U.S. SECURITY WORKERS FILE FOR BANKRUPTCY

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP90-00965R000807560044-1
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 3
• Document Creation Date: December 22, 2016
• Document Release Date: February 8, 2012
• Sequence Number: 44
• Publication Date: June 8, 1986
• Content Type: OPEN SOURCE

Declassified and Approved For Release 2012/02/08: CIA-RDP90-00965R000807560044-1
i ! F AP UMV WASHINGTON POST
8 June 1986
U.S. Security Workers
File for Bankruptcy
Agencies Rarely Learn of financial Troubles
By Molly Sinclair
and Bob Woodward
W....1i. Fen Stiff Wnten
A $33,000-a-year analyst at the
National Security Agency has filed
for personal bankruptcy three times
in his 17 years as a signals intelli-
gence specialist with a top secret
clearance, most recently six months
ago. Only after his second bankrupt-
cy did NSA learn that he was in fi-
nancial trouble.
A middle-level intelligence officer
at the CIA filed for bankruptcy in
ret intelfi ence said a
cent interview t hat he des no
lieve that anyone at the CIA knows
A review by The Washington
Post of 2,536 bankruptcy files in
federal court in Baltimore since
1981 turned up 56 cases of U.S.
government employes who work in
intelligence or other national secu-
rity or sensitive military positions.
Awareness of the financial diffi-
culties of persons working in sen-
sitive security areas haft been
heightened by the case of convicted
spy Ronald W. Felton, who filed for
bankruptcy before quitting his job
as a middle-level NSA analyst in
April 1979. He subsequently began
selling secrets to the Soviets, and
testimony at his trial indicated that
his actions were in response to his
debt problems.
The potential susceptibility of
people in difficult financial straits
poses a dilemma for the govern-
ment, particularly in a society that
prides itself on simultaneously pro-.
tecting national security-and per-
sonal,freedoms. A credit union, for
instance, is barred by law from dis-
closing bankruptcy information
about members, even to inquiring
intelligence agencies, unless there
is an investigation under way.
Under the federal privacy act of
1978, an employer cannot inquire
about a worker's personal finances
unless the person is under active
s
investigation or the records have
been subpoenaed by a court or
grand jury. But some intelligence
officials are concerned about gov-
ernment employes who know vital
and sensitive secrets and are in fi-
nancial trouble.
"They're sitting ducks for the
KGB," said one senior intelligence
official in a reference to the Soviet
secret intelligence office.
There are no indications what-
soever that any of the people who
filed for bankruptcy in the cases
examined by The Post are engaged
in espionage. In addition to the
cases examined in Maryland, about
900 files were reviewed in federal
courts in the District and Virginia.
According to the survey of files in
Maryland, the District and Virginia,
ose filinnfor ban runup cry includu eed:
six NSA employ-es; three Deren-w
ruptcies each year.
t employes `based at
Tower Federal Credit Union.
quarteMeade, Md., rs; Fort three Navy orki
Fort Nat a t- which serves an estimated 61,000
ng
members, including those working
Fort Nleaft; 11 other Iftfense Be- at NSA and retirees there, has an
paja= employes; t ee- average of two or three members
ployes,` and one tare epartmen _ file for bankruptcy each month, ac-
an, xamplea are: cording to manager Robert Byroad.
unique" about
? An extcgtive secretary to an as- "theThere is bankruptcies nothing of the Tower
sistant secretary of the Navy deal-
ing with highly sensitive Informa- members, Byroad said. "They get
tion, who filed in March and listed -into a financial bind" like other peo.
outstanding debts totaling $61,024. ple and have to file for bankruptcy,
^ A systems analyst at NSA who he said.
filed for bankruptcy in 1983 and Sources have said that one of the
reported an annual income of nearly tragedies of the Pelton case was the
$40,000 the previous year and absence of any warning that Pel-
debts totaling more than $75,000. ton-or anyone like him with
^ A U.S. Navy cryptological tech- knowledge of important U.S. se-
nician at Fort Meade, who filed for crets-needed financial help.
bankruptcy in 1981 listing debts of Michael Raltimore
$6,100. His clearance-top secret laiii;e_r who han ed the ank-
ce
crypto-gave him access to the ruptcy case for the CIA in
most sensitive national security ma- officer, sa that the rsona hank
e ruptcy filings by m h ua s repre-
terials designed to ensure secu
r
communications within the military
and among the highest government
officials.
^ An analyst at NSA for 25 years
who fisted debts of $27,000 when
he filed for bankruptcy five years
ago, citing "insufficient funds" and
business debts. His salary at the
time was $23,400.
The alarm has been sounded
within the intelligence community
use o the s case o n,
the former NSA signals 'intelligence
s
infor-
mation to the Soviets for $35,000
atter declaring bankruptcy and re-
;' _
U.S. officials have said he-divulged
etas of at lent fin too secret
U.S. intelli nce Projects. -
review o existing privacy laws
and procedures followed by the in-
telligence agencies demonstrates
that if an employe files for bank-
ruptcy it is unlikely his or her agen-
cy will find out.
act
a number of times" to 103051cials
w o e d financial about
employes, acco ing to Jun a ov, -
the iener manager Of Northwest
thousands of current and retired
CIA employes. But, he sa"iit s' the
law and we comply." He awe fha
icia s, once informed of the
is "low on the scale of all federal
credit unions for the -number of
bankruptcies." Nevertheless, he es-
-timatedthat Northwest becomes in-
volved in three or four new bank-
who o are caught in a financial
IqEMe.
For each case actually filed, he
Declassified and Approved For Release 2012/02/08: CIA-RDP90-00965R000807560044-1
 Declassified and Approved For Release 2012/02/08: CIA-RDP90-00965R000807560044-1
said, there are many people in equal
or more serious trouble.
"From the security area, I'd rath-
er have someone file bankruptcy,"
Rinn said "It keeps the creditors at
bay. They can't be bouncing around
putting pressure on someone ....
The most security risks are those
that have trouble and don't get help
or have a plan" worked out by the
bankruptcy court.
Intelligence sources said recently
that there is no evidence that the
KGB or other hostile intelligence
services operating in the United
States have active recruitment pro-
grams aimed at people with finan-
cial problems. Generally speaking,
the sources said, the KGB waits for
an approach, as in the case of Pel-
ton, who just phoned the Soviet Em.
bassy and then walked in the next
day, in January 1980.
Informed of the number of bank-
ruptcies found in a single court last
week, a senior intelligence official
said, "That illustrates the scope of
the potential problem .. We
have hundreds of people in serious
debt, but the fact of a bankruptcy is
probably a good sign, indicating that
[someone] did not sell out. What I'd
be more interested in is information
on unusual spending patterns, the
person who all of a sudden has large
sums of money."
Spokesmen for NSA would not
comment on procedures for han-
dling employes with financial prob-
lems. A Defense Department direc-
tive on the Personnel Security Pro-
gram, which is being updated this
year, indicates that bankruptcy it-
self is not grounds for denying or
revoking a security clearance.
The directive says that all deci-
sions about security clearances call
for a "common sense" approach and
it says that "factors which may be
considered in determining whether
to deny or revoke clearance" in-
clude "recent bankruptcy with con-
tinuing financial problems."
All NSA employes with top se-
cret clearances are supposed to re-
ceive a background investigation
update every five years. Credit or
bankruptcy problems should surface
during interviews with people who
know the employes if these proce-
dures are followed.
One former senior intelligence
official said that the only way to
learn of a bankruptcy between the
five-year investigations is if an em-
ploye volunteers the information or
if it is provided by a co-worker.
Currently, the official said, there
is a significant backlog of employes
awaiting five-year reviews.
The official confirmed that the
privacy act protects employes from
unwarranted intrusion into details
of their personal finances. The law
creates a serious vulnerability that
could be corrected only with legis-
lation, the official said.
Adding to the government's di-
lemma is the controversy over cur-
rent counterintelligence efforts to
protect the nation's secrets. Coun-
terintelligence normally focuses on
operatives of foreign intelligence
services, such as the KGB, who are
continually trying to penetrate U.S.
communications, documents and
secret facilities.
It also is the job of counterintel
ligence to track down U.S. intelli-
gence employes, such as Pelton,
who are selling secrets.
A number of members of Con-
gress, including Sen. Malcolm Wal-.
lop (R-Wyo.), have been highly crit-
ical of U.S. counterintelligence,
Last year Wallop said, "This coun-
try has virtually zero counterintel-
ligence capability."
Bankruptcy files are public
records and are frequently more
than an inch thick. Anyone can go to
court, examine the files and learn
the employer of a person filing for
bankruptcy. Often the file will give
details of their job and intimate de-
tails of their indebtedness, from
mortgage claims to credit card
overcharges to overdue magazine
subscriptions.
None of the intelligence employ.
es who filed for bankruptcy is being
identified by name in this article.
The NSA signals specialist who
filed for bankruptcy three ? times
said in an interview last week at his
home in Maryland that NSA learned
of his financial troubles in 1984,
nine years after his first filing. The
agency warned him to "shape up or
ship out," the man said, because
they recognized he was a security
risk.
"If a person is having financial
problems, he is vulnerable," he said,
citing Pelton as an example. But, he
said, unlike Pelton, he would never
consider selling secrets to cover his
debts, which he said accumulated
over the years because "I got credit
.... Coming from a poor family I
wanted things I couldn't afford. - L,
lived above my means and I over-
extended."
According to his bankruptcy,
records, the man received a salary
increase of nearly $2,000 shortly'
after NSA warned him about his fi-
nances. His most recent bankrupt
filing, in February, listed debts td-'
taling $50,892.
A 29-year-old NSA analyst witlra
top secret clearance whose salary`
was $27,600 in 1984 said she was
forced to file for bankruptcy this-
year after her former husband, also,
an NSA employe, filed last year.-
Their creditors tried to collect from,
her, she said. The woman, who rer,
fused to discus details of her job at
NSA, said she once sought a debt-.
consolidation loan from Tower Fed,.
eral Credit Union, which serves.
many NSA employes. "They'
laughed at me," she said. "They said'
I owed too much money to get .a,
koan."
The woman, who listed debts too-'
taling $22,474, said she has not in-
formed her employers of her fmani
cial difficulties and has no plans to.
"It's none of their business," sheL
said.
The CIA intelligence officer said
an interview last week that he
an His e filed or hanknmtev -
ter taking out a $15,000 third mort-
e on their house from Mary-
Ind credit institution that charged
30 percent of the loan, or $4,500,
a ee.
After the settlement, broker's
and appraisal fees were paid, he
walked away with only $6,691.50 in
cash from the $15,000 loan, accord-
ing to records.
The intelligence officer said the
money was needed or a sensitive
family illness and the only way to
challenge M6 high rates was__t_oTi1e_-
jQr bankruptcy.
His financial situation is now
cleared up, he said, and all creditors
except the Maryland credit institu-
tion were paid 100 percent of what
they were owed.
The bankruptcy files provide a
complete record about one financial
'catastrophe after another. Those
.having current employment normal-
ly file what is called Chapter 13
bankruptcy, which allows the pay-
ment to creditors in full or in part
over a period of up to five years.
Under Chapter 13 the person can
retain basic personal possessions,
but each must be listed for the
court.
Declassified and Approved For Release 2012/02/08: CIA-RDP90-00965R000807560044-1
 Declassified and Approved For Release 2012/02/08: CIA-RDP90-00965R000807560044-1
3
For example, the CIA officer
listed every item of clothing and its
estimated value down to his four
pairs of shoes, 10 sets of underwear
and 12 neckties.
The Pelton case has deeply con-
cerned intelligence officials for a
number of reasons: he sold out such
vital information for only $35,000;
there was no system in place to
warn officials when he was still with
NSA and in such deep debt that he
Filed for bankruptcy; and two of his
.phone calls to the Soviet Embassy
Were intercepted by the FBI coun-
terintelligence in January 1980 be-
fore he actually walked into the em-
bassy to begin delivering top secret
?information.
The director of NSA, Lt. Gen.
William E. Odom, addressed em-
ployes of the agency on Friday af-
ternoon, according to sources. "He
told them that the Pelton matter
was over, that it was time to put it
behind them," said one source.
Said a second source familiar
with Odom's remarks, "When you
.think of those thousands of [NSA
employesl ... so good and dedi-
cated, even brilliant, you can't know
what's going on in their financial
lives any more than their personal
fives or their minds."
Said a third source, "Talk about
vulnerability!"
Contributing to this report were
Washington Post researchers
Ferman Patterson and Chris Otto
and staff writers Victoria
Churchville, Sandra Evans, R.H.
Melton, Elsa Walsh and Chris
Spolar.
4.3 MILLION SECURITY CLEARANCES
VARIOUS CLEARANCE CATEGORIES REPORTED
BY THE DEPARTMENT OF DEFENSE AS OF MARCH 31, 1985
DEFENSE DEPT.
LEVEL OF CIVILIAN & RESERVE &
CLEARANCE MILITARY INDUSTRY NATIONAL GUARD
To' Secret 454,851 128,405
Secret 2,038,984
ConMdengN 13,105
Sensitive
Compartmented
Information
2.506,940
971,912 345,541
304,904" 15,051
1,405,221 4pp,6p,
98.715 9,576
300,000 cleared by contractor security Gnaw
Declassified and Approved For Release 2012/02/08: CIA-RDP90-00965R000807560044-1