US and German intelligence services raked in the top secret communications of governments around the world for decades through their hidden control of a top encryption company, Crypto AG, US, German and Swiss media reported on Tuesday.
The Swiss company was a top supplier of devices for encoding communications to about 120 countries from after World War II to the beginning of this century, including Iran, South American governments, and India and Pakistan.
Unknown to those governments, Crypto was secretly owned by the CIA and Germany’s BND Federal Intelligence Service.
Together, they rigged Crypto’s equipment to be able to easily break codes and read governments’ messages, according to reports by the Washington Post, German television ZTE and Swiss state media SRF.
Citing a classified internal CIA history of what was originally called operation “Thesaurus” and later “Rubicon,” the reports said that in the 1980s the harvest from the Crypto machines supplied about 40 percent of all the foreign communications US codebreakers processed for intelligence.
Meanwhile, the company took in millions of dollars in profits that went to the CIA and BND.
“It was the intelligence coup of the century,” the history says, according to the Washington Post.
“Foreign governments were paying good money to the US and West Germany for the privilege of having their most secret communications read by at least two (and possibly as many as five or six) foreign countries,” it says.
The BND had no immediate reaction to the story.
CIA spokesman Timothy Barrett declined to comment on it.
Crypto was founded by Russian-born entrepreneur Boris Hagelin who fled Scandinavia to the US in 1940, when the Nazis occupied Norway. He had created a portable mechanical encryption machine that could be used in the field.
About 140,000 were produced for US troops during the war by the Smith Corona typewriter company in New York.
After the war Hagelin moved to Switzerland and began producing more advanced encryption machines US spies worried would allow governments everywhere to shield their communications.
However, the premier US cryptologist, the National Security Agency’s (NSA) William Friedman, persuaded Hagelin to restrict sales of his most advanced machines to countries approved by Washington, while older machines — with penetrable encryption — were sold to others.
When integrated circuits replaced mechanical encryption in the 1960s, the NSA helped Hagelin design new machines, which included coding that US cryptologists knew how to crack.
When Hagelin sought to retire, the US headed off a French government effort to buy his company and arranged its own takeover. In 1970, the US and Germany reached a deal to take it over for US$5.75 million — with the stipulation that the French be excluded.
They then controlled virtually all Crypto operations, hiring the staff, designing the technology and directing sales.
The intelligence operation underlying Zug-based Crypto had long been suspected and was alluded to, but never proven, in documents that surfaced decades ago.
The company’s true ownership was masked by front companies in Liechtenstein registries.
While scores of countries bought Crypto’s coding machines, the top Western adversaries, Russia and China, never trusted them.
Apparently nervous about being exposed and uncomfortable with the CIA’s aggressive targetting of both friends and rivals with Crypto machine sales, BND pulled out of the relationship and the CIA bought its shares in the 1990s.
Bernd Schmidbauer, former secret service coordinator for the German government, confirmed the story to ZTE.
“The Rubicon operation clearly contributed to making the world a little safer,” he said.
With online technology, including advanced encryption apps, now more powerful than the kind of machines that Crypto made, the CIA finally sold the company in 2018, the Washington Post reported.
It was broken into two companies. Its Swiss-client business remained in Zug under the new name CyOne, and the international business and company name were taken over by Swedish investor Andreas Linde.
The Swedish company, Crypto International, called the news reports “very distressing.”
“We have no connections to the CIA or the BND and we never had,” the company said in a statement on its Web site.
“We are currently assessing the situation and will be commenting once we have a full picture,” it said.
Swedish Ministry of Defense spokeswoman Carolina Bohren said that the government was informed of the Crypto AG case in November last year and has named a retired federal judge to investigate.
The country has suspended export licenses for Crypto’s successor companies.
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