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NISPOM Reports Concerning Cleared Employees.

Most companies active in the classified space understand their reporting requirements under the National Industrial Security Program Operating Manual (NISPOM). But few realize that, if submitted improperly, adverse information reports can give rise to individual liability.

Companies subject to the reporting requirements of the NISPOM have a duty to report adverse information about persons working under their supervision to the Defense Security Services. See DoD 5220.22-M at § 1-302 (Feb. 28, 2006). The regulation requires contractors to “report adverse information coming to their attention concerning any of their cleared employees” but cautions that “[r]eports based on rumor or innuendo should not be made.” Id.

Generally, courts extend an absolute privilege to the company for information forwarded to the Government under such mandatory regulations; as a general proposition, a company fulfilling its governmentally imposed duty to inform cannot be sued for defamation.

But the privilege has its limitations. A court may not extend immunity to corporate officers who report adverse information without a proper basis for doing so.

Before making a NISPOM adverse information report, it’s critical that companies conduct an immediate and effective investigation to confirm that the report is not fabricated or based on rumor or innuendo. Failing to do so risks exposing corporate officers to personal liability.