A threatened turf grab by a controversial Pentagon intelligence unit is causing concern among both privacy experts and some of the Defense Department’s own personnel.

An informal panel of senior Pentagon officials has been holding a series of unannounced private meetings during the past several weeks about how to proceed with a possible merger between the Counterintelligence Field Activity (CIFA), a post-9/11 Pentagon creation that has been accused of domestic spying, and the Defense Security Service (DSS), a well-established older agency responsible for inspecting the security arrangements of defense contractors. DSS also maintains millions of confidential files containing the results of background investigations on defense contractors’ employees.

The merger was initially suggested by a government commission set up to recommend military base closures last year. The commission said that the Pentagon could achieve some savings by relocating both CIFA, now housed in a building near Washington’s Reagan National Airport and DSS, headquartered in nearby Alexandria, Va. The panel suggested moving the two agencies to the Marine Corps base in Quantico, Va., where FBI training and laboratory facilities are also based.

The Base Realignment and Closure Commission also suggested that the Pentagon could “disestablish” CIFA and DSS and “consolidate their components into the Department of Defense Counterintelligence and Security Agency.”

Pentagon officials began discussions about merging the two after the commission issued its recommendations. An initial round of meetings about the merger, however, failed to come up with a plan. In the meantime, CIFA, a mysterious and secretive unit created in 2002 and charged with making Defense counterintelligence efforts more effective, became the subject of two public controversies.

The first erupted late in 2005 when documents surfaced indicating that CIFA (whose mission, according to its own officials, is supposed to be limited to analysis of counterintelligence data produced by other agencies) was discovered to have put together a database that included reports on anti-administration demonstrators, including peace activists protesting alleged “war profiteering.” (NEWSWEEK’s Michael Isikoff reported on this in depth earlier this year in this story.) CIFA and Pentagon officials subsequently assured Congress in writing that CIFA’s activities would be more carefully focused in the future on genuine potential terror threats to defense facilities and personnel and that data collected on legitimate peaceful protestors would be destroyed.

Another controversy over CIFA took hold during the corruption scandal surrounding former San Diego congressman Randall (Duke) Cunningham, who before he resigned in disgrace earlier this year, had been a member of both the House Intelligence Committee and the Armed Services Committee. Federal prosecutors alleged Cunningham used his congressional influence to direct CIFA to grant defense contracts to a company called MZM. Earlier this year, Cunningham and MZM’s former president, Mitchell Wade, both pleaded guilty to federal corruption charges. (The CIFA contracting probe has been covered in depth by investigative blogs Warandpiece.com and TPMMuckraker.com, as well as The Washington Post.) Pentagon spokesman Cmdr. Gregory Hicks said the CIFA contracting issue was the focus of a continuing “review by appropriate organizations within the Department [of Defense] and it would be premature to discuss any possible outcomes of that review.”

As stories about the CIFA scandals circulated earlier this year, talk about merging the controversial unit with the less controversial DSS appeared to stall. But in the past few weeks, Pentagon officials said, such discussions have regained momentum, with an informal committee led by Robert Rogalski, a deputy to Stephen Cambone, the under secretary of Defense for intelligence, meeting regularly to discuss the agencies’ consolidation.

But both Pentagon insiders and administration critics remain queasy about the merger idea. Some veteran officials recall that DSS itself became the subject of unwelcome public attention during the Clinton administration when political appointees in the Pentagon press office got hold of the DSS security file on Linda Tripp, the disgruntled bureaucrat who blew the whistle on President Clinton’s relationship with White House intern Monica Lewinsky. The file contained reports about an embarrassing incident from Tripp’s past that were leaked to the media. The Pentagon Inspector General investigated, and security procedures surrounding the security files supposedly were improved.

Both Pentagon insiders and privacy experts fear that if CIFA merges with, or, in effect, takes over DSS, there would be a weakening of the safeguards that are supposed to regulate the release of the estimated 4.5 million security files on defense-contractor employees currently controlled by DSS. Those files are stored in a disused mine in western Pennsylvania.

According to one knowledgeable official, who asked for anonymity because of the extreme sensitivity of the subject, since its creation CIFA has on at least a handful of occasions requested access to the secret files stored in the mine without adequate explanation. As a result, the source said, DSS rejected the requests. A merger between CIFA and DSS would weaken those internal controls, the source said.

A CIFA merger with DSS could also alter the job responsibilities of the 280 inspectors employed by DSS to inspect security arrangements and procedures at defense contractors’ offices. According to the official source, these inspectors are responsible for making sure that contractors have taken proper measures to protect classified information. But if DSS merges with CIFA, there are fears that CIFA will pressure the DSS inspectors to expand their mandate to include inspecting contractors to see if they are protecting information that could be considered “sensitive but unclassified”—a term the Bush administration has tried to use to expand restrictions on access to government records. Security professionals regard that expansion as too elastic and open to misinterpretation. By acquiring control of the DSS inspector force, a merged CIFA-DSS would also have something that CIFA at the moment claims not to have, which is a force of field investigators. Today CIFA has to rely for raw field reports on other defense and military intelligence agencies, such as branches of Army, Navy and Air Force intelligence.

Defense analyst and washingtonpost.com blogger Bill Arkin, who first brought allegations about CIFA’s domestic spying to light, says that in its efforts to trying eliminate waste and better coordinate intelligence activities, “we are creating an American military secret police that is clearly acquiring way too much information and way too much power.”

But Cindy McGovern, a spokeswoman for DSS, maintains that even if CIFA does merge with DSS, officials will not be able to get access to secret security files unless they have a “legitimate need and we verify that ... People who have access to these records need to have a verified need, a legitimate bona fide need.” Asked how many times CIFA requests for access to DSS files were turned down because of lack of adequate justification, McGovern said she did not have that information at hand. Hicks, the Pentagon spokesman, said there was “no clear answer” to this question, adding: “There are protocols in place to request information that CIFA follows, but there is no quick grasp as to how many times or instances that has been sought.”

In an e-mail to NEWSWEEK, Hicks added: “The Defense Security Service takes the release of personnel files and the information contained therein very seriously ... For the purposes of disclosure and disclosure accounting, the Department of Defense is considered a single agency. Notwithstanding, disclosures of DSS records within DOD are only authorized when a justifiable official need for the information exists. These same safeguards would apply in the event of a merger with CIFA.”