Federal inspectors have been conducting a criminal investigation for more than a year of the company that performed a background check on Edward Snowden, the former systems analyst who leaked some of the nation's most closely held secrets to the media, U.S. officials said on Thursday.
USIS, the largest contractor involved in conducting security background checks for the federal government, is being scrutinized over allegations about a "systematic failure to adequately conduct investigations," Sen. Claire McCaskill (D., Mo.) said during a special congressional hearing. Those allegations aren't related to Mr. Snowden.
Federal officials confirmed the investigation Thursday and added that there also may have been problems with USIS's 2011 security background check of Mr. Snowden, 29 years old, who fled to Hong Kong to avoid prosecution for admittedly taking years of classified documents while working as a Booz Allen Hamilton contractor at a National Security Agency office in Hawaii.
Later that year, inspectors at the Office of Personnel Management—which oversees more than 90% of the government's security background checks—launched the continuing contracting-fraud investigation of USIS.
Patrick McFarland, inspector general for the Office of Personnel Management, said that there appear to have been problems with the USIS investigation of Mr. Snowden in 2011, though he didn't provide any details. The 2011 background check of Mr. Snowden was a re-investigation for his security clearance.
"We do believe that there may be some problems," Mr. McFarland said during the hearing.
USIS, a Falls Church, Va., company owned by private-equity firm Providence Equity Partners LLC, has more than 7,000 employees and conducts 45% of OPM investigations done by contractors, officials said. Last year, USIS received $200 million for its work, Ms. McCaskill said.
In a statement, USIS said it turned over records last year in response to a subpoena from the agency's inspector general, but that it had never been informed it is under criminal investigation. With regards to Mr. Snowden's security check, the company said it wouldn't comment on confidential investigations.
The nation's background-check system has come under renewed scrutiny in the wake of Mr. Snowden's revelations.
The federal agency spends more than $1 billion a year to conduct 2 million investigations of people seeking security clearances for jobs doing everything from cleaning offices at the State Department to working as covert operatives overseas. Most of that money goes to contractors like USIS.
Of the roughly 2 million investigations in 2012, more than 770,000 involved people requesting new or continued access to classified information.
The system has been plagued by massive backlogs and delays of more than a year for completion of investigations. Current and former investigators have complained the process is antiquated and focuses more on making sure applicants properly fill out a 127-page application form than on thorough background checks.
On Thursday, Mr. McFarland warned that the investigative process is so flawed that it poses a security risk. "There is an alarmingly insufficient level of oversight of the federal investigative-services program," he told lawmakers. "A lack of independent verification of the organization that conducts these important background investigations is a clear threat to national security," he said.
One concern for lawmakers is the pressure on contractors to quickly complete cases to bring in more money for their firms.
Since 2007, 18 people have been convicted of falsifying records while conducting background checks, officials said. Eleven of those were federal workers; seven were contractors.
Formerly a branch of the federal government, U.S. Investigations Services LLC was spun out of the Office of Personnel Management in 1996. It was renamed USIS after it was acquired by private-equity firms Carlyle Group LP CG -3.17% and Welsh, Carson, Anderson & Stowe in early 2003 for about $1 billion. Those firms flipped the Falls Church, Va., company to fellow private-equity firm Providence four years later for about $1.5 billion.
Providence, which specializes in buying and selling media, telecom and data companies, has since combined USIS with pre-employment-screening firm HireRight Inc., corporate-investigations firm Kroll Inc. and others under the name Altegrity Inc.
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