How Much Does the Government Actually Know About My Finances?
If you are the target of a criminal financial investigation, you most likely would assume that law enforcement agents are combing through your bank account and credit card records looking for the proverbial “smoking gun.” What you may not know, is that – absent a specific statute requiring otherwise – they do not need a search warrant to do so. U.S. courts have held that there is no constitutional expectation of privacy in the banking and financial transactions you voluntarily share with third party companies.
At least in theory, the same rule applies to security clearance background investigations. In reality, however, the sheer volume of background investigations the government conducts, combined with the bureaucratic, box-checking mentality that plagues many agencies, means that this depth of investigation would rarely occur. Instead, the government typically relies on 5 key sources for obtaining financial information about the subject of a background investigation:
YOUR CONSUMER CREDIT REPORT
My clients are often surprised to learn that the government really does just pull their credit report. I always counsel clients to proactively pull a copy of their credit report before an investigation and make sure any potential issues are promptly cleaned up. You’ll still have to report any financial problems that meet the reporting requirements on the SF-86 form, but it looks much better (and significantly increases your chances of avoiding a clearance denial), if you’ve already cleaned your financial house. One final note about this: the credit report the government pulls is an investigative version – essentially a hybrid of all three credit reports (Experian, TransUnion, and EquiFax), as well as any public records like bankruptcies or judgments. Make sure you pull a copy of your credit report from all three agencies. Sometimes a debt is reported, for example, to two of the three bureaus and you’ll miss it if you only pull from one.
YOUR INTERNAL REVENUE SERVICE RECORDS
If you have (or have had) a problem with the late filing or payment of taxes in the last seven years, the government will request copies of your tax transcripts from the IRS. Interestingly, however, they usually need your permission to do it in a security clearance case. You will be presented by your background investigator with IRS form 4506-T “Request for Copy of Tax Return”, which you will be asked to sign. These forms are year-specific, so you will see exactly which years are being requested at the time you sign the document.
THE FINANCIAL CRIMES ENFORCEMENT NETWORK (FINCEN)
Federal law requires that potentially suspicious transactions – usually large ($10,000+) cash deposits or withdrawals from your bank account or similarly large casino transactions – be reported to FINCEN by the financial institution. A FINCEN records check is a customary part of the federal background investigation process, so if you have any transactions in the last 7 years that were reported to FINCEN you will most likely be questioned on them. Unless you were using the money for illegal or blackmail-worthy purposes, your explanation of the circumstances will usually be the end of the inquiry.
YOUR SF-86 FORM
One of the biggest criticisms of the federal background investigation process is that it relies too much on applicant self-reporting of issues. I have seen many cases where a Statement of Reasons has been issued off of derogatory financial information a client self-reported but is not present on the credit report or in tax records. To be clear, I am in no way suggesting that applicants falsify their background investigation forms; doing so amounts to a federal crime. You should understand, however, that the self-reporting requirement is another good reason to pull copies of your own credit report before you (re)apply for a security clearance. In addition to seeing what is on your credit report, it is helpful to see what isn’t (thereby potentially avoiding situations where applicants self-report debt that isn’t actually reportable under the SF-86’s specific requirements).
YOUR FRIENDS
If you think finances may be an issue in your case, have a frank discussion with potential security clearance references before you (re)apply. Do they think you live ostentatiously or beyond your means? Do they think you have problems with gambling, repayment of debts, or financial discipline? You may not be able to change what people think of you, but it is helpful to at least get a sense of what your background investigator might hear from them. Anything short of a glowing endorsement could be a sign of trouble on the horizon.
This article is intended as general information only and should not be construed as legal advice. Consult an attorney regarding your specific situation.
