July 1990. He seeks to retain a secret-level security clearance granted to him in late July 1990.

During the early to mid 1980s, Applicant placed bets with bookies on sporting events. He then refrained from gambling until about 1997, when he and his spouse began to frequent a local casino on average once or twice a month. Applicant usually played blackjack while his spouse played the slots. Together they averaged gambling losses of $300 to $500 on each occasion. The frequency of their casino gambling increased over time as did the losses, and Applicant was allowed to gamble on credit up to $1,000 extended to him by the casino. By 1999, Applicant and his spouse were going to the casino at least once a week and averaging gambling losses of $800 weekly between them. In 2000, they went to the casino about 70 times. With gambling winnings for the year of $24,450, they still had a net loss of $40,000. In 2001, they gambled at the casino about 30 times, with a net loss of $15,000. Already with a mortgage on their home of $108,315 taken out in October 1991, Applicant and his spouse took out a second mortgage of $75,000 in April 2000, and a third mortgage of $20.958 in April 2001 (¶ 1.f) to finance their gambling.

Applicant also overextended himself on credit to obtain cash for gambling. With the intent of negotiating lower repayment rates with his creditors, Applicant let several accounts fall delinquent 90 days. In summer 2001, Applicant arranged to repay four accounts through a consumer credit counseling service: a $10,000 personal line of credit opened in March 1996 with a bank (¶ 1.b), a DISCOVER card account (not alleged) opened in May 1998 with a balance of about $2,643, and two VISA card accounts (not alleged) with the same lender on which he owed $1,1971 and $1,875 respectively.

The frequency of Applicant's and his spouse's gambling declined in 2002, as they went to the casino only four times total during the first four months of the year, but between them they averaged gambling losses of some $700 to $800 each visit. On August 27, 2002, Applicant was interviewed by a special agent of the Defense Security Service (DSS) about his gambling and related financial difficulties reported in a March 19, 2002, credit check. Applicant acknowledged that he "probably" had a gambling problem, and that several accounts had been more than 90 days delinquent in the past, although he maintained they had been brought current. Applicant indicated that he had considered bankruptcy to liquidate his debts, but had not pursued it out of fear it would negatively affect his clearance. Applicant provided a personal financial statement reporting a joint net remainder with his spouse of $49 monthly after payment of expenses, including negotiated reduced payments on some of his debts.

Applicant refrained from going to the casino during the latter half of 2002 and stopped paying on several of his outstanding accounts on the advice of legal counsel retained for a bankruptcy filing. Several accounts were written off due to nonpayment in about September 2002. The following is a financial history of those accounts that became significantly past due:

On March 18, 2003, Applicant and his spouse filed for Chapter 7 bankruptcy, listing among their $243,650 in combined assets their home valued at $170,000 and $1,550 in checking/savings on deposit in financial institutions. Against joint gross incomes of $104,500 for 2001, $89,000 for 2002, and $20,000 for the first quarter of 2003, they reported $287,720.50 in liabilities, including $61,700.50 in unsecured, nonpriority debt. Listed as secured claims were two automobile loans--an October 1999 loan of $20,466 for the purchase of a 1996 Acura and a March 2002 loan of $16,945 for a 1999 Jeep--their mortgages, and the debt alleged in SOR ¶ 1.g which Applicant claimed was secured. On June 10, 2003, the Chapter 7 discharge was granted, releasing him from any further liability for those debts discharged.

As of August 26, 2003, Applicant's credit record had not been updated to reflect the discharge in bankruptcy of those debts alleged in the SOR. On September 15, 2003, Applicant was re-interviewed by the DSS agent about his financial situation and gambling activities. Although he had not formally reaffirmed his mortgages and car loans listed on his bankruptcy, he was continuing to pay on those debts. He explained that he had some open credit card accounts that had not been included in the bankruptcy, such as the debt in SOR ¶ 1.a. ⁽²⁾ With his spouse's full-time employment and increase in her pay rate, cash flow was no longer a problem and he had no new delinquent accounts. As for recent gambling, Applicant indicated he had been to the casino six times since January 2003 with his spouse, and he estimated his winnings and losses were about even for the year. The maximum loss on one visit was $1,000 while he had won $1,600 on another occasion. He explained they had changed their gambling habits to ensure that bills were paid before using money for gambling or other pursuits. As of August 26, 2003, Applicant reported a net monthly remainder of $1,438 with $300 in bank savings.

As of February 2004, Applicant was current in his financial obligations. In late July 2004, he refinanced his mortgage, taking on a debt of $236,919.79. ⁽³⁾ With the refinancing he took $40,000 in equity from his home and put the cash into savings. A check of Applicant's credit on August 4, 2004, revealed no new delinquent debts. As of September 1, 2004, Applicant estimates he and his spouse have a joint net monthly remainder of $2,429 after payment of his monthly expenses and debts (new mortgage, auto loan for the Jeep, and three credit card accounts with balances totaling $600).

Having returned to gambling in 2003 because they enjoy it, Applicant and his spouse gambled at the casinos approximately twice a month from January 2004 to August 2004. In a concerted effort to control their gambling, they set a limit on the amount taken by them to the casino and left their credit cards at home. Applicant no longer has credit at the casino. While they won $3,000 between them on one trip, they lost $1,000 another time. Applicant estimates that their gambling losses have exceeded their winnings by $2,000 in 2004. There is no evidence those losses have caused him to fall behind in his financial obligations.

In about mid-August 2004, Applicant sought treatment for his gambling as he felt it was time to get control over his gambling. Through a program offered at a local hospital, he has had two individual sessions--three hours total--with a psychiatrist. The psychiatrist has not yet suggested a treatment plan, but he has told Applicant that it is not a good idea to go to the casino. Applicant has not gambled since seeing the psychiatrist and he has no trips to the casino planned. He intends to follow the psychiatrist's advice as to any treatment recommended, although he does not think group meetings, such as Gamblers Anonymous, would be for him.

As the manager of contracts and finance for his employer, Applicant commits company resources and safeguards company assets. Applicant has not given the firm's president, vice president, or facility security officer, any reason to question his ability and integrity to maintain his security clearance. Applicant had purposely not informed his facility security officer at work about the bankruptcy because he did not want her to know about it, but he had made the vice president aware.

"[N]o one has a 'right' to a security clearance." Department of the Navy v. Egan, 484 U.S. 518, 528 (1988). As Commander in Chief, the President has "the authority to . . . control access to information bearing on national security and to determine whether an individual is sufficiently trustworthy to occupy a position . . . that will give that person access to such information." Id. at 527. The President has authorized the Secretary of Defense or his designee to grant applicants eligibility for access to classified information "only upon a finding that it is clearly consistent with the national interest to do so." Exec. Or. 10865, Safeguarding Classified Information within Industry § 2 (Feb. 20, 1960). Eligibility for a security clearance is predicated upon the applicant meeting the security guidelines contained in the Directive. An applicant "has the ultimate burden of demonstrating that it is clearly consistent with the national interest to grant or continue his security clearance." ISCR Case No. 01-20700 at 3.

Enclosure 2 of the Directive sets forth personnel security guidelines, as well as the disqualifying conditions (DC) and mitigating conditions (MC) under each guideline. In evaluating the security worthiness of an applicant, the administrative judge must also assess the adjudicative process factors listed in ¶ 6.3 of the Directive. The decision to deny an individual a security clearance is not necessarily a determination as to the loyalty of the applicant. See Exec. Or. 10865 § 7. It is merely an indication that the applicant has not met the strict guidelines the President and the Secretary of Defense have established for issuing a clearance.

Having considered the evidence of record in light of the appropriate legal precepts and adjudicative guidelines, and having assessed the credibility of those who testified, I conclude the government established its case under guideline F.

Under the financial considerations guideline, the security eligibility of an applicant is placed into question when the applicant is shown to have a history of excessive indebtedness, recurring financial difficulties, or a history of not meeting his financial obligations. See Directive ¶ E2.A6.1.1. The government must consider whether individuals granted access to classified information are, because of financial irresponsibility, in a position where they may be more susceptible to mishandling or compromising classified information. An individual who is financially overextended is at risk of having to engage in illegal acts to generate funds. Despite joint gross incomes of $104,500 for 2001, $89,000 for 2002, and $20,000 for the first quarter of 2003, Applicant and his spouse were seriously financially overextended. As reflected in their March 2003 bankruptcy filing, they had accumulated $61,700.50 in unsecured debt that was subsequently discharged in June 2003. They also had taken out second and third mortgages on their home to finance their gambling. Disqualifying conditions (DC) E2.A6.1.2.1, A history of not meeting financial obligations, E2.A6.1.2.3, Inability or unwillingness to satisfy debts, and E2.A6.1.2.5, Financial problems that are linked to gambling, drug abuse, alcoholism, or other issues of security concern, apply.

The legal effect of the Chapter 7 discharge entered on June 10, 2003, is that his creditors are enjoined from instituting or continuing any action to collect on the debts. While Applicant has been recently afforded a financial fresh start and is no longer responsible for repayment of those debts alleged in the SOR, a bankruptcy does not immunize his history of financial problems from being considered for its security significance. Nor does it prove that Applicant has changed his financial habits or that his financial problems are not likely to recur. In Applicant's favor, there is no evidence of new delinquency. He made regular payments on his third mortgage (¶ 1.f), although some months in an amount less than the $368.09 required under the terms of the loan. Available financial records confirm an improved financial situation since his bankruptcy discharge. Financial pressures that might lead him to engage in illegal acts to generate funds are not present. However, the predictive judgment about Applicant's security suitability must include an assessment of the risk of recurrence of financial problems. Whereas his financial difficulties were directly attributable to his gambling activities, there must be adequate assurances that gambling will not negatively impact his finances in the future.

Despite the clearly adverse impact of casino gambling on their personal finances and a recognition by Applicant that he "probably" has a gambling problem, Applicant and his spouse returned to the casino in 2003. Applicant made some positive changes in his gambling habits to the extent that he consciously limited the money taken to the casino, ⁽⁴⁾ and left his credit cards at home. Yet, the increase in frequency of their casino gambling in 2004 over the previous year (from six times total January 2003 to mid-September 2003 to twice monthly on average from January 2004 to August 2004) raises concern as to whether he has sufficient control over his gambling to preclude a relapse into previous patterns. To his credit, Applicant sought help for his gambling problem in August 2004, and he has had three hours of individual counseling from a psychiatrist. He has taken the psychiatrist's advice to refrain from going to the casino. The bankruptcy discharge and recent counseling are concrete steps taken to resolve his financial problems (see MC E2.A6.1.3.4 The person has received or is receiving counseling for the problem and there are clear indications that the problem is being resolved or is under control). Yet, it is too soon to conclude that there will be no recurrence. As of the hearing date, he had gone only one month without gambling, an activity he and his spouse enjoy and which has been such a large part of their leisure pursuits.

Applicant's contributions to his employer are viewed favorably, but they are not enough to overcome his very serious history of recent financial delinquency directly attributable to gambling. SOR ¶ ¶ 1.a, 1.b, 1.c, 1.d, 1.e, and 1.g, are resolved against him because of their past delinquent status and lack of systemic repayment, even though Applicant is no longer legally responsible for repaying them. SOR ¶ 1.i is also concluded against him, for gambling caused him the financial problems and he has failed to meet his heavy burden to show his excessive gambling is safely in the past. SOR ¶ ¶ 1.f. and 1.h. are found for him, as he made regular payments on the mortgage debt and is entitled to the legal remedy of bankruptcy.

FORMAL FINDINGS

Formal Findings as required by Section 3., Paragraph 7 of Enclosure 1 to the Directive are hereby rendered as follows:

Paragraph 1. Guideline F: AGAINST THE APPLICANT

Subparagraph 1.a: Against the Applicant

Subparagraph 1.b: Against the Applicant

Subparagraph 1.c: Against the Applicant

Subparagraph 1.d: Against the Applicant

Subparagraph 1.e: Against the Applicant

Subparagraph 1.f: For the Applicant

Subparagraph 1.g: Against the Applicant

Subparagraph 1.h: For the Applicant

Subparagraph 1.i: Against the Applicant

In light of all the circumstances presented by the record in this case, it is not clearly consistent with the national interest to grant or continue a security clearance for Applicant. Clearance is denied.

1.

2. At his hearing, he presented documentation from the creditor indicating that the debt had been discharged in bankruptcy.(Ex. F)

3. It is not clear whether Applicant paid off the mortgage loan in ¶ 1.f. Exhibit B reflects a balance on the loan of $20,500.90 as of July 15, 2004, following a payment of $236.81, which was applied to interest. The creditor's accounting does not reflect satisfaction of the loan. Applicant did not list the debt on his September 1, 2004, financial statement.

4. Applicant testified the limit, decided in advance, varies ("The limit may be different from one trip to another trip though." Tr. 58). The specific dollar amounts involved are not of record.