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February 22, 2020

The intelligence coup of the century-VIII

Top Story

February 22, 2020

ZURICH: The Snowden documents provided what must have been an unsettling answer, showing that US intelligence agencies not only regarded Germany as a target but monitored German Chancellor Angela Merkel’s cellphone. The CIA history essentially concludes with Germany’s departure from the programme, though it was finished in 2004 and contains clear indications that the operation was still underway. It notes, for example, that the Buehler case was “the most serious security breach in the history of the programme” but wasn’t fatal. “It did not cause its demise,” the history says, “and at the turn of the century Minerva was still alive and well.”

In reality, the operation appears to have entered a protracted period of decline. By the mid-1990s, “the days of profit were long past,” and Crypto “would have gone out of business but for infusions from the US government.” As a result, the CIA appears to have spent years propping up an operation that was more viable as an intelligence platform than a business enterprise. Its product line dwindled and its revenue and customer base shrank.

But the intelligence kept coming, current and former officials said, in part because of bureaucratic inertia. Many governments just never got around to switching to newer encryption systems proliferating in the 1990s and beyond — and unplugging their Crypto devices. This was particularly true of less developed nations, according to the documents.

Most of the employees identified in the CIA and BND histories are in their 70s or 80s, and some of them have died. In interviews in Switzerland last month, several former Crypto workers mentioned in the documents described feelings of unease about their involvement in the company.

They were never informed of its true relationship to intelligence services. But they had well-founded suspicions and still wrestle with the ethical implications of their decisions to remain at a firm they believed to be engaged in deception.

“Either you had to leave or you had to accept it in a certain way,” said Caflisch, now 75, who left the company in 1995 but continues to live on the outskirts of Zug in a converted weaving factory where she and her family for many years staged semiprofessional operas in the barn. “There were reasons I left,” she said, including her discomfort with her doubts at Crypto and her desire to be home more for her children. After the latest revelations, she said, “It makes me wonder whether I should have left earlier.”

Spoerndli said he regrets his own rationalizations.

“I told myself sometimes it may be better if the good guys in the United States know what is going on between these Third World dictators,” he said. “But it’s a cheap self-excuse. In the end, this is not the way.”

Most of the executives directly involved in the operation were motivated by ideological purpose and declined any payment beyond their Crypto salaries, according to the documents. Widman was among several exceptions. “As his retirement drew near, his covert compensation was substantially increased,” the CIA history says. He was also awarded a medal bearing the CIA seal.

After the BND’s departure, the CIA expanded its clandestine collection of companies in the encryption sector, according to former Western intelligence officials. Using cash amassed from the Crypto operation, the agency secretly acquired a second firm and propped up a third. The documents do not disclose any details about these entities. But the BND history notes that one of Crypto’s longtime rivals — Gretag AG, also based in Switzerland — was “taken over by an ‘American’ and, after a change of names in 2004, was liquidated.”

Crypto itself hobbled along. It had survived the transitions from metal boxes to electronic circuits, going from teletype machines to enciphered voice systems. But it struggled to maintain its footing as the encryption market moved from hardware to software. U.S. intelligence agencies appear to have been content to let the Crypto operation play out, even as the NSA’s attention shifted to finding ways to exploit the global reach of Google, Microsoft, Verizon and other U.S. tech powers.

In 2017, Crypto’s longtime headquarters building near Zug was sold to a commercial real estate company. In 2018, the company’s remaining assets — the core pieces of the encryption business started nearly a century earlier — were split and sold.

The transactions seemed designed to provide cover for a CIA exit.

CyOne’s purchase of the Swiss portion of the business was structured as a management buyout, enabling top Crypto employees to move into a new company insulated from the espionage risks and with a reliable source of revenue. The Swiss government, which was always sold secure versions of Crypto’s systems, is now CyOne’s only customer.

Giuliano Otth, who served as CEO of Crypto AG from 2001 until its dismemberment, took the same position at CyOne after it acquired the Swiss assets. Given his tenure at Crypto, it is likely he was witting to the CIA ownership of the company, just as all of his predecessors in the job had been.

“Neither CyOne Security AG nor Mr. Otth have any comments regarding Crypto AG’s history,” the company said in a statement.

Crypto’s international accounts and business assets were sold to Linde, a Swedish entrepreneur, who comes from a wealthy family with commercial real estate holdings.

In a meeting in Zurich last month, Linde said he had been drawn to the company in part by its heritage and Hagelin connection, a past that still resonates in Sweden. Upon taking over operations, Linde even moved some of Hagelin’s historic equipment from storage into a display at the factory entrance.

When confronted with evidence that Crypto had been owned by the CIA and BND, Linde looked visibly shaken, and said that during negotiations he never learned the identities of the company’s shareholders. He asked when the story would be published, saying he had employees overseas and voicing concern for their safety.

In a subsequent interview, Linde said his company is investigating all the products it sells to determine whether they have any hidden vulnerabilities. “We have to make a cut as soon as possible with everything that has been linked to Crypto,” he said.

When asked why he failed to confront Otth and others involved in the transaction about whether there was any truth to the long-standing Crypto allegations, Linde said he had regarded these as “just rumors.”

He said he took assurance from the fact that Crypto continued to have substantial contracts with foreign governments, countries he assumed had tested the company’s products vigorously and would have abandoned them if they were compromised.

“I even acquired the brand name, ‘Crypto,’ ” he said, underscoring his confidence in the company’s viability. Given the information now coming to light, he said, this “was probably one of the most stupid decisions I’ve ever made in my career.”

The company’s liquidation was handled by the same Liechtenstein law firm that provided cover for Hagelin’s sale to the CIA and BND 48 years earlier. The terms of the 2018 transactions have not been disclosed, but current and former officials estimated their aggregate value at $50 million to $70 million.

For the CIA, the money would have been one final payoff from Minerva.