You know that federal entities like the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), the Financial Crimes Enforcement Network (FinCEN), and the Internal Revenue Service (IRS) have all issued guidance concerning cryptocurrencies. But get ready to add a new agency to the list—the Department of Defense’s Defense Security Service (DSS).
Standard Form 86 (SF-86), “Questionnaire for National Security Positions,” is the lengthy form that anyone applying for a security clearance from the US government must complete. Question 20A of the SF-86 asks whether the applicant or immediate family members have ever “had any foreign financial interests (such as stocks, property, investments, bank accounts, ownership of corporate entities, corporate interests or businesses) in which you or they have direct control or direct ownership? (Exclude financial interests in companies or diversified mutual funds that are publicly traded on a US exchange.)”
We know that FinCEN considers cryptocurrency to be currency, the CFTC considers it a commodity, and the IRS considers it to be property, but is it also a “foreign financial interest” for the purposes of the SF-86? Possibly. Earlier this week, DSS, the agency responsible for reviewing SF-86s submitted to the Department of Defense, issued a statement on the “news” section of its website indicating that “[t]here is no current Department of Defense guidance related to the reporting of ownership of cryptocurrencies” by persons who have security clearances or who are seeking security clearances. The DSS notice indicates that “DSS is working with [Department of Defense] policy offices for further clarification” of this issue. To our knowledge, no other federal agency has issued guidance on this question, either.
It is not clear which of the SF-86 categories of “foreign financial interests” would apply to cryptocurrencies. Sure, cryptocurrencies are borderless, but does that make them “foreign financial interests”? And of course, cryptocurrencies can appreciate in value (and fall in value), but does that make them a foreign “investment”? What about if a foreign regulator determines that a specific cryptocurrency constitutes a security?
It is also important to keep in mind that the fact that an item is reportable on the SF-86 does not mean that it will necessarily impact the US government’s security clearance determination. Anyone who has had to complete the SF-86 knows that the form requires the disclosure of hundreds of pieces of personal information, many of which go back decades, related to all aspects of the applicant’s background and history. Nevertheless, a determination that cryptocurrency holdings must be reported could impact thousands of SF-86 applications – and perhaps provide additional insight into the US government’s current thinking on cryptocurrencies.