Recently, questions have proliferated in industry and on ClearanceJobs.com discussion boards about the impact that owning “Bitcoin” or similar cryptocurrencies might have on one’s security clearance.
In an apparently well-meaning but hasty effort to address the issue, the Defense Department’s Personnel Security Management Office for Industry (PSMO-I) released a statement claiming that cryptocurrencies like Bitcoin are considered “foreign currency” – ownership of which must be reported by security clearance holders on the SF-86 form. The only problems? Ownership of foreign currency alone is not reportable on the SF-86[1], nor does the Internal Revenue Service consider cryptocurrency “currency” because it is not issued by a sovereign government. (See IRS Notice 2014-21 – virtual currency considered “property”, not legal tender currency).
Not to be outdone by their bureaucratic brethren, the Defense Security Service (DSS) now purports to be formulating more comprehensive guidance on the matter, in effect throwing cold water on the PSMO-I statement, at least temporarily. The bottom line: there remains no official or universally accepted security policy on cryptocurrency as of this writing.
With all that being said, there is good reason why the government would wish to know about clearance holder investments in virtual currency, just as there are some basic, common-sense principles that can be applied to the matter.
Legal and Government Concerns with Bitcoin
To start, the perception – whether right or wrong – of many folks who don’t own cryptocurrency is that those who do are investing for nefarious purposes. I’ve heard all the counter-arguments from virtual currency advocates – “Bitcoin uses an open ledger”, “it’s a hedge against totalitarian governments”, etc. – and those points may have merit. Nonetheless, intellectually honest cryptocurrency users also acknowledge the dark underbelly of the virtual currency world; ransomware hackers are now demanding payment in bitcoin for a reason.
I personally don’t like the idea of investing in virtual currencies for a number of reasons: they appear to be more susceptible to hacking; the marketplace is totally unregulated; and, there is no FDIC insurance coverage when a virtual currency goes belly-up. On the other hand, I do like the idea of investing in precious metals, an interest I’m sure many ClearanceJobs readers share. In fairness, I understand why virtual currency advocates might think this to be hypocritical given that precious metals share some of the same risks I just identified. The flip side, however, is that foreign despots and terrorists can’t hold your domestically-stored Gold Eagles hostage like they can a virtual currency. It was only within the last couple months that cybersecurity experts began pointing the finger at North Korea for recent bitcoin hacking jobs; I’d expect to see more of this as the cryptocurrency market continues to grow.
This is really where I can foresee the government’s concern lying. Because virtual currencies like Bitcoin belong to no one nation, bad actors are less inclined to fear repercussions for misusing them, and the risk of foreign influence (“do what I say or we keep your $50k in stolen Bitcoin”) becomes very real. In a sense then, owning virtual currencies is no different than owning more traditional property in a hostile foreign country: there is always the risk of confiscation or theft.
Whatever your personal views on Bitcoin and other cryptocurrencies, my advice is to steer clear of them if you hold a security clearance – at least until and unless official guidance is issued to the contrary. There are plenty of other investment options out there that don’t needlessly create the potential for security clearance problems.
Besides, there are some natural follow-on questions I would anticipate the government asking in the event of an affirmative response to the question, “do you own any virtual currencies?” Those questions are: “have you paid taxes on any earnings?” and “what do you spend the cryptocurrency on?”
I’m guessing that one or both of those questions may cause some serious heartburn for many clearance holders.
This article is intended as general information only and should not be construed as legal advice. Consult an attorney regarding your specific situation.
[1] What IS reportable is if you’re holding that foreign currency in a foreign bank or investment account. If you’re keeping the money under your stateside mattress, Uncle Sam doesn’t particularly care about it.
