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Crypto AG

Crypto A.G. is a long-established manufacturer of cryptographic and communications equipment, based in Steinhausen (Switzerland), with offices in many countries and a world-wide customer base. The company was established in 1952 by Russian-born Swede Boris Hagelin, who gradually moved the activities of his Swedish company AB Cryptoteknik to Switzerland after restrictive laws were proposed in Sweden. As a tribute to its founder, the company logo still bears his name.

With Switzerland being a neutral country, Crypto AG can do business througout the entire world, with virtually no limitations. In the past, this has often led to allegations that the devices sold by Crypto AG were flawed in order to give certain secret services the ability to intercept and decode the messages that are created with them. This is strongly denied by the company however. It is unknown who the owners of the company are, supposedly even to the current management [1].

 Crypto AG / Hagelin cipher machines
 Secret arrangement between Hagelin and the NSA

Split into two companies
In January 2018, it was announced that on 1 February 2018, the company would be split into two new companies that would handle the international and national business respectively [9]. The approximately 150 staff would be split evenly between the two companies. Both companies will remain in Zug (Switzerland), although the international branch is now part of the Swedish Crypto International Group AB, owned by the Swedish entrepreneur Andreas Linde. The national branch is the result of a management buyout, led by Robert Schlup, Giuliano Otth (previously the CEO of Crypto AG) and Thomas Meier (CEO of the affiliated InfoGuard AG). The companies are known as:

The history of Crypto AG starts around 1922, when Russian-born Swede Boris Hagelin was asked by the Swedish Nobel family to become a financial controller at Arvid Gerhard Damm's company AB Cryptograph in Stockholm. The Nobel family had put a significant sum of money into Damm's business and wanted the son of a a friend, Boris Hagelin, to look after their uncertain investment.

By 1925, Hagelin had become the acting director of the company, whilst AG Damm was persuing business in France. In the meantime, Hagelin had developed the B-21, a cipher machine that was based on Damm's erlier design of the B-18. Hagelin improved the design by adding his (now) famous pin-wheels, after which the machine was offered to the Swedish Army, who adopted it.

After AG Damm died in 1927, AB Cryptograph was liquidated in 1932 and replaced by AB Cryptoteknik, Hagelin's first own company. In 1935, he developed the C-35 at the request of the French Army, the first of the C-machines.

The C-35 was followed by the C-36, C-37 and eventually the C-38, the machine that changed Hagelin's life. In May 1940, several months after the outbreak of WWII and after extensive testing, it was selected as a tactical cipher machine for the US Army. The new machine became known as the M-209 and was built at the Corona plant of the LC Smith typewriter company, with an output of 500 units a day. By the end of the war, over 140,000 units had been built in America, and Hagelin had earned his first real fortune.

After the war, when Sweden was about to introduce some restrictive laws, Hagelin decided to move to neutral Switzerland, where he settled down in Zug under the name Crypto AG. After a short period of cooperation with Dr. Edgar Gretener on online cipher machines, he decided to go his own way and developed the TC-52. Over the course of the following years, the business was gradually moved from Stockholm (Sweden) to Zug (Switzerland), where it is still located today.

 Read Hagelin's personal biography (English)
 Original manuscript of the biography (German)

Over the years, Crypto AG has regularly been accused of selling flawed equipment or, in more popular terminology: equipment with a backdoor that gives certain secret services the ability to break the messages that are encrypted on those devices. With Crypto AG being based in neutral Switzerland, they sell their equipment to most countries in the world with virtually no restrictions.

It has often been suggested that the company cooperates with secret services like the German Bundesnachrichtendienst (BND) and the American National Security Agency (NSA) in order to give these agencies access to the high-level diplomatic and military traffic of certain countries. Below are some examples of such allegations. It is important to note however, that Crypto AG strongly denies these allegations and that until 2014, no conclusive evidence has ever been submitted.

Documents released by the NSA in June 2014 [5] however, confirm that the NSA had come to a secret agreement with Boris Hagelin, the founder and initial owner of the company, as early as 1951. Although the exact details of this agreement are still classified, there is strong evidence to suggest Hagelin's full cooperation with the NSA at the time, in return for certain priviledges.

 More about the secret NSA/Hagelin Agreement

Der Fall Hans Bühler
In 1992, Crypto AG's top sales representative Hans Bühler was arrested in Iran on the suspicion that the Hagelin cipher machines used by the Iranian Government were flawed, or in popular terminology: that they contained a backdoor. A loose remark of US President Ronald Reagan about evidence against Libya had led them to believe that Crypto AG was cooperating with the US.

Bühler – completely unaware of any manipulation with the machines – is interrogated three times a day for nine months and is finally released in 1993, after the bail of US$ 1,000,000 is payed by Crypto AG. This incident certainly doesn't mark the finest period in Crypto AG's history.

Immediately after Bühler's release from prison and his subsequent return to Switzerland, he is fired and, in addition to that, the company also wants him to repay the US$ 1,000,000. Bühler then decides to go public and confines his story to a book that is published in 1994 [22].
Cover of the book 'Verschlüsselt, Der Fall Hans Bühler'

The Swiss Federal Police – the Bundesanwaltschaft – has investigated the matter and questioned several people, and it is said that no irrefutable evidence against Crypto AG was ever found. The outcome of the investigation however, remains classified to this day and repeated requests from journalists for public disclosure of the results of the investigation have so far been denied.

Since Hans Bühler went public, some of his former colleagues have decided to come out as well. Former software engineer Jürg Spörndli confirmed that the company was visited frequently by NSA specialists and that on several occasions he was instructed by his manager to swap a crypto­graphic algorithm that he had developed, for an alternative one – supplied by the NSA – that was clearly weaker [23]. This case shows some similarity with the weakening of the Philips PX-1000.

The Friedman Papers
In 2014, the NSA released more than 7600 documents [5], amounting to over 52,000 pages of historical material relating to the career of William F. Friedman (1891-1969), who is considered the dean of American Cryptology. Although some documents have been fully declassified, most of them are still heavily redacted as – according to the NSA – they may contain information that could harm national security or any individuals or companies mentioned in those documents.

It is no secret that, on a personal level, Hagelin and Friedman were good friends. They shared an interest in historical cipher machines and they both suffered from depressions. During WWII they were in close contact after Hagelin 'escaped' to the US in March 1940 and subsequently allowed the Americans to build his M-209 cipher machine under licence. Once the war was over, they maintained their friendly relationship and helped each other on a number of occasions.

Among the released documents are hundreds of letters between Friedman and Hagelin. Most of these letters are of a personal nature, but some of them contain explicit NSA material. In records, dated 12 April 1951, that were taken from Friedman's home, AFSA — the predecessor of the NSA — refers to: AFSA negotiation via C/A with Mr. Hagelin of AB Cryptotechnik.

In a memorandum of 5 February 1954, the NSA expresses its concerns about newly announced Hagelin cipher machines, such as the CX-52 and the T-52, and asks Friedman to investigate this.
William Friedman (1891-1969), top cryptologist of the NSA

Friedman is allowed to make a proposal to Hagelin on behalf of the director of the NSA (DIRNSA). It is further agreed that Friedman will use his personal stationary and his private address for further correspondence with Hagelin, in order not to ring any bells. As a result, Hagelin and DIRNSA enter into what they call a Gentleman's Understanding for a period of 6 months, during which time the details of what is officially known as the Hagelin Negotiations will be finialised.

Although the exact details of the negotiations with Hagelin have not yet been declassified, it must have been a serious deal, as it took the NSA twelve months, rather than the anticipated six, to come up with a proposal. Finally, in February 1955, Friedman travels to Zug (Switzerland) for a 'personal' visit to Boris Hagelin, with the intention to present proposal USCIB 29.14/29 to him.

On 21 February 1955, Friedman arrived in Zug (Switzerland) and stayed at Hagelin's home for a full week, during which time they discussed cryptographic and business matters. At Friedman's request, and without hesitation, Hagelin released full details of the machines he has sold so far, and to which countries he sold them. On the last day of his visit, Friedman put proposal USCIB 29.14/29 before Hagelin and, although Friedman clearly indicated that he could take some time to think it over, to Friedman's surprise Hagelin immediately agreed with the full proposal.

 Read the full story of the NSA/Hagelin deal

Although, at present, the exact details of the deal between the NSA and Hagelin are still classified, the following can be concluded from the released documents:

  • Negotiations between the NSA and Hagelin started as early as 1951.
  • There was a certain amount of money involved in the deal (US$ 700,000).
  • Hagelin would provide certain information to the NSA.
  • From 28 February 1955 onwards, there was a deal between the NSA and Hagelin.
  • The NSA would write the brochures and instructions for the CX-52 machine.
  • Hagelin got some personal favours for some of his relatives in the US.
  • Hagelin would refrain from doing something. 1
  • Hagelin did not want to be payed for the above (not doing something).
  • Hagelin was allowed to buy back several hundreds of M-209 machines.
  • The NSA would write the manual for 'proper use' for NATO. 2
  1. In this context it is assumed that Hagelin agreed not to sell certain versions of his machines to certain countries. As a result, these countries would use weaker machines which were easier for the NSA to break.
  2. In order to make best use of their machines, Hagelin usually released a manual for 'proper usage'. For the machines used by NATO, it was agreed that the NSA would write this manual. This could imply that Hagelin received NATO orders as part of the deal with the NSA, but this can not be confirmed at present.

With respect to the above, it is certain that an agreement existed between the NSA (formerly: AFSA) and Mr. Boris Hagelin as early as 1951. This agreement was reviewed several times in the following years, in any case in 1955 and 1957, and did not have a termination date.  More

Reaction by Crypto AG
The above story is the result of extensive research in the Friedman Collection of Official Papers by the British Broadcasting Corporation (BBC) and Crypto Museum. It was the subject of a radio program that was aired on 28 July 2015 on BBC 4 [8].

In an official reply to the BBC, Crypto AG neither denied nor confirmed the results of the investigation and the contents of the Friedman Papers, but firmly confirmed that, whatever had happened in the past, this is definitely not happening today. The company further ensures that mechanisms have been put in place to prevent such situations from happening in the future.

 Read the full story

  1. Declassified by NSA on 17 June 2014 (EO 13526).

  1. Boris Hagelin, Die Geschichte der Hagelin-Cryptos
    Original manuscript by Boris Hagelin in German language. Zug, Fall 1979.

  2. Boris Hagelin, The Story of Hagelin Cryptos
    English translation of the above. BCW Hagelin, Zug, Spring 1981. Later edited by David Kahn and published in Cryptologia, Volume 18, Issue 3, July 1994, pp 204-242.

  3. Hans Stadlin, 100 Jahre Boris Hagelin 1982-1992 (German)
    Crypto AG. Crypto Hauszeitung Nr. 11. Jubilieumausgabe September 1992.

  4. Wikipedia, Crypto AG
    Retrieved July 2015.

  5. NSA, William F. Friedman Collection of Official Papers
    Retrieved July 2015.

  6. Bruce Schneier, NSA backdoors in Crypto AG Cipher Machines
    11 January 2008. Retrieved July 2015.

  7. Bruce Schneier, Crypto-Gram, June 15, 2004 - Breaking Iranian Codes
    15 June 2004. Retrieved July 2015.

  8. BBC Radio 4, Document - The Crypto Agreement
    Evidence of a secret deal between Crypto AG (Hagelin) and the NSA.
    28 July 2015, broadcast, presented by Gordon Corera.
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© Crypto Museum. Created: Friday 17 July 2015. Last changed: Wednesday, 23 January 2019 - 16:11 CET.
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