In early 2018, I wrote an article called Bitcoin and Your Clearance: A Legal Perspective. At the time, cryptocurrencies were still a relatively new phenomenon (at least as far as most of the public was concerned) and the perception in the national security community was that they were the purview of cyber-criminals, tax cheats, and fraudsters.
Suffice it to say, not everyone was happy with my recommendation that clearance holders steer clear of crypto – at least until and unless official guidance was issued to the contrary by personnel security officials. The article generated a few gruff comments, including my personal favorite: “you old folks have a lot to learn.” (I’m still on the right side of 40).
In the five years since, I’ve often been asked whether I’ve changed my views on crypto for clearance holders. In a word, yes – although the recent FTX debacle has certainly made it a closer call. But I stand by my original recommendation as prudent at the time, and I’d note that things have changed considerably since then.
First, and perhaps most importantly, crypto has exploded from a fringe fad into a mainstream investment. That’s not to say that just because something is popular, it’s an acceptable security risk to the government. But the normalization of anything removes much of its mystique and inevitably results in a certain degree of acceptance. People fear what they don’t understand, and security officials are no different.
Second, the DoD, which is the largest issuer of security clearances in the federal government and generally sets the trend for other agencies, issued formal written guidance on crypto in 2021. You can read it here, but the gist is that clearance holders are required to self-report to security “[o]wnership of foreign state-backed, hosted, or managed cryptocurrency and ownership of cryptocurrency wallets hosted by foreign exchanges.”[1] It is the unspoken part of this that’s really important, though. DoD has issued a de facto seal of approval on clearance holders owning U.S.-based crypto and not even banned holding crypto outside the country (although that can still become a security issue, and I don’t recommend it).
Finally, the IRS has now issued regulations pertaining to crypto and introduced a reporting requirement on income tax returns. This eliminates much of the earlier concern about a lack of financial transparency and the ability to dodge taxes. True, someone holding crypto can still use it for illegal purposes or evade taxes, but the mere fact that the tax man is now watching more carefully arguably helps keep the average investor on the straight-and-narrow.
In short, I now believe that owning crypto is not the risk for clearance holders it once was. If crypto is your jam, that’s your prerogative – subject to government policy, the law, and any guidance to the contrary from your agency. Just remember that the same rules of reasonableness apply to crypto as to any other investment. Financial problems remain the number one cause for security clearance problems, so I always recommend that clearance holders diversify their investments and maintain a rainy-day fund lest the market crash, the exchange implode like FTX, or an unexpected life event happen. In those scenarios, the stress of financial problems can be compounded considerably by the risk to livelihood that would come with a clearance revocation.
This article is intended as general information only and should not be construed as legal advice. Although the information is believed to be accurate as of the publication date, no guarantee or warranty is offered or implied. Laws and government policies are subject to change, and the information provided herein may not provide a complete or current analysis of the topic or other pertinent considerations. Consult an attorney regarding your specific situation.
[1] No reporting is required if the covered individual holds cryptocurrency, but is NOT aware that any such holdings are backed, hosted, or managed by a foreign state, or that a cryptocurrency wallet is hosted by a foreign exchange.
No reporting is required if the covered individual’s investments in cryptocurrency are held in a widely diversified fund (e.g., index funds), unless the investment instrument is entirely composed of holdings in cryptocurrency that is backed, hosted, or managed by a foreign state.
FAQs
The Department of Defense (DoD) now wants to know if you hold cryptocurrency. A person who has a security clearance now has to report some of their cryptocurrency holdings to the Defense Information System for Security (DISS), the DoD's system of record.
Is there such a thing as a crypto clearance? ›
You can read it here, but the gist is that clearance holders are required to self-report to security “[o]wnership of foreign state-backed, hosted, or managed cryptocurrency and ownership of cryptocurrency wallets hosted by foreign exchanges.”[1] It is the unspoken part of this that's really important, though.
What are the new laws for crypto? ›
The SEC just released an updated rulemaking agenda, and it's currently targeting April 2024 for finalizing a rule that would require investment advisors to keep customers' crypto assets with "qualified custodians," which Gensler argued doesn't include today's crypto exchanges, and the agency is aiming for the same ...
What are the legal issues with cryptocurrency? ›
Some of the largest issues with cryptocurrency are regulation and consumer protection. Even though they use distributed ledgers, cryptocurrencies remain susceptible to fraud such as investment schemes, price and market manipulation, unregistered exchanges involved in fraud, and insider trading schemes.
Can feds track crypto? ›
Authorities such as the police, the US Federal Bureau of Investigation, or the US Internal Revenue Service (IRS) rely on public cryptocurrency transactions to track individuals and organizations that evade taxes or use cryptocurrencies.
Can police recover crypto? ›
Yes, it is possible for law enforcement agencies to assist in recovering stolen bitcoins, although the process can be complex and time-consuming. If you have had your bitcoins stolen, you should report the theft to your local police department as soon as possible.
How to get a Top Secret clearance as a civilian? ›
To qualify for TS/SCI clearance, it's necessary to undergo a detailed background check to verify your work experience, education and personal history. At a minimum, the government requires that you be a citizen of the United States, prove that you have no drug dependencies and meet the overall qualification standards.
What is a Tier 5 security clearance? ›
Tier 5 (Former SSBI or Level 3) – critical sensitive national security position. This investigation makes the staff member eligible for a top-secret clearance. Tier 5+ (Formerly level 4) – a select designation for staff needing TS/SCI security clearances. Only a very select few positions are within this scope.
Is Yankee White higher than Top Secret? ›
It is not truly "above" Top Secret, since there is no clearance higher than Top Secret.
What is the new IRS rule for crypto? ›
Building on proposed regulations issued last year, the IRS recently increased its oversight of cryptocurrency transactions by requiring brokers, beginning in 2025, to report investor sales and exchanges in connection with such transactions.
A new mandate requires U.S. citizens to report any digital asset transactions worth more than $10,000 within 15 days. Failure to comply with this directive could result in felony charges, marking a stringent step towards cryptocurrency regulation in the United States.
What is the crypto tax law in 2024? ›
Crypto tax reporting and the Infrastructure Investment and Jobs Act. The Infrastructure Investment and Jobs Act, a bipartisan legislation signed into law by President Biden and made effective January 1, 2024, requires brokers in the crypto space to report transactions exceeding $10,000 to the IRS.
Could crypto be outlawed? ›
US regulators say crypto is risky but not banned—behind the scenes, though, it's a different story. The news: Crypto firms are getting squeezed out as US regulators are allegedly putting pressure on US banks to cut ties with digital asset firms, per Cointelegraph.
Why is crypto considered illegal? ›
In many countries, it isn't illegal; however, the countries that have made it illegal do so for many reasons. Volatility is one of the most often cited reasons, as is energy use, concerns over destabilization, or the ease with which criminal activities can be financed and conducted using them.
What is the biggest risk with cryptocurrency? ›
What are the risks of owning crypto?
- Price volatility. ...
- Taxes. ...
- Custody of keys. ...
- Technical complexity and making mistakes. ...
- Scammers and hackers. ...
- Smart contract risk. ...
- Centralization and governance risk. ...
- Bottom Line.
Blockchain transactions are recorded on a public, distributed ledger. This makes all transactions open to the public - and any interested government agency. Centralized crypto exchanges share customer data - including wallet addresses and personal data - with the IRS and other agencies.
Can you own foreign stocks with a security clearance? ›
You won't necessarily lose your clearance if you, your spouse or partner has foreign financial interests. You must disclose the following foreign assets in Block 20A of your SF-86: Stocks. Property.
Does IRS check crypto? ›
What if I get audited? The IRS has started auditing taxpayers specifically to evaluate their crypto trades. This is nothing to worry about and you are expected to disclose any addresses or wallets you own or control and any exchange accounts you have.
Is crypto a reportable security? ›
A key debate is whether cryptocurrencies are deemed as securities — either on their own, or in certain cases such as during initial coin offerings. The U.S. Securities and Exchange Commission takes the position that nearly all cryptocurrencies are securities, with bitcoin the only known exception.
