Bitcoin Could Be a Problem for U.S. Security Clearances

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As the Pentagon struggles to recruit a more tech-savvy workforce, it’s facing the confusion of many an old-timer: What to make of people who invest or trade in Bitcoin.

The question is whether owning Bitcoins or lesser-known cryptocurrencies such as Ripple and Ethereum is an indicator of risky personal behavior — one that should flag extra scrutiny in security clearances — or just another investment choice.

“There are a lot of good things about cryptocurrencies, but at the same time there are these security risks,” said Param Vir Singh, director of the PNC Center for Financial Services Innovation at Carnegie Mellon University. “Think about a knife: It could be used for good things and it can be used for bad things as well.”

The debate is playing out across the government, as the Defense Department and other agencies struggle to define the currencies. Some see them simply as new investments and payment methods, while others worry they provide potential vehicles for illegal activities, from money laundering to drug-dealing.

It’s a debate that matters for the sprawling U.S. national security apparatus, which has to keep track of more than 4 million people with some form of security clearance. That includes workers who, at least in theory, could sell secrets to America’s enemies with the aid of anonymous transactions facilitated by cryptocurrencies.

Terrorists, Cybercriminals

Terrorists and cybercriminals use cryptocurrencies to shield their transactions from investigators and often demand payment in Bitcoins and other digital assets, according to international law-enforcement groups including the Paris-based Financial Action Task Force and Europol’s European Cybercrime Centre.

At the same time, young investors have decamped from the halls of prominent financial institutions for the evolving world of cryptocurrency investing, and entire states have pegged their futures to its popularity. The instrument is going mainstream as Goldman Sachs Group Inc. moves forward with Bitcoin trading operations.

QuickTake: Bitcoin’s Wildest Days Are Over as Regulators Circle

Nevertheless, Bitcoin has fallen about 50 percent from its December high to about $8,400 as regulators around the world continue to evaluate how to manage digital assets and some Wall Street pros dismiss the market. Warren Buffett, for example, has likened Bitcoin to “rat poison squared.”

If the U.S. government were to decide that owning cryptocurrencies is a security risk, it could have a “huge negative impact” on the growing market, according to Singh.

Any move to more closely investigate job applicants who own cryptocurrencies also could hamper the Pentagon’s efforts to expand its operations in cyberspace, a goal that Secretary of Defense Jim Mattis has made a priority.



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