For about 50 years, American and German intelligence jointly owned the Swiss company Crypto AG, which was developing secure communications and encryption equipment.
The world now has a very new and extremely grand espionage scandal. Journalists found that US and German intelligence intercepted encrypted messages from governments in more than 120 countries for decades. This was achieved by the Swiss company Crypto AG, which was a leader in the global cryptographic technology market in the second half of the 20th century.
Crypto’s communications with intelligence agencies were investigated by the American newspaper The Washington Post, German television channel ZDF and Swiss television channel SRF.
From bribes to purchases
After examining the internal documents of BND (Germany) and the CIA (USA), the investigators concluded that Crypto AG was founded in 1950 and existed until 2018.
Its official founder was the Russian emigrant Boris Hagelin. In 1940, the inventor and his wife left for the United States, where he signed a contract for the supply of portable encryption machines M-209 for the American army. In 1951, the inventor agreed to sell his latest and most sophisticated devices only to those states that would be approved by American intelligence, and in return received $700,000 a year in compensation for lost profits.
In the 1960s, Hagelin’s collaboration with US intelligence only strengthened. The Central Intelligence Agency (CIA) obtained patent rights for Crypto devices and began to annually pay companies not only $700,000 for lost revenue, but also $10,000 for marketing so that it would not lose its position in the market.
The United States has long been thinking about buying Crypto, but disagreements between the CIA and the NSA interfered with vigorous action. This continued until 1967, when intelligence from France and the FRG offered to buy the company. Hagelin refused, and three years later sold Crypto to the United States and the same Federal Republic of Germany. He was paid about $5.75 million. The German Federal Intelligence Service (BND) and the CIA received equal shares in the company.
Who was being watched?
In 1950-2000, Crypto equipment was used by more than 120 countries. The names of half of them are known, mainly the nations of Europe (including the Vatican), South and Southeast Asia, Africa and South America.
It is also known that among the buyers of Crypto AG’s equipment there were no Russian, Chinese, Israeli, Swedish, Swiss nor UK buyers. It appears that they knew about the real owners of the company or received some intelligence ahead of time.
“It was the intelligence coup of the century,” the CIA report concludes. “Foreign governments were paying good money to the U.S. 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.”
Using decryption of messages sent via Crypto devices, the United States and Germany read the correspondence of Iranian authorities during the capture of American diplomats in Tehran in 1979, monitored the movements of the Argentine army during the Falkland War in 1982, knew about plans to overthrow South American dictators and listened how Libyan officials congratulated each other on an explosion at a Berlin disco in 1986.
The main target of surveillance was Iran. This country entered into major contracts with Crypto, and the CIA read from 80% to 90% of its management’s messages.
Crypto customers were not aware that the company belongs to the special services of the two countries that manipulated technology to break encryption and gain access to sensitive information.
Former government secretary of state Bernd Schmidbauer, who coordinated the work of German intelligence agencies, confirmed to investigators that such a special operation did exist until 1993, when the CIA and BND cooperation was terminated.
“Operation Rubicon (as Crypto was called in Germany) certainly contributed to making the world a little safer,” said Bernd Schmidbauer.
In 1993, Germany sold its stake in Crypto AG CIA for $17 million. In subsequent years, the market switched from hardware to software encryption, Crypto was unable to rebuild and ceased to be profitable, but continued to serve as a source of intelligence for the CIA. The secret service sold the company only in 2018 – presumably for $50-70 million.
Former Crypto employees feel cheated. “You think you are doing a good thing, creating safe devices. And then it turns out that you cheated customers, ”said engineer Jurg Sperndli, who had worked for Crypto for 16 years and considered her algorithms to be suspicious.