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ISCR Case 11-13529.h1 — CASE

ISCR Case 11-13529.h1denied

Case Headnote

ISCR Case No. 11-13529.h1

deniedJul 1, 2011· Hon. Robert E. Coacher· hearing

Summary

A 70-year-old president of a defense contractor was denied a security clearance under Guideline F (Financial Considerations) due to significant unresolved financial obligations exceeding $600,000. The Statement of Reasons detailed a federal tax lien of over $397,000 and multiple judgments and debts, many stemming from personal guarantees of a company's debts.

While some debts were resolved through payment, several substantial obligations remained outstanding. These included debts totaling $40,000 for which a 60 percent settlement offer was under consideration, and two judgments of approximately $28,797 and $80,042. For one judgment, the creditor had not been contacted, and for the other, a $25,000 settlement offer was not pursued.

The denial was based on the applicant's unresolved financial issues, which were deemed indicative of poor judgment and a lack of reliability. Despite some payments, the applicant did not demonstrate sufficient efforts to resolve the overall financial problems. Disqualifying conditions AG ¶ 19(a) and AG ¶ 19(c) were raised, with mitigating condition AG ¶ 20(d) applied, but ultimately the clearance was denied.

Why the Applicant Was Denied

The applicant has unresolved financial obligations totaling over $600,000, including a federal tax lien and judgments.
The applicant's financial issues indicate a lack of judgment and reliability.
The applicant did not demonstrate sufficient efforts to resolve his financial problems.

Conditions Referenced

Disqualifying

AG ¶ 19(a)raisedInability or Unwillingness to Satisfy Debts
AG ¶ 19(c)raisedA History of Not Meeting Financial Obligations

Mitigating

AG ¶ 20(d)appliedGood-faith Effort to Repay Overdue CreditorsThe applicant made payments on some debts, but larger obligations remain unpaid.

Key Rule Quoted

“The protection of the national security is the paramount consideration.”

Procedural Posture

SOR issuedJan 20, 2012
Answer filedFeb 16, 2012
Hearing heldJun 8, 2012
Decision date—

Cite For

Unresolved Financial Obligations Under Guideline F
Impact of Personal Guarantees on Financial Responsibility
Consideration of the Whole-person Concept in Financial Evaluations

Editorial summary generated for research. Not legal advice; not a prediction. Verify against the full decision before relying on any quoted language.

Standardized Decision Profile

SEAD-4 Guideline F · descriptive summary of a decided case

Posture: Decision on RecordDecided: denied

The judge found significant financial concerns under Guideline F, including a federal tax lien exceeding $397,000 and several unresolved debts related to personal guarantees of a failed business. Despite some debts being resolved, the overall financial situation raised doubts about the applicant's reliability and trustworthiness, leading to a denial of security clearance.

¶	Allegation	Finding	Type	Response	Disqualifying (¶19)	Mitigating applied (¶20)	Mitigation
1.a	The debt alleged in SOR ¶ 1.a is federal tax lien in the amount of over $397,000. $397,000	Against Applicant	Tax Unpaid	Admitted	(a) inability to satisfy debts (c) a history of not meeting financial obligations	—	—
1.b	The debts alleged at SOR ¶¶ 1.b, 1.c, and 1.f have been paid. These debts are resolved.	For Applicant	Unspecified Financial	Admitted	—	—	—
1.d	The debts alleged at SOR ¶¶ 1.d, 1.h, and 1.j are all debts Applicant incurred as a result of his personal guarantee of Co. 1’s debts. He admitted to owing these debts. He contacted the creditor and it agreed to settle the debts if he paid 60 percent on a balance of $40,000. He is considering the settlement offer. These debts are unresolved. $40,000	Against Applicant	Unspecified Financial	Admitted	(a) inability to satisfy debts (c) a history of not meeting financial obligations	—	—
1.f	The debts alleged at SOR ¶¶ 1.b, 1.c, and 1.f have been paid. These debts are resolved.	For Applicant	Unspecified Financial	Admitted	—	—	—
1.g	The debts alleged at SOR ¶¶ 1.g and 1.k are judgments in the respective amounts of about $28,797 and $80,042. These were also debts incurred by Co. 1, which Applicant personally guaranteed. The creditor for the debt at ¶ 1.g has not been contacted and that debt is unresolved. $28,797	Against Applicant	Unspecified Financial	Admitted	(a) inability to satisfy debts (c) a history of not meeting financial obligations	—	—
1.i	The debt listed at SOR ¶ 1.i was a duplicate debt and is resolved in favor of Applicant.	For Applicant	Unspecified Financial	Admitted	—	—	—
1.j	The debts alleged at SOR ¶¶ 1.g and 1.k are judgments in the respective amounts of about $28,797 and $80,042. These were also debts incurred by Co. 1, which Applicant personally guaranteed. The creditor for the debt at ¶ 1.k offered to settle the debt for $25,000, but Applicant did not engage in settlement discussions. This debt is also unresolved. $25,000	Against Applicant	Unspecified Financial	Admitted	(a) inability to satisfy debts (c) a history of not meeting financial obligations	—	—

Descriptive standardized rendering of a decided public case (Guideline F). The verbatim source decision is shown in full below.

Full decision

The complete, official text — footnotes and signatures included — is in the original PDF.

Decision text, by section

DEFENSE OFFICE OF HEARINGS AND APPEALS

HEARING

APPEARANCES

DEPARTMENT OF DEFENSE DEFENSE OFFICE OF HEARINGS AND APPEALS

In the matter of: ) ) ) ISCR Case No. 11-13529 ) ) Applicant for Security Clearance )

For Government: Gregg A. Cervi, Esq., Department Counsel For Applicant: Pro se

06/08/2012 ______________

STATEMENT OF CASE

______________

COACHER, Robert E., Administrative Judge:

Applicant has not mitigated the Financial Considerations security concerns. Eligibility for access to classified information is denied.

Statement of the Case

On January 20, 2012, the Defense Office of Hearings and Appeals (DOHA) issued Applicant a Statement of Reasons (SOR) detailing security concerns under Guideline F, Financial Considerations. DOHA acted under Executive Order (EO) 10865, Safeguarding Classified Information within Industry (February 20, 1960), as amended; Department of Defense Directive 5220.6, Defense Industrial Personnel Security Clearance Review Program (January 2, 1992), as amended (Directive); and the adjudicative guidelines (AG) effective within the Department of Defense on September 1, 2006.

Applicant answered the SOR on February 16, 2012, and requested a hearing before an administrative judge. The case was assigned to me on April 3, 2012. DOHA issued a notice of hearing on April 6, 2012, and the hearing was convened as scheduled on April 25, 2012. The Government offered exhibits (GE) 1 through 11, which were admitted into evidence without objection. Department Counsel’s exhibit index is marked as Hearing Exhibit (HE) I. Applicant testified and submitted exhibits (AE) A through C at the hearing, which were admitted into evidence without objection. His exhibit list was marked as HE II. The record was held open for Applicant to submit additional information. Applicant submitted AE D through F, which were admitted into evidence without objection. DOHA received the hearing transcript (Tr.) on May 3, 2012.

FINDINGS OF FACT

Applicant admitted all the SOR allegations. Those admissions are incorporated as findings of fact. After a review of the pleadings and evidence, I make the following additional findings of fact.

Applicant is a 70-year-old president of a defense contractor company (Co. 2). He started Co. 2 in 2005. He has a master’s degree in engineering. He is married, with two adult children. His wife does not work. He retired from the U.S. Air Force as a lieutenant colonel. He receives both monthly military retirement and social security payments. He has held a security clearance in the past, but he does not currently hold one.1

The SOR alleges seven delinquent debts, two tax liens, and two judgments. The total of all his delinquent obligations is $600,112. The debts were listed on credit reports obtained on March 28, 2009, and November 15, 2011.2

From June 1995 through October 2005, Applicant was the president and CEO of a government contractor business (Co. 1). Co. 1 contracted with other government agencies (OGAs) installing security services throughout the world. Applicant relied on these various government-funded contracts to keep his business operating. Because the contract payments by the OGAs to Co. 1 were delayed, Applicant hired a “factoring” credit agency to supply a steady cash flow on a monthly basis. In return, the factoring company would receive Co. 1’s accounts receivables at some specified rate. During 2005, Co. 1 was working on an overseas contract that was significantly delayed. Co. 1 was to earn approximately $500,000 upon completion of the contract. The factoring company became concerned that Co. 1 would not complete the contract and thus not receive the contract payments. As a result, a receiver was appointed for Co. 1 and a Chapter 11 voluntary bankruptcy petition was filed in November 2005. In January 2007, the case was converted to a Chapter 7 bankruptcy. At that time, court filings showed that Co. 1’s assets were about $596,000 and its liabilities were over $ 7 million. Applicant had personally guaranteed many of the loans of Co. 1. Consequently, even though Co. 1 was discharged from its liabilities through the bankruptcy, Applicant was personally responsible for those loans he guaranteed. Applicant was able to pay several of the loan guarantee debts totaling more than $100,000 and those debts are not listed in the SOR.3

The debt alleged in SOR ¶ 1.a is federal tax lien in the amount of over $397,000. This debt was incurred by Co. 1 because it failed to pay payroll taxes for several quarters in 2005. Applicant did not realize at the time the taxes were not being paid. He has been working with the IRS to resolve this issue. He proposed an “offer in compromise” in October 2010. Since that time, he has paid $500 monthly payments to the IRS for a total of about $9,000. The IRS is still in the process of considering his offer in compromise, which is to pay $48,000 to settle the $397,000 tax debt. This debt is unresolved.4

The debts alleged at SOR ¶¶ 1.b, 1.c, and 1.fhave been paid. These debts are resolved.5

The debts alleged at SOR ¶¶ 1.d, 1.h, and 1.jare all debts Applicant incurred as a result of his personal guarantee of Co. 1’s debts. He admitted to owing these debts. He contacted the creditor and it agreed to settle the debts if he paid 60 percent on a balance of $40,000. He is considering the settlement offer. These debts are unresolved. The debt listed at SOR ¶ 1.i was a duplicate debt and is resolved in favor of Applicant.6

The debt alleged at SOR ¶ 1.e is another debt personally guaranteed by Applicant from Co. 1 in the amount of $8,810. The creditor was willing to settle this debt for $2,400 at one time, but Applicant did not have the funds to do so then. He recently contacted the creditor to reengage in settlement discussions. This debt is unresolved.7

The debts alleged at SOR ¶¶ 1.gand 1.kare judgments in the respective amounts of about $28,797 and $80,042. These were also debts incurred by Co. 1, which Applicant personally guaranteed. The creditor for the debt at ¶ 1.ghas not been contacted and that debt is unresolved. The creditor for the debt at ¶ 1.koffered to settle the debt for $25,000, but Applicant did not engage in settlement discussions. This debt is also unresolved.8

Applicant started Co. 2 in 2005 to engage in the same type of business as Co. 1 had been doing. He has built the business by obtaining contracts with OGAs. He has 14 full-time employees of the company. Co. 2 currently has about $200,000 in the bank and was just awarded a government contract for about $96,000. He currently draws a salary of $72,000 from the company. From September 2005 until January 2011, he did not take a salary.9

POLICIES

When evaluating an applicant’s suitability for a security clearance, the administrative judge must consider the adjudicative guidelines. In addition to brief introductory explanations for each guideline, the adjudicative guidelines list potentially disqualifying conditions and mitigating conditions that are to be 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, administrative judges apply the guidelines in conjunction with the factors listed in the adjudicative process. The administrative judge’s overarching adjudicative goal is a fair, impartial, and commonsense decision. According to AG ¶ 2(c), the entire process is a conscientious scrutiny of a number of variables known as the “whole-person concept.” The administrative judge must consider all available, reliable information about the person, past and present, favorable and unfavorable, in making a decision.

The protection of the national security is the paramount consideration. AG ¶ 2(b) requires that “[a]ny doubt concerning personnel being considered for access to classified information will be resolved in favor of national security.” In reaching this decision, I have drawn only those conclusions that are reasonable, logical, and based on the evidence contained in the record.

Under Directive ¶ E3.1.14, the Government must present evidence to establish controverted facts alleged in the SOR. Under Directive ¶ E3.1.15, the applicant is responsible for presenting “witnesses and other evidence to rebut, explain, extenuate, or mitigate facts admitted by the applicant or proven by Department Counsel.” The applicant has the ultimate burden of persuasion to obtain a favorable 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 the applicant may deliberately or inadvertently fail to safeguard classified information. Such decisions entail a certain degree of legally permissible extrapolation about potential, rather than actual, risk of compromise of classified information.

Section 7 of EO 10865 provides that adverse 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 Executive Order 12968, Section 3.1(b) (listing multiple prerequisites for access to classified or sensitive information).

ANALYSIS

Guideline F, Financial Considerations

The security concern for Financial Considerations is set out in AG ¶ 18 as follows:

Failure or inability to live within one’s means, satisfy debts, and meet financial obligations may indicate poor self-control, lack of judgment, or unwillingness to abide by rules and regulations, all of which can raise questions about an individual’s reliability, trustworthiness and ability to protect classified information. An individual who is financially overextended is at risk of having to engage in illegal acts to generate funds.

The guideline notes several conditions that could raise security concerns under AG ¶ 19. Two are potentially applicable in this case:

(a) inability or unwillingness to satisfy debts; and

Applicant is delinquent on taxes owed to the IRS, has two judgments against him, and owes on the remaining debts described above. Therefore, he was unable or unwilling to satisfy his obligations. The evidence is sufficient to raise the above disqualifying conditions.

Several Financial Considerations mitigating conditions under AG ¶ 20 are potentially applicable:

(a) the behavior happened so long ago, was so infrequent, or occurred under such circumstances that it is unlikely to recur and does not cast doubt on the individual’s current reliability, trustworthiness, or good judgment;

(b) the conditions that resulted in the financial problem were largely beyond the person’s control (e.g., loss of employment, a business downturn, unexpected medical emergency, or a death, divorce or separation), and the individual acted responsibly under the circumstances;

(c) the person has received or is receiving counseling for the problem and/or there are clear indications that the problem is being resolved or is under control; and (d) the individual initiated a good-faith effort to repay overdue creditors or otherwise resolve debts.

Applicant’s delinquent taxes, judgments, and debts are unresolved and ongoing. He has started a new business, but not addressed many of his financial problems. Similar financial problems will recur, since he is still in the same type of business that originally incurred the debts. AG ¶ 20(a) is not applicable.

Applicant made a business decision to personally guarantee the loans that Co. 1 incurred. Also, as president and CEO of Co. 1 he was responsible to ensure that the payroll taxes were properly paid. These were not financial conditions beyond his control. AG ¶ 20(b) is not applicable.

There is no evidence of financial counseling and although a few debts were paid, the larger obligations remain unpaid, with no firm settlement plan in place. AG ¶ 20(c) does not apply. AG ¶ 20(d) applies to the debts that were paid. At this point, Applicant’s finances remain a concern despite the presence of some mitigation.

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 relevant circumstances. The administrative judge should consider the nine adjudicative process factors listed at AG ¶ 2(a):

(1) the nature, extent, and seriousness of the conduct; (2) the circumstances surrounding the conduct, to include knowledgeable participation; (3) the frequency and recency of the conduct; (4) the individual’s age and maturity at the time of the conduct; (5) the extent to which participation is voluntary; (6) the presence or absence of rehabilitation and other permanent behavioral changes; (7) the motivation 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 relevant facts and circumstances surrounding this case. I have incorporated my comments under Guideline F in my whole-person analysis. Some of the factors in AG ¶ 2(a) were addressed under that guideline, but some warrant additional comment.

I considered Applicant’s service to his country as a Vietnam veteran and a retired Air Force officer. I have considered his contractor work for the Government. However, I also considered that his previous business went bankrupt with over $7 million worth of liabilities. He personally guaranteed some of that debt. Although he has made some progress on reducing the guaranteed debts, a substantial amount remains including almost $400,000 in unpaid payroll taxes. His past financial track record reflects a troublesome financial history that causes me to question his ability to resolve his debts.

Overall, the record evidence leaves me with questions and doubts about Applicant’s eligibility and suitability for a security clearance. For all these reasons, I conclude Applicant has not mitigated the Financial Considerations security concerns.

FORMAL FINDINGS

Formal findings for or against Applicant on the allegations set forth in the SOR, as required by section E3.1.25 of Enclosure 3 of the Directive, are:

Paragraph 1, Guideline F: AGAINST APPLICANT

Subparagraph 1.a: Against Applicant Subparagraphs 1.b – 1c: For Applicant Subparagraphs 1.d – 1e: Against Applicant Subparagraph 1.f: For Applicant Subparagraphs 1.g – 1h: Against Applicant Subparagraph 1.i: For Applicant Subparagraphs 1.j – 1k: 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 eligibility for a security clearance. Eligibility for access to classified information is denied.

________________________ Robert E. Coacher Administrative Judge