Crypto AG: The Swiss Firm Owned by the CIA

It’s almost too crazy to believe. The United States CIA actually owned a firm in Switzerland, which allowed them to spy on the world. But it’s true. It happened, and the entire scheme lasted over 50 years, only coming to light in 2018.

If we’ve piqued your interest, keep reading to learn how the CIA spied on the world thanks to one backdoor deal in the neutral country of Switzerland.

How CryptoAG Started

CryptoAG was actually founded in 1920 by a Swedish man named Arvid Gerhard Damm. Damm established his company in Stockholm, naming it AB Cryptoteknik.

Damm began creating C-36 mechanical cryptograph machines at the company, but unfortunately, he died before WWII, passing the company on to Boris Hagelin, an investor who was Swedish but was born in Russia.

In 1940, when Germany invaded Norway, Hagelin realized it was time to go and shipped a few of his machines (and himself) to the United States. He pitched the cryptograph machines to the US government, and ultimately, they purchased 140,000 machines, all of which were made during WWII.

Working together during the war formed a bond between Hagelin and William F. Friedman, a politician in the United States. When Friedman became the chief cryptologist for NSA in 1952, the two maintained regular correspondence, even though Hagelin had moved his company to Steinhausen in Switzerland in 1948 for the purpose of avoiding taxes.

Throughout the 1950s, Hagelin routinely sent cryptograph machines to the United States, where the NSA would debate about which countries they would sell them to, and which they would block, effectively putting the United States in charge of a large percentage of the world’s cryptograph machines even as early as the 1950s.

There were, however, machines that were sold to other countries directly by Hagelin. What these countries didn’t know, though, was that Hagelin was telling the US government exactly what machines were being purchased as well as the technical specifications of said machines, allowing the NSA to easily decipher other countries' communications.

Related: The History of Cryptography

The CIA Buys CryptoAG

Here’s where things begin to get really weird. In the late 60s, Hagelin was approaching his 80s and knew he couldn’t continue to run CryptoAG alone much longer. So, in 1970, he secretly sold CryptoAG to the CIA for $5.75 million USD, who split the cost of the purchase with the West German Intelligence Service BND.  

In true German and US fashion, the secret sale was given an undercover name for the records. It was called Operation Rubikon by the Germans and Operation Minerva by the Americans. At the time of the sale, the company had 400 employees and was netting over 14 million Swiss Francs on an annual basis.

It would later be discovered that the French had also wanted in on the purchase of CryptoAG, but they could not come to an agreement with the CIA, leaving them out of the deal in the end.

Either way, the company continued to produce cryptograph machines, the sales directly benefiting the CIA and German Intelligence. NSA actually wrote the manuals for all the cryptograph machines sold by CryptoAG, allowing them the upper hand in spying on other countries who purchased the machines.

The United States also controlled the countries that bought the machines, deliberately selling old or faulty machines to countries they viewed as more of a threat. In the end, they sold to 120 different countries but deliberately did not sell to the Soviet Union or the People’s Republic of China…for obvious reasons.

Crypto AG During the 1990s

By the time the 1990s rolled around, much of the world still had no idea that their cryptograph machines were being sold to them by the German and US governments, and in 1995, CryptoAG purchased another cryptograph company that made cryptographs for banks.

During this time, the CIA amped up spying on other countries through the cryptograph machines they were selling. Because they knew which countries were using their machines and how they were using them, they were able to decipher the intelligence communications of several countries around the world. They also rigged machines to send messages directly to them, and still, no one knew that this company was owned by two government entities.

Related: What is the RESTRICT Act?

The Gig is Up

As the years rolled by, countries all over the world became suspicious of Crypto AG. Specifically, Libya and Iran, both of whom had their messages decoded and critical moments in history. At one point, Iran even arrested a CryptoAG salesman, interrogating him for 9 months. The employee, however, did not know the machine he had sold the Iranian government was rigged, and he was eventually released when CryptoAG paid his $1 million bail.

Here's where the US government messed up, because, after his release, they came after the employee who was detained, asking him to pay his own bail money back to CryptoAG. The employee balked and obtained a lawyer, who began to look into the case. The lawyer concluded that the machine had, in fact, been rigged and reported it to the Swiss government.

The US and German governments, of course, said these were baseless claims. The lawyer backed off but secretly went to The Washington Post, which began their own investigation.

In 2018, apparently, the CIA and German Intelligence grew tired of the business world, deciding to liquidate and sell CryptoAG to two separate companies. This sale put the company on the radar, and more investigations began behind the scenes.

During these investigations, it was discovered that the CIA and BND had been behind the company for years and that all machines sold had been rigged. It was also revealed that the Swiss government had been aware of the scheme, but they had decided not to intervene. Both because of their neutral world position and because they, too, benefited from intelligence provided to them by the CIA.

Overall, people around the world were outraged when everything came to light. Especially governments that had received the rigged machines. Although the US government no longer makes cryptograph machines, we think this is a prime example of why citizens around the world should be careful of how much power they give their governments.

Not only did the US use CryptoAG to spy on numerous countries, but they also benefitted financially for decades. Plus, they swept much of the findings under the rug—many Americans are still unaware of their government's activities following World War II. We hope this article has taught you something and that if you ever find yourself in need of cryptograph machines, you’ll consider making your own instead of buying one!

Related: How to Improve Personal Data Privacy