From Newsweek: "Defense officials recently slipped a provision into a bill before Congress that could vastly expand the Pentagon's ability to gather intelligence inside the United States, including recruiting citizens as informants."
"The new provision... would eliminate one big restriction: that they comply with the Privacy Act, a Watergate-era law that requires government officials seeking information from a resident to disclose who they are and what they want the information for. The CIA always has been exempt--although by law it isn't supposed to operate inside the United States. The new provision would now extend the same exemption to Pentagon agencies such as the Defense Intelligence Agency--so they can help track terrorists."
S.2386, Intelligence Authorization Act for FY 2005
SEC. 502. DEFENSE INTELLIGENCE EXEMPTION FROM CERTAIN PRIVACY ACT REQUIREMENTS.
Section 552a(e)(3) of title 5, United States Code, shall not apply with respect to the collection of information by intelligence personnel of the Department of Defense who are authorized by the Secretary of Defense to collect intelligence from human sources.
See: Privacy Act of 1974