David A. Burtt II, director of the Counterintelligence Field Activity, the Defense Department's newest intelligence agency whose contracts based on congressional earmarks are under investigation by the Pentagon and federal prosecutors, told his staff yesterday that he and his deputy director will resign at the end of the month.

In an internal message, Burtt said, "I do not make this decision without trepidation, but the time is right to move on to the next phase of my career." He said he had been privileged to serve as CIFA director and was "especially proud of all of you and what you have accomplished for the CI [counterintelligence] community and for the overall CI mission."

Joseph Hefferon "has also decided to retire, after over 31 years of federal service," according to Burtt's message. A Pentagon spokesman yesterday confirmed they were leaving and said it was "a personal decision that they both made together."

Burtt, who was a deputy assistant secretary of defense for counterintelligence at the time of the Sept. 11, 2001, attacks, developed the concept for CIFA. It was established in September 2002, originally to coordinate policy and oversee the counterintelligence activities of units within the armed services and Pentagon agencies.

Over the past three years, it has grown to become an analytic and operation organization with nine directorates and widening authority focused primarily on protecting defense facilities and personnel from terrorist attacks. CIFA's size and budget are classified, but according to congressional sources the agency has spent more than $1 billion over the past four years, mostly for outsourced services. One counterintelligence official yesterday estimated that CIFA had 400 full-time employees and 800 to 900 contractors working for it.

The agency was criticized in December after it was revealed that a database managed by CIFA contained unverified, raw threat information on Americans who were peacefully protesting the war in Iraq at defense facilities, including recruiting offices.

Last March, as a result of the continuing federal investigations arising out of charges against former congressman Randy "Duke" Cunningham (R-Calif.), prosecutors said they were reviewing CIFA contracts that went to MZM Inc., a company run by Mitchell J. Wade, who had pleaded guilty in February to conspiring to bribe Cunningham.

Cunningham, now serving an eight-year prison term, in January 2004 sought about $16.5 million to be added to the defense authorization bill for a CIFA "collaboration center." A month later, he wrote Burtt a thank-you note about the center, adding, according to prosecutors' documents: "I wish to endorse and support MZM, Inc.'s work."

One of the consultants to Burtt, when he was formulating CIFA in 2002, was retired Lt. Gen. James C. King, then an MZM senior vice president who had recently retired as director of the Pentagon-based National Imagery and Mapping Agency.

In late 2002, Cunningham, who received campaign contributions from Wade and other MZM officials, made contracts for Wade's company one of "his top priorities," according to prosecutors' documents. One result, according to prosecutors' documents, was $6 million spent for a data storage system, supposedly for CIFA, that included almost $5.4 million in profit for MZM and a subcontractor.

Following disclosures in Cunningham's case, Undersecretary of Defense Stephen A. Cambone last March ordered an internal study of how funding earmarked in defense bills led to CIFA contracts for MZM. The Defense Information Systems Agency, which has been given responsibility for the inquiry, said in a statement yesterday that "the investigation is still ongoing."

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