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Posted at 9:11 AM ET, 10/21/2010

Ex-spies group official: Bankruptcy a security risk

By Jeff Stein

The executive director of the Association of Former Intelligence Officers, the main organization for ex-CIA and military spies, says people with security clearances who have fallen into bankruptcy should be closely monitored.

The Washington Post, citing lawyers who handle bankruptcies, reported Wednesday that “the moratorium on many foreclosures across the country has unexpectedly put some federal workers and contractors in jeopardy of losing their security clearances because of the heightened uncertainty clouding their finances.”

Elizabeth Bancroft, AFIO’s executive director, told SpyTalk that, “based on the examples provided” in the Post article, “the security reviews should indeed be held up when one sees this level of irresponsible overspending.”

The current crisis “has little to do with mortgage paperwork and more to do with irrational investment expectations, investment zeal and an unwillingness to accept the reality that some investments can become major losses,” maintained Bancroft, who emphasized she was not speaking for AFIO as a whole.

“Even houses are risky investments. Three investment properties that go bad can bring down, shall we say, the whole house of cards: career, retirement savings, credit rating, and even a security clearance,” she said.

Theoretically, employees of the spy agencies and Pentagon are closely monitored for all kinds of stresses that might leave them open to bribery or blackmail, including financial stresses.

That is not always the case, as past security studies have shown. But the extended mortgage crisis may be prompting security officers at the CIA, Pentagon and other agencies involved in sensitive operations to be more attentive to potential problems than usual.

“This problem is especially acute in the Washington region, home to nearly a third of the nation's 854,000 employees with top-secret clearances,” the Post’s Dana Hedgpeth and Dina Elboghday reported.

But bankruptcy is not likely to trigger an automatic, immediate or permanent revocation of their clearances, Bancroft said.

“I think people caught up in this foreclosure mess are given a ‘wait and see’ security evaluation - even if it’s just an update of the clearance. If it is a case of a responsible but now overextended employee being transferred to a new post, but trapped in an underwater mortgage, few background security officers are going to hold that against them.”

“They should permit them to continue in the job,” Bancroft added, “but there should be enhanced [counterintelligence] scrutiny of such employees until their financial houses are in order. They, too, could represent a risk. They should be allowed to continue, but required to sign a document which lays bare to agency review all personal financial transactions until the deep indebtedness has been resolved.”

The security clearances of new hires with financial problems should be put on hold, Bancroft also advised.

“It’s frustrating for the division waiting to hire them, but still the wisest course is caution,” she said.

The FBI Agents Association declined to comment on the issue, as did the Society of Former Special Agents of the FBI.

By Jeff Stein  | October 21, 2010; 9:11 AM ET
Categories:  Financial/business, Homeland Security, Intelligence  | Tags:  AFIO, Elizabeth Bancroft  
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I agree with the AFIO Executive Director; and would go further. I learned after having once been a mortgage broker that most foreclosures involve some sort of fraud on the application to begin with. Years ago, your completed mortage application and supporting documents were kept in a fire proof vault and pulled out of storage when you went into foreclosure. The bank would then confront the homeowner with the fraud and in some circumstances the homeowner suddenly found their financial situation wasn't as dire after all. In other circumstances the homeowner was refered for prosecution. My point is that poor finances often lead to dishonest people, a pre-requisite to being a security risk.

Posted by: eGREGie | October 21, 2010 4:50 PM | Report abuse

Allow me to clarify something. People loose their jobs, and most find other ones. The economy has ups and downs. The bank is supposed to consider cash reserves and the overall financial health of the borrower. However, many people are dishonest on their applications fitting their responses to the requests of the lending institution without regard to the truth.

Posted by: eGREGie | October 21, 2010 5:07 PM | Report abuse

Mr. Stein, I always thought security risks were people subject to blackmail. Since bankruptcy is a public filing, everyone would know so the affected party would not be subject to blackmail (or so it was thought). I am curious why people declaring bankruptcy are more risks than the hundreds of thousands of civil servants either behind on paying their taxes or outright evading them? Why aren't their security clearances being yanked? If the American people really understood the gross negligence going on in government today, they wouldn't vote people out. They'd run them out with pitchforks and shotguns. The hypocrisy is just astounding.

Posted by: panamajack | October 25, 2010 2:30 PM | Report abuse

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