The intelligence coup of the century — VI

News report

ZURICH: Widman is long-retired now and living in Stockholm. He declined to comment. Years after his recruitment, he told US officials that he saw himself as “engaged in a critical struggle for the benefit of Western intelligence,” according to the CIA document. “It was, he said, the moment in which he felt at home. This was his mission in life.”

That same year, Hagelin, then 90 years old, became ill on a trip to Sweden and was hospitalized. He recovered well enough to return to Switzerland, but CIA officials became worried about Hagelin’s extensive collection of business records and personal papers at his office in Zug.

Schroeder, with Hagelin’s permission, arrived with a briefcase and spent several days going through the files. To visitors, he was introduced as a historian interested in tracing Hagelin’s life. Schroeder pulled out the documents “that were incriminating,” according to the history, and shipped them back to CIA headquarters, “where they reside to this day.”

Hagelin remained an invalid until he died in 1983. The Post could not locate Wagner or determine whether he is still alive. Schroeder retired from the CIA more than a decade ago and teaches part-time at Georgetown University. When contacted by a reporter from The Post, he declined to comment.

The Hydra crisis

Crypto endured several money-losing years in the 1980s, but the intelligence flowed in torrents. US spy agencies intercepted more than 19,000 Iranian communications sent via Crypto machines during that nation’s decade-long war with Iraq, mining them for reports on subjects such as Tehran’s terrorist links and attempts to target dissidents.

Iran’s communications were “80 to 90 percent readable” to US spies, according to the CIA document, a figure that would probably have plunged into the single digits had Tehran not used Crypto’s compromised devices.

In 1989, the Vatican’s use of Crypto devices proved crucial in the US manhunt for Panamanian leader Manuel Antonio Noriega. When the dictator sought refuge in the Apostolic Nunciature — the equivalent of a papal embassy — his whereabouts were exposed by the mission’s messages back to Vatican City.

In 1992, however, the Crypto operation faced its first major crisis: Iran, belatedly acting on its long-standing suspicions, detained a company salesman.

Hans Buehler, then 51, was considered one of the company’s best salesmen. Iran was one of the company’s largest contracts, and Buehler had traveled in and out of Tehran for years. There were tense moments, including when he was questioned extensively in 1986 by Iranian officials after the disco bombing and U.S. missile strikes on Libya.

Six years later, he boarded a Swissair flight to Tehran but failed to return on schedule. When he didn’t show, Crypto turned for help to Swiss authorities and were told he had been arrested by the Iranians. Swiss consular officials allowed to visit Buehler reported that he was in “bad shape mentally,” according to the CIA history.

Buehler was finally released nine months later after Crypto agreed to pay the Iranians $1 million, a sum that was secretly provided by the BND, according to the documents. The CIA refused to chip in, citing the U.S. policy against succumbing to ransom demands for hostages.

Buehler knew nothing about Crypto’s relationship to the CIA and BND or the vulnerabilities in its devices. But he returned traumatized and suspicious that Iran knew more about the company he worked for than he did. Buehler began speaking to Swiss news organizations about his ordeal and mounting suspicions.

The publicity brought new attention to long-forgotten clues, including references to a “Boris project” in Friedman’s massive collection of personal papers, which were donated to Virginia Military Institute when he died in 1969. Among the 72 boxes delivered to Lexington, Va., were copies of his lifelong correspondence with Hagelin.

In 1994, the crisis deepened when Buehler appeared on Swiss television in a report that also featured Frutiger, whose identity was concealed from viewers. Buehler died in 2018. Frutiger, the engineer who had been fired for fixing Syria’s encryption systems years earlier, did not respond to requests for comment.

Michael Grupe, who had succeeded Wagner as chief executive, agreed to appear on Swiss television and disputed what he knew to be factual charges. “Grupe’s performance was credible, and may have saved the program,” the CIA history says. Grupe did not respond to requests for comment.

Even so, it took several years for the controversy to die down. In 1995, the Baltimore Sun ran a series of investigative stories about the NSA, including one called “Rigging the Game” that exposed aspects of the agency’s relationship with Crypto.

The article reported NSA officials had traveled to Zug in the mid-1970s for secret meetings with Crypto executives. The officials were posing as consultants for a front company called “Intercomm Associates” but then proceeded to introduce themselves by their real names — which were recorded on notes of the meeting kept by a company employee.

Amid the publicity onslaught, some employees began to look elsewhere for work. And at least a half-dozen countries — including Argentina, Italy, Saudi Arabia, Egypt and Indonesia — either canceled or suspended their Crypto contracts.

Astonishingly, Iran was not among them, according to the CIA file, and “resumed its purchase of CAG equipment almost immediately.”

The main casualty of the “Hydra” crisis, the code name given to the Buehler case, was the CIA-BND partnership.

For years, BND officials had recoiled at their American counterpart’s refusal to distinguish adversaries from allies. The two partners often fought over which countries deserved to receive the secure versions of Crypto’s products, with U.S. officials frequently insisting that the rigged equipment be sent to almost anyone — ally or not — who could be deceived into buying it.

In the German history, Wolbert Smidt, the former director of the BND, complained that the United States “wanted to deal with the allies just like they dealt with the countries of the Third World.” Another BND official echoed that comment, saying that to Americans, “in the world of intelligence there were no friends.”

The Cold War had ended, the Berlin Wall was down and the reunified Germany had different sensitivities and priorities. They saw themselves as far more directly exposed to the risks of the Crypto operation. Hydra had rattled the Germans, who feared the disclosure of their involvement would trigger European outrage and lead to enormous political and economic fallout.

In 1993, Konrad Porzner, the chief of the BND, made clear to CIA Director James Woolsey that support in the upper ranks of the German government was waning and that the Germans might want out of the Crypto partnership. On Sept. 9, the CIA station chief in Germany, Milton Bearden, reached an agreement with BND officials for the CIA to purchase Germany’s shares for $17 million, according to the CIA history.

German intelligence officials rued the departure from an operation they had largely conceived. In the German history, senior intelligence officials blame political leaders for ending one of the most successful espionage programs the BND had ever been a part of.

With their departure, the Germans were soon cut off from the intelligence that the United States continued to gather. Burmeister is quoted in the German history wondering whether Germany still belonged “to this small number of nations who are not read by the Americans.”

To be continued