96. Selling The World's Secrets: Is The CIA Reading Your Messages? (Ep 1)

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Speaker 3 Welcome to the Rest is Classified. I'm Gordon Carrera.

Speaker 1 And I'm David McCloskey.

Speaker 3 David, have you ever wondered if your phone might be spying on you?

Speaker 1 I have occasionally wondered if my phone is spying on me, Gordon.

Speaker 1 I would say more so after reading the outline that you put together for the next few episodes for the story we're going to talk about, which is all about technology being rigged to spy on its users, on the poor people who have paid for it.

Speaker 1 And it makes me think that, like so many of these episodes that we do that deal with the intersection of spying and technology, that we should all get rid of our phones and computers and put the tinfoil hats on and shut the doors and just hide and hide.

Speaker 3 Yeah, I think there's something to that because if you are already a little bit worried about your tech,

Speaker 3 then this episode and the next one might get you even more worried because, yeah, tech companies are always kind of promising they will offer you security from your phone and your messaging.

Speaker 3 But what if a spy agency actually secretly owned a company that made the devices that promised you security? I mean, that is the slightly crazy story we're telling today.

Speaker 3 The story of a company called Crypto AG

Speaker 3 and the way and the crazy operation used to effectively spy on all its customers.

Speaker 1 We did the series on Oleg Gordievsky, and I think agreed that he was maybe the most important human spy of the Cold War.

Speaker 1 You might be able to make the case that this far less well-known story about Crypto AG

Speaker 1 is the greatest intelligence operation of the Cold War, period. Because it went on, as we'll see, for decades and it compromised

Speaker 1 an absolutely staggering amount of global communications that was then decrypted by

Speaker 1 American and, as we'll see, German intelligence and passed to so many different allies.

Speaker 1 I mean, this to me feels like it's right up there in terms of the most impactful intelligence operations run in the past, maybe ever, but certainly during the Cold War.

Speaker 3 Yeah, that's right. I think, you know, it had, as we'll see, kind of really consequences which changed world events.

Speaker 3 And I think because it's only just emerged recently, what was involved in this operation?

Speaker 3 We're still learning and kind of trying to find out how it did shape international relations, you know, throughout most of that Cold War period.

Speaker 3 And it is a amazing intelligence operation run by the US, but yes, also with a little bit of UK role. And also the Germans.

Speaker 1 It's the Germans.

Speaker 3 So Germans make their shout out to the BND, the German Foreign Intelligence Service. I think this is one of their first appearances on the pod.

Speaker 1 The Bundesnachrichtensien.

Speaker 1 How do you say

Speaker 1 what does it stand for? Very good. BND.

Speaker 1 The BND. The Bundesnachrichtencient.
I listened to a German pronouncing that word a few times in preparation for this, Gordon, and I still, the end is

Speaker 1 unintelligible. I still got it to be.
I still don't have it. So apologies to all of our German friends and listeners.

Speaker 1 The BND, Gordon, I think has appeared on the show in one prior episode, which is when I talked about how I went to Berlin for a liaison meeting with the BND and we presented them with very compelling information and they told us that we were wrong.

Speaker 1 And then we had pizza and left Berlin.

Speaker 1 That was the one other time the BND has appeared.

Speaker 3 And so it's an international operation.

Speaker 3 Also, I think the other thing, just before we get into it, I really find interesting, is that it is about kind of technical intelligence and communications intercept and you know complicated things about encryption but it's actually also based on two people and a personal friendship between two people a spy and a businessman and I think it also is quite interesting because it gets to the relationship between the technical world of communications intelligence and signals intelligence and the human world of human relationships and the CIA and and so I find that bit of it actually quite compelling as well as well as the fact it's basically telling us about security and communications and what we need to worry about today.

Speaker 1 It does feel like a bit of the missing link or a connective tissue between

Speaker 1 the world of Bletchley Park, the decryption of German code, and then Snowden.

Speaker 3 Ah, friend of the pilot.

Speaker 1 Friend of your side of the pod, Gordon. It feels like this story connects some of these themes around essentially the transatlantic partnership and the

Speaker 1 compromise of so much global telecommunications traffic that our two countries have

Speaker 1 done together. Really?

Speaker 1 Jointly.

Speaker 3 Yeah, no, I think that's right. And I think also the relationship between intelligence agencies and companies, which is interesting.

Speaker 3 And, you know, these days, you've got battles between states and companies like Apple and the British government is having a battle about encryption and whether Apple should build back doors into its devices.

Speaker 3 Well, this is about, in a way, how we got there. And, you know, this even echoes of our recent series on Mossad pages.
So yeah, lots in there to get our teeth stuck into.

Speaker 1 And Gordon, I think listeners to this pod are going to be very excited about how we're starting the story because

Speaker 1 this isn't going to be Gordon Carrera explaining how you build a nuclear weapon, which he has done. I think now

Speaker 1 two or three times on the pod, different pieces of how you construct a nuclear bomb. This time, you are going to give us a lesson in encryption to start because

Speaker 1 the encryption and the value of encrypted communications is going to really be at the center of this story.

Speaker 3 Yeah, so let's cut straight to the lesson. Encryption means encoding information.
You can stop me anytime, David.

Speaker 3 So encryption is encoding information so that other people can't read it, keeping your messages private. So we all use it every day now.

Speaker 3 When you send your bank details over the internet to pay for something, it's encrypted.

Speaker 3 You know, when you use WhatsApp, they talk about end-to-end encrypted so that anyone who intercepts it can't read it. There's lots of ways of doing it, and it goes back really to ancient times.

Speaker 3 The simplest way of scrambling the letters and making something unreadable, which kids get taught in some of those kind of spy books you get given, is to use something called a Caesar cipher, named after Julius Caesar, where you simply shift letters, you know, along the alphabet.

Speaker 3 Another version is where you use a kind of wheel where you have two little rows and the letters line up and you create your message on one hand and then you look at at what the wheel tells you that each letter corresponds to, you write it down, and if someone has the same wheel set up at the same place, they can turn the gobbledygook back into a readable message, right?

Speaker 3 So that's the simple explanation. But if you go back a century or so, just over that, you get the first encryption machines which are being built, electromechanical devices.

Speaker 3 They look like a typewriter. You type your message on a keyboard, scrambles it with rotors which turn, which give you lots more combinations, making it harder to crack.

Speaker 3 Then you get out the message, looks like gobbledygook on a bit of paper. You can transmit it over radio, Morse code.

Speaker 3 Only if you've got another machine with the same settings can the person who receives the message read it. February 1918, a German engineer named Arthur Scheribus.

Speaker 3 Sherbius, I think it's the right pronunciation.

Speaker 3 Now, whose other inventions included an electric pillow.

Speaker 1 So

Speaker 1 I love that fact. What does the pillow need to be electrified for? Is it I don't know.

Speaker 3 Is it heated? I guess it's like an electric blanket, but it was an electric pillow which he patented.

Speaker 1 Maybe it inflates itself.

Speaker 1 I don't know. We're unfair.

Speaker 3 But anyway, more importantly than the electric pillow, he is going to invent a machine, which he's going to sell to businesses with a slogan.

Speaker 3 One secret, well protected, may pay the entire cost of the machine, good salesman. And he's going to call the machine Enigma because it's so mysterious.
Of course, it's going to get very famous.

Speaker 3 It's actually made for businesses originally,

Speaker 3 but governments immediately see, well, there's some advantage when you're sending diplomatic messages, intelligence reports, military orders to have them encrypted.

Speaker 3 Obviously, where you've got secrets, spies are going to try and steal them. So where there's code, you get code breakers.

Speaker 3 Most famously, the team at Bletchley Park will set out to break various different types of Enigma in World War II. We're not going to do the whole Bletchley Park story today, are we?

Speaker 1 No. I mean, that is one that we have talked about doing in person.
And it's its own story, I think, in its own right.

Speaker 1 I mean, you probably could say that it's the start of the modern US-UK intelligence relationship has really birthed at Bletchley Park and the breaking of German codes.

Speaker 3 Yeah, that's right, because a bunch of Americans come over to kind of share what they've done against Japanese codes with the Brits, and the Brits have done, you know, the work against the German Enigma.

Speaker 3 And and that starts actually the cooperation between the two countries which then becomes the heart of the intelligence relationship and you know GCHQ and NSA and what's called the five eyes when Australia Canada and New Zealand join so it should be ten eyes shouldn't it everybody should have two that is a really good point yeah there's five parts each with two eyes each with two eyes

Speaker 1 It should be ten. I've always thought this.
I've never had the platform to do anything about it, but I'm throwing it out there for anyone listening.

Speaker 1 But yes, five eyes, which, you know, is Five Eyes too short, is a code-breaking alliance.

Speaker 3 The big thing about Enigma is it's super secret during the war. You don't want your enemy to know you've broken their codes because then they'll change them and you won't be able to read them.

Speaker 3 But they keep it secret after the war. And this is really interesting.
It's kept secret in Britain until the 1970s, the fact Bletchley Park did what it did.

Speaker 3 And if you want to understand why they did that, actually this story about Crypto AG is going to help explain that. Because the point is, after the war, no one knows they've broken Enigma.

Speaker 3 So everyone believes these kind of machines are unbreakable. And at the same time, other companies are building their own versions of the Enigma machine.

Speaker 3 And here we meet our first character, Boris Hagelin, born in Russia, and that's going to be important, in 1892 to a Swedish family.

Speaker 3 And his father works in a senior capacity for the Nobel family, which have a load of oil refineries in Baku. The Nobel family, as in the Nobel Prize, David.

Speaker 3 So I know your president is waiting for his peace prize. You're waiting for your prize for literature, I imagine

Speaker 3 as we speak.

Speaker 1 That's right.

Speaker 1 Another year, and I didn't get it, Cornen. Another year.

Speaker 3 I'll have a word.

Speaker 1 Another empty spot on my shelf for myself.

Speaker 3 So Boris Hagelin is working for the Nobel family. He goes back to Stockholm for his education, graduates in mechanical engineering in 1914.

Speaker 3 He's expecting to go back to Russia, but then you get the Bolshevik Revolution, 1917. So that's over.
The Nobel family are still kind of helping him and his father out.

Speaker 3 And young Boris ends up in charge of a small company in 1921 called AB Cryptograph, which Nobel are investing in. And this builds these kind of very early cipher machines like the Enigma.

Speaker 3 And he's tinkering and trying to understand it. 1925, he hears the Swedish military, so he's back in Sweden, have got hold of one of these German Enigma machines.

Speaker 3 And he rushes over to the Swedish military and he says, oh, hang a sec, I can build you something better.

Speaker 3 Now, I think he's a little bit of a modern techie in the kind of fake it until you make it category because the truth is, I don't think he knows how to do that.

Speaker 3 I think he's, you know, he's just kind of guessing, bluffing that he's going to be able to do it. But he gets to work.

Speaker 3 Six months later, he's built off kind of knock-off, slightly inferior version of Enigma, and he gets the Swedish general staff, the military, to buy his machine, the B-21.

Speaker 3 Business starts then struggling a little bit. 1932 gets the French military to buy a model, followed by the Duzienne Bureau, French spies.
How was my French there? It's okay.

Speaker 1 Tré bon, Gordon.

Speaker 3 Thank you, David. And then he, of course, like anyone that was, you know, seeking to make it, he's got to go to the Americans.
So he starts to sell late 30s.

Speaker 3 May 1940, he just about escapes the war in Europe, and he escapes from Italy, actually, with two machines in his luggage, heads to the U.S., spends most of the war in the US.

Speaker 3 And this is where he starts to sell big... Crucially, including to the U.S.
Army.

Speaker 3 He's going to sell 140,000 machines for the military to use for kind of encrypted tactical communications, a deal for $9 million.

Speaker 1 Probably like $80 billion today.

Speaker 1 Not that much. You didn't do the calculation.
You didn't do the math.

Speaker 1 Yeah, you didn't do the math.

Speaker 3 But he's in his late 40s. You know, he's handsome, slim, silver, slick-back hair, well-dressed, kind of looks like a successful businessman, not quite a tech bro.
Wars are good for business.

Speaker 3 1948, he goes back to Sweden, but then moves the company to Switzerland. It merges with another company and it's going to become called Crypto AG.

Speaker 3 Crucial thing is it's starting to build better machines. And he's going to think, I'm going to start selling these around the world.
Everyone wants these machines.

Speaker 3 Start of the 50s, Crypto AG builds a new machine called the CX52, which is a massive improvement on the previous ones. It's actually quite good.
And it's so good.

Speaker 3 that it freaks out US intelligence, who when they see it, realize we can't break it. And this is the central problem then.

Speaker 3 What do you do when someone is building in the private sector high-grade encryption and offering to sell it to anyone? And that is the problem.

Speaker 1 Well, and it makes me think, Gordon, it's not encryption. It's actually the opposite.
But it makes me think of the Israeli

Speaker 1 software developer, NSO group, that made the Pegasus spyware, which essentially was a, I guess, a zero-click exploit that enabled the user to get access to a target's phone.

Speaker 1 And that private company sold that spyware, you know, to the Emiratis. And I think they sold it to a dozen other governments that used it to sort of monitor internal opposition.

Speaker 1 It's something that's commercially available and that immediately has

Speaker 1 intelligence or national security sort of implications or use cases. And it reminds me of that here.

Speaker 1 It's like, how do you as a government or an intelligence agency deal with a threat in the private sector and try to prevent that company from quite legally, in most cases, selling their wares to rivals.

Speaker 3 And what's interesting in this case is it's a friendship. And that's where this kind of issue of friendship comes into play.

Speaker 3 Because the friendship is going to be between Boris Hagelin, the businessman, and another man who is actually America's top code breaker. And it turns out they're friends.

Speaker 3 Now, his name is William Friedman, and he's described as the father of American cryptology.

Speaker 3 He's credited with coining coining the term cryptology to kind of talk about the science of secret communications. Now, here's what's interesting.
He was originally called Wolf, not William Friedman.

Speaker 3 And he also has a Russian background. He's the son of a well-educated Hungarian, Russian, Jewish family who flee Russia just after he's born,

Speaker 3 almost within a year of Boris Hagelin. And his family go to Pittsburgh.
So as a child, he gets into codes.

Speaker 3 So he reads a short story by Edgar Allan Poe, which I think is called The Gold Bug, where there's a kind of secret code and a treasure hunt and the kind of people have to decode it.

Speaker 3 And that gets him into it. He's then go to work at a private research lab where he meets Elizabeth, a young woman who's also a code nut.

Speaker 3 She's spending her time looking for secret messages hidden in the works of Shakespeare and other Elizabethan writers.

Speaker 1 Sounds like a perfect match.

Speaker 3 It is a perfect match. I mean, they inevitably fall for each other and get married.
And he's a kind of bald and quite dapper in his dress, often got the bow tie, neat moustache.

Speaker 3 Looks like a kind of crypt guy, I guess, if you want to be stereotypical about these people. Is that harsh? Is that because of the bow tie?

Speaker 3 I feel like 50s crypt people, that was their look, was kind of bow ties and dapper dress. I don't know, thin moustaches, thin moustache, exactly.
Goes to work for the U.S.

Speaker 3 War Office in code breaking in the 20s.

Speaker 3 Interestingly enough, America had done code breaking in the First World War, a place called the Black Chamber, secret facility in New York, which famously gets closed down because the Secretary of State says, gentlemen don't read others' mail, which I love.

Speaker 1 That's like such a simpler time. It was a simpler time.
Simpler times. What happened to that?

Speaker 1 It's got it.

Speaker 3 Friedman's going to be tasked with rebuilding after the kind of closure of the black chamber, a new service within the U.S. Army.
It's interesting. He works with his wife a lot.

Speaker 3 And the first kind of traffic they're cracking is what's called rum runner traffic, because this was the days of prohibition, David. Can you believe that day when the U.S.
banned alcohol?

Speaker 3 I mean, seems bizarre to you after after our cocktail making

Speaker 1 the other week. As someone who participated in a cocktail-making live stream in which I consumed three quite strong drinks between 2.30 and 3.30 p.m.
in the afternoon, no, I cannot imagine

Speaker 1 having my freedom to do that taken away, Gordon. Although that evening,

Speaker 1 I might have hoped for someone to have prevented me from doing that. Yeah.

Speaker 3 But yeah, a reminder, if you want to learn how to make some of those crazy cocktails, I think the live stream is still available to clubs.

Speaker 1 Oh, it's very available. Yes, join the declassified club, and you can watch us having a few drinks in the afternoon.

Speaker 3 But anyway, at this time, back to prohibition. Criminal gangs are smuggling liquor into America from outside the U.S., organized by radio using codes.

Speaker 3 And Friedman's wife, Elizabeth, works in the Coast Guard, and she and her husband will kind of crack the codes.

Speaker 3 His team have got a nut file, which is all the people who are kind of claiming to have built unbreakable codes and demanding a million dollars from the government, government or else they'll sell them to other countries, which I love.

Speaker 1 You maintain a nut file on our club members too, right? On our secret squirrels. I do not.

Speaker 1 Everyone's got a nut file. Every secret squirrel is value.
Has a nut file.

Speaker 3 But as the 30s progresses, you know, Friedman and his kind of army intelligence unit then see a new Japanese kind of code system called Purple, which is their high-level cypher machine.

Speaker 3 You know, huge pressure to break it as the war approaches.

Speaker 3 Friedman actually, at one point, has a breakdown and is hospitalized, but he's going to become a kind of core figure in American code breaking.

Speaker 3 And of course, he meets Hagelin in the late 30s when Boris Hagelin is trying to sell his crypto devices. And Friedman takes a look at them.

Speaker 3 He's not actually that impressed, quickly works out how to break it. But the two men become friends.
And I guess it's obvious why, isn't it?

Speaker 1 They're both Russians. They both love codes.

Speaker 3 and cryptology. One likes making them, one likes breaking them.
But you can see why. They're kind of two kind of nerdy crip guys.

Speaker 3 So yeah, and their wives are also going to become good friends. And that's going to last throughout their whole lives.
And they'll stay at each other's houses when they go visit. So

Speaker 3 back to the story, 1951, the U.S. is worried about Boris Hagelin building new machines that they can't break.

Speaker 3 So Friedman, now working for the NSA, the National Security Agency, decides, well, maybe I'll go talk to him.

Speaker 3 And so that is going to lead to a dinner at Friedman's favorite haunt, the Cosmos Club in DC. Is that still there?

Speaker 1 Does that still exist? It's still there. I've not been, but

Speaker 1 the pictures online were quite lovely. It made me wish I'd been invited, Gordon.

Speaker 1 It's kind of got this air, even in the pictures, of you're going to have important people sitting, kind of having conversation over these tables in this sort of grand dining room, hashing out really important political arrangements.

Speaker 1 And that is exactly, isn't it, what Hegel and Friedman work out when they're at the the Cosmos Club? It comes to be, I love this, it comes to be known as the gentleman's understanding.

Speaker 3 Yeah, that's right. So let's maybe take a break there, and when we come back, we'll learn what this gentleman's understanding really means.

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Speaker 1 All right, welcome back. It's 1951.
We're at the Cosmos Club in Washington, D.C., doubtless deep into our second martini.

Speaker 1 And Boris Hagelin and William Friedman are hashing out this gentleman's understanding, which is going to really have tremendous implications for American intelligence and really the intelligence apparatus of the entire Cold War.

Speaker 3 Yeah, that's right.

Speaker 3 So over dinner, Friedman asks a question, would it be possible to control the sale of the new machines, these ones that are super secure, in a way that only certain countries could purchase the newer, more secure machines?

Speaker 3 And now, Friedman says Hagelin sounded interesting. Now, at first, this is just a kind of gentleman's agreement.
Could we kind of work together to control the flow of these encryption machines?

Speaker 3 But it's going to kind of evolve into a formal deal and then something even more intense and surprising.

Speaker 1 Does Hagelin know that Friedman works for the NSA? Yeah.

Speaker 3 And I think he knows what he's doing. I mean, that's what is interesting about this.
He's not doing it even for the money particularly or for anything else.

Speaker 3 I think he's doing it partly for friendship and partly because I think he kind of gets it and understands it. So it's interesting, isn't it?

Speaker 3 Because there's no doubt he knows exactly what he's being asked to do.

Speaker 3 Because effectively, what he's being asked to do is restrict the sale of his most sophisticated models to just countries approved by the United States.

Speaker 3 It's kind of like, you know, export controls for weapons. But that's one thing.
But then there's something kind of subtler which goes on.

Speaker 3 Because I think if it was just that, that would be kind of okay.

Speaker 3 but I think what they're actually gonna do is discuss that other countries will be sold machines and be told they're secure whilst not knowing that the US can read the messages of the machines this I think is the

Speaker 1 or one aspect of the genius of this operation because My mental model for this, just after having read a couple articles prior to us having this conversation, was that the CIA, the NSA, had installed like a backdoor into these machines that allowed them to read the encrypted messages, but it's actually far more clever than that, isn't it?

Speaker 1 Because that might work for a while, but eventually someone somewhere, some customer is going to spot that and it's going to be over, right?

Speaker 1 The really,

Speaker 1 I think, diabolical piece of this is that the idea was just to reduce slightly the complexity of the code so that the CI CIA, the NSA, whomever, is still going to have to decrypt it, but it's just going to be made far less challenging to do so because it still looks secure.

Speaker 3 Because of course, you hear this phrase backdoor, but if you have either literally a backdoor or, you know, in terms of code, a backdoor, other people can find it.

Speaker 3 So the trick in this is to reduce the complexity of the code so you can break it.

Speaker 3 And to do that, you have to kind of understand how it's made, how the encryption work, how the machine is configured and how it's used.

Speaker 3 And crucially, I I think, often with encryption, it's not the machine or the code itself, but it's how people use it. And it's actually a clue in the last line of Hagelin's autobiography.

Speaker 1 Which is only 58 pages long. Yeah.

Speaker 3 And most of it is pretty technical because I skimmed the technical bits. But he kind of ends it goes, yeah, these codes can be incredibly complex.

Speaker 3 And you hear this stuff of like, there's 10 billion permutations of this, and it would take us a supercomputer ages to do.

Speaker 3 But he says, but these numbers are meaningless if the user does not carefully accept and exercise the instructions and does not make full use of the possible variations, the old rule is still true.

Speaker 3 The quality of a machine depends largely on its user.

Speaker 3 It's a killer statement because it was also true with Enigma machines in World War II that part of the reason the Brits could break them was because the Germans would kind of have predictable words in them.

Speaker 3 And the key thing, you know, as he's saying there is, you have to follow the instructions. To set up a kind of machine and make it work at the highest level, you've got to follow the instructions.

Speaker 3 So here's the question. What if you even sold the same machine to two different people, but you gave them different instruction manuals? And it's so brilliant.
It's so sneaky.

Speaker 3 And so if you use one instruction manual, you're using it properly and you're going to have a kind of unbreakable code or close to. But if you use a different manual,

Speaker 3 you don't know that you've not set up the machine right. And even though it looks encoded, it's encoded only to a certain point where most people can't break it.

Speaker 3 But if you know how the code was made and you've got some supercomputers and you're the NSA or whoever, you can break it. I mean, that was one of the kind of geniuses of this operation.

Speaker 3 And there's even kind of secret marks on the instruction manuals to indicate, you know, which ones are for whom.

Speaker 3 And so effectively, the NSA is going to start writing the kind of instruction manuals for these machines.

Speaker 3 It's brilliant in a way, because you're manipulating the way people use it, but not in a way that's going to be obvious in the machine itself. Should say GCHQ, the Brits.

Speaker 1 I knew it was coming, Gordon.

Speaker 3 They also wear it.

Speaker 1 I could sense it. I could sense it.
It's not just the Americans, but they're getting everything, presumably, right? GCHQ, the Brits are getting access to all of this product.

Speaker 3 Yeah, because Friedman goes to Switzerland and he goes on these visits to Switzerland to see Boris Hagelin. When he comes back, he stops off at GCHQ, tells them what's going on.

Speaker 3 It's interesting because NSA are actually a little bit cautious about this.

Speaker 3 This is interesting culturally, I think, because NSA are kind of like, we like breaking codes and using supercomputers and computers to break codes and maths and all those things.

Speaker 3 We're a bit uncomfortable using businessmen to kind of manipulate the system. That's not their kind of comfort zone.

Speaker 1 There's some agent handling involved here, it sounds like, Gordon. Yeah, exactly.

Speaker 3 And they don't like it very much. So Crypto AG, I mean, it's crazy.

Speaker 3 They are going to supply different machines to countries and also similar machines, but with different instructions to countries around the world.

Speaker 3 And what that means is that more than 100 countries around the world are going to get machines where the U.S. can read their messages.
I mean, this company is going to get rich by selling customers.

Speaker 1 compromised equipment.

Speaker 3 I mean, it's crazy, isn't it? I mean, in terms of a

Speaker 3 business deal and an intelligence deal.

Speaker 1 I mean, the customer list is, it's interesting, right? Because it's not the Soviet Union and China, right? So it's not the kind of big dogs. They're off the customer list anyway.

Speaker 1 But it is a massive list of very interesting other countries like Egypt, Iraq, Iran, Saudi Arabia, Syria, Pakistan, India, Jordan, the Vatican.

Speaker 1 That's a good one. Argentina, Italy.
I mean, this is the other, I think, fascinating thing and

Speaker 1 has

Speaker 1 real echoes of the Snowden story where Shocker, shocker the NSA and GCHQ were spying on our allies, our allies, like the Germans. I mean, here,

Speaker 1 there's signs of this kind of appetite for spying on other Western allies at the same time.

Speaker 3 Italy and Greece, yeah. It's Turkey who are in NATO.
They're all buying these machines, thinking they're secure, but instead they're rigged.

Speaker 3 And it seems like about 40% of the diplomatic cables that the NSA is decoding in the 80s comes from compromised, rigged crypto-AG machines.

Speaker 1 That is an astounding number, by the way. That quantity.

Speaker 3 Yeah.

Speaker 1 I think backs up this point around it being one of the most important intelligence operations of the Cold War because it is responsible for supplying American, British, I mean, German policymakers with a huge amount of information on not the Soviet Union, not China, but on basically the rest of the world.

Speaker 3 And it's kind of interesting because we'll come to later how this all emerges. And actually the full details of this has only just emerged in the last few years.

Speaker 3 So in a way, we don't know the full extent of how that intelligence was used. But there's some really kind of interesting little examples.
So in the summer of 1958, there's a coup in Iraq.

Speaker 3 And army officers who are sympathetic to the Egyptian president, Nasser, overthrow the pro-British regime in Iraq.

Speaker 3 And the fear is that they'll then move on to Jordan and overthrow a pro-British regime in Jordan. But Britain's able to move troops quickly enough to forestall that.
Now, how do they act so fast?

Speaker 3 It looks like it's because the coup plotters were communicating with officers in Egypt, with NASA's regime in Egypt.

Speaker 3 And the orders and the communications are going over these Hagelin machines that Egypt has bought. So you basically, you know what they're planning, what you're doing, what you can forestall it.

Speaker 3 So in this period, I think in the 50s and 60s, loads of countries are all using these machines. And the West is going to be able to kind of read the messages and then act on the basis of it.

Speaker 3 I mean, in some cases, we'll see kind of later, that's going to cause some kind of tensions and questions. But it's amazing as a kind of intelligence coup, what it brings them.

Speaker 1 And the sustainability of this over time.

Speaker 1 really hinges on the friendship, right, doesn't it? Between Friedman and Hagelin.

Speaker 3 Yeah.

Speaker 3 And, you know, there's long letters between the two when there's all the health, Boris sends pictures of his wine cellar in Switzerland, they talk of their grandkids, you know, it's clearly like a real friendship.

Speaker 3 And as to the question of why Hagelin does it, I mean, he doesn't seem to have any qualms about it.

Speaker 3 I mean, Hagelin does say he's grateful to the NSA for what they'd done for members of his family, which looks like...

Speaker 3 intervening to ensure a son-in-law had his active duty status in the Air Force retained and a cousin of Hagelin's wife being employed at the NSA.

Speaker 3 So little favours, but he's not doing it for the money or for something big. So it looks like he is doing it for belief and for friendship, you know, that he's willing to go along with this.

Speaker 3 But in a way, that's also the weakness of the operation.

Speaker 3 Because in 1955, Friedman is actually going to suffer a heart attack after he visits Hagelin and Crypto AG's manufacturing plant in Switzerland. And he's going to start thinking about retiring.

Speaker 3 And he and Elizabeth, you know, they want to go back to working on medieval and early modern codes together. That's their plan.

Speaker 3 That's the retirement idea in the Friedman family is go look for codes in Shakespeare.

Speaker 3 Although he's still going to kind of stay friends with Hagelin for all the years.

Speaker 3 And, you know, they stay friends after Friedman does retire, which actually I think does show this is a genuine friendship.

Speaker 3 It's not just Friedman doing it because he's been told to do it or it's a kind of operational tasking. But Friedman's relationship with the NSA is also slightly breaking down.
He's a bit marginalised.

Speaker 3 He's a bit left out in the new world of kind of computers. He's being put out to pasture.
You know, when he's retiring, he's kind of working at home on contract.

Speaker 3 The NSA view him as a little bit of a security risk because he's semi-public. And the NSA is getting less sure it wants to be in this game.

Speaker 3 It prefers to break codes with supercomputers rather than deal with people, which I think is interesting, isn't it?

Speaker 1 I was struck by this. I mean, why do you think NSA was

Speaker 1 ambivalent in this period? And we're talking about the, you know, late 50s, early 60s as both of these men are starting to get on in age and Friedman is being a bit put out to pasture.

Speaker 1 You know, he's still, I I guess, working on a contract with the NSA and hanging around, but he's not there anymore formally.

Speaker 1 I mean, it just seems given the value of the product, I'm struck by the NSA's ambivalence there. I mean, what do you, it's got to be a bit more than just we want to sit behind our computers all day.

Speaker 1 I mean, what, what's driving that?

Speaker 3 It's interesting. I mean, I've been into the NSA and it is a super secret organization.

Speaker 3 I think they are an organization which now they've opened up a bit, hence the fact that I've been in as a journalist to interview people.

Speaker 3 But, you know, in the past, in the Cold War, I think the NSA was known as no such agency, wasn't it? Because everyone kind of basically denied it even existed. And I think

Speaker 3 they were so obsessed with secrecy for lots of good reasons that I think anything which threatened that secrecy or the truth about code breaking or what they did, I think they felt was a bit dangerous.

Speaker 3 And I think they felt maybe it was like Friedman's project. I find it interesting that they seem to be reluctant to do it.

Speaker 3 But as we'll see, the NSA's reluctance opens the way for another intelligence agency to get in the game.

Speaker 1 And who might that be, Gordon?

Speaker 3 Who might that be? Here we go.

Speaker 1 Here we go.

Speaker 3 The CIA. Oh, thank God.
A new player has entered the game. That's right.
Hello, CIA.

Speaker 3 You were waiting for that, weren't you?

Speaker 1 I was. I was.
I do think it makes sense, though, because

Speaker 1 The management of this program is going to come down to how you you sort of liaise with and help run this company and strike arrangements with executives in the company.

Speaker 1 And as we'll see, you know, if you try to scale this thing up, which, which happens over the course of the 60s, 70s, and 80s, it's going to be more complicated.

Speaker 1 And there's going to need to be more people involved, like chief scientific advisors on crypto agent staff. Like you're going to need more than just one person who's really in the know.

Speaker 1 And that's going to involve relationship management and asset and agent handling. And I think it does make some sense from that standpoint for the CIA to be involved.

Speaker 3 By the 60s, the CIA is kind of offering Hagelin a licensing agreement to pay him to kind of basically formalize the deal.

Speaker 3 And they're going to pay him $70,000 a year in a retainer and give the company cash for marketing.

Speaker 3 They're starting a kind of relationship with him.

Speaker 3 But as we'll see, this is going to be just the start of a much deeper, much more interesting relationship as Friedman leaves the scene in the 60s and retires.

Speaker 3 But you've also got this second problem, which is Boris Hagelin, the other half of their friendship, is also planning to retire. Now, he's grooming his son to take over, but here's the problem.

Speaker 3 His son knows nothing of the secret deal.

Speaker 1 That, Gordon, sounds like a cliffhanger to me because we've got a succession crisis looming inside Crypto AG.

Speaker 1 And if that's not enough to wet your whistle, there's going to be a mysterious death death in Washington and the arrival on the scene of Z Germans who are going to play a critical role in this story.

Speaker 1 But, Gordon, why wait to get that next episode, right? You can get it right now by going to therestisclassified.com and becoming a member of the Declassified Club.

Speaker 1 Get early access to all of our series and wonderful bonus content like that boozy live stream we just did. We hope you join, and we'll see you next time.

Speaker 3 See you next time.

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