The case of Crypto AG – Report of the audit committee of the Federal Assembly of Switzerland

The essentials in brief

Since the Fall of 1993, the Strategic Intelligence Service (German: Strategischer Nachrichtendienst or SND) managed to get reliable information about Crypto AG. It learned that the company was owned by foreign intelligence agencies and exported “weak” devices, the encryption of which could be broken with a realistic effort.

In order to be able to break the encryption of such devices itself, the SND began to gather technical information about their encryption methods and customer lists. Later, when the SND had become a civilian office, it managed to get enduring access to this knowledge with the consent of the American intelligence agencies.

Legal situation

From a legal point of view, the parliamentary audit committee (GPDel) therefore sees it as an intelligence cooperation, like in the past it was provided in the military law and today in the Intelligence Service Act (Nachrichtendienstgesetz or NDG). From the fact that the SND and the American agencies acted by mutual agreement, it follows that the Swiss authorities share responsibility for the activities of Crypto AG.

It was legally allowed that the SND and a foreign intelligence agency used a company in Switzerland to gather information about foreign countries. Given the big political implications of this cooperation, however, the GPDel considers it wrong that except for the current head of the Federal Department of Defence, Civil Protection and Sport (VBS) none of her predecessors were informed about this operation.

The east wing of the Federal Palace (Bundeshaus) in Bern, Switzerland,
home of the Federal Department of Defence, Civil Protection and Sport (VBS)
(photo: Mike Lehmann/Wikimedia Commons – click to enlarge)

Police investigation

In addition, the SND’s findings on Crypto AG during the Bühler affair, which was investigated by the federal police (Bundespolizei or BuPo) in 1994 and 1995, should not have been withheld from the political leadership. The head of the federal military department (EMD) at the time did not learn the truth about Crypo AG via other ways either, as he explained to the GPDel.

The GPDel also did not found any evidence that the government unduly influenced the investigations by the BuPo. Rather, the head of the Federal Department of Justice and Police (EJPD) made an effort to clarify the ownership of the company. Ultimately, however, the BuPo had to stop its investigations without being able to answer this question.

In 1994, the GPDel was informed repeatedly about the ongoing investigations of the BuPo. Just like the military and political superiors of the SND, the GPDel did not learn anything from the foreign intelligence service related to Crypto AG. The company was never subject of the information provided by the Defense Department (VBS) when the overall supervisor specifically dealt with the topic of cryptology in 2007 and 2009.

Storage and destruction of documents related to Crypto AG

Especially valuable for the inspection of the GPDel were the operational files of the SND and the BuPo, which the federal intelligence service (Nachrichtendienst des Bundes or NDB) stored in a converted K-Anlage [Kriegsanlage, a well-hidden former command bunker of the Swiss army near Bern]. Their archiving in accordance with the applicable regulations is still pending. Due to the archiving practice of the intelligence services, however, there is no guarantee that all important documents are still available.

The destruction of such records was in part allowed by law and regulations, but in some cases it contradicted them. Between 2011 and 2014, the NDB destroyed documents from their correspondence with foreign partner services, instead of storing them internally as prescribed. Its inspection showed the GPDel that the destruction of files by the intelligence service is not an effective method for source protection. Rather, there is a risk that former sources can be compromised when authorities don’t have the proper information.

Foreign espionage under the guise of a Swiss company

Companies and organizations that operate on Swiss soil benefit from Switzerland’s image as a neutral state. Accordingly, foreign intelligence services may have an interest to operate under the guise of a Swiss company to the detriment of other countries.

Under certain circumstances, such a company can be guilty of the criminal offense of forbidden intelligence service against foreign states. However, such an operation is permissible under applicable law when a foreign agency uses such a company together with the NDB to collect information about foreign countries (cf. Art. 34 Para. 2 NDG).

In the view of the GPDel, planning such an operation should include a political assessment of the possible consequences for Switzerland, as well as for any affected employees of the company. The Federal Council (Bundesrat) should therefore clarify in principle how much room for maneuver it wants to grant the Defense Department (VBS) in this regard.

Not enough attention for the supply of secure encryption devices

The case of Crypto AG shows that companies under the influence of foreign intelligence services can produce devices with “weak” encryption methods. However, the GPDel assumes that Crypto AG has never supplied the “weak” encryption equipment to the Swiss authorities. Important in this case was that the Swiss authorities were able to inspect the security of the purchased devices or even influence their design. However, this is only possible with suppliers who develop and manufacture their devices in Switzerland.

For security reasons, it is not responsible for the federal government to purchase encryption solutions from foreign suppliers. Right from the start, the Federal Council did not pay the necessary attention to the role that domestic suppliers play in ensuring the availability of secure encryption technology for the Swiss authorities. As the responsible department, the Defense Department (VBS) didn’t analyze the risks for a reliable supply in time and informed the Federal Council about this matter.

Access to Crypto AG at the management of the intelligence services

The information access to the Crypto AG was a well-kept secret at the management level of the SND. But when the Federal Intelligence and Security Service (NDB) was created [in 2010], this knowledge remained hidden for its first director. When confronted with this a few years later, he refused to take his responsibility.

It was only in the summer of 2019 that the current director commissioned a position paper for this case, although he was not informed by his predecessor and it was still before the NDB learned from the research of the media about Crypto AG. However, he did not use this informational advantage to uncover the relations between Crypto AG, the NDB’s predecessors and the American intelligence agencies. Instead of clarifying the legal situation and recognizing the political implications, the NDB downplayed the relevance of the Crypto AG case for the current organisation.

The Defense Department (VBS), which already informed the Federal Council and the GPDel in November 2019, did not succeed in identifying the need for political action. The interdepartmental working group, which the VBS also set up, was not able to support the political leadership because of the reluctance of the NDB to provide information for the looming intelligence affair.

In its application for the Federal Council meeting on December 20, 2019, the Defense Department asserted that the level of information was insufficient for a substantive discussion about the case of Crypto AG. After finding the files in the K-Anlage, about which the Defense Department had informed the Federal Council, this finding was no longer valid.

Since the NDB had not evaluated the extensive files before the Federal Council meeting, the Council decided to establish an external committee of experts to clarify the apparently purely historical questions. With this, the Federal Council gave the strategic leadership for dealing with the Crypto AG case of the hand from the start.

Ending the parallel investigation by judge Oberholzer

When the GPDel opened its inspection on February 13, 2020, former federal judge [Niklaus] Oberholzer had been active as an external expert on behalf of the Federal Council for a month, but without having access to the files from the K-Anlage. After the GPDel had requested all relevant files from the NDB, it recognized that the Crypto AG case went beyond pure history and was of current importance. This proved the approach of the defense department, to examine the historical and current aspects of the case separately, as not very effective.

Given the various parallel investigations, the GPDel considered it necessary to discuss the unresolved coordination issues with the head of the Defense Department before the work was continued. However, when the Defense Department expanded the scope of the Oberholzer investigation before to the meeting agreed with the GPDel, the GPDel revoked its authorization to the Federal Council to commission Mr Oberholzer on February 21, 2020. As an investigative officer for the GPDel, he then reported on the intelligence-related aspects of the Crypto AG case in a secret report for the GPDel.

On February 25, 2020, the GPDel discussed its revocation of the authorization with the head of the Defense Department. The subsequent written exchange with the Federal Council led to a meeting with the federal president and the head of the Defense Department on May 25, 2020, where the GPDel provided information about the most important facts about the role of the intelligence services in the case of Crypto AG. In a classified letter this information was also brought to the attention of the Federal Council.

Former headquarters of Crypto AG in Steinhausen, Switzerland
(photo: Keystone – click to enlarge)

Suspension of the export licenses for Crypto AG’s successors

After the meeting of the Federal Council on December 20, 2019, the Federal Department of Economic Affairs, Education and Research (WBF) decided to suspend the general export licenses for the successor companies of Crypto AG [Crypto International AG and TCG Legacy AG]. The goal was apparently to avoid unfavorable media coverage for the WBF.

From the point of view of the GPDel, however, the suspension of these licenses was neither materially nor legally justified, just like the way the State Secretariat for Economic Affairs (SECO) delayed matters related to those companies. Individual export applications could still be submitted though.

There were also no legal arguments against their issuance, as the export control group rightly recognized on March 4, 2020. However, due to the position of the Federal Department of Foreign Affairs (EDA), it was decided in May 2020 to submit all applications to the Federal Council for decision.

Filing a criminal complaint against Crypto AG

On February 25, 2020, the SECO, with the support of the WBF, filed a criminal complaint at the federal prosecutor’s office. Because of the first media coverage, the SECO suspected that by exporting “weaker” encryption technology before 2018, Crypto AG had violated individual declaration obligations from the export control law (Güterkontrollrecht).

Without further scrutiny, the WBF took over the argument of the SECO according to which there was a legal obligation to file a complaint. However, in an opinion at the request of the SECO, the federal prosecutor had advised against filing a criminal complaint; the SECO did not discussed the matter with other federal agencies.

From the point of view of the GPDel, the criminal complaint was based on an insufficient assessment of the facts and an inadequate legal reasoning. Since the complaint was apparently made for political reasons, it should have been submitted by the Department of Economic Affairs (WBF) instead of by the SECO.

Authorization to prosecute Crypto AG

On March 13, 2020, the federal prosecutor asked the Justice and Police Department (EJPD) for the authorization to prosecute the violations of the export control law as reported by he SECO. Three months later, the EJPD submitted the prosecutor’s application for decision to the Federal Council. Before that, the EJPD had a discussion about it with the GPDel on May 25, 2020.

The WBF for its part, requested the Federal Council on June 10, 2020 to approve all pending export applications, this although it had supported SECO’s criminal complaint. After the Federal Council had postponed the issue by a week, the WBF requested to suspend the decision until the prosecutor’s investigation had been finished. The Federal Council followed this proposal on June 19, 2020 and on the same day it granted the authorization to the federal prosecutor.

Violation of good faith and of the separation of powers

The GPDel recognizes the coherence between the decisions of the Federal Council regarding the authorization application by the federal prosecutor and the individual export applications from the successor companies of Crypto AG. With their indefinite postponement, however, the Federal Council may have violated the principle of good faith, because in principle every Swiss company can expect an authorization of its exports, unless there are legal arguments against it.

The export control law was also not a suitable means of approaching the Crypto AG case, while the criminal complaint was obviously an attempt to get rid of political responsibility by letting the justice system tackle the Crypto AG case. With this, the Federal Council ultimately linked the criminal case with the ongoing investigation of the GPDel, which was problematic given the separation of powers.

The Swiss foreign intelligence service

Initially, the Swiss foreign intelligence service (German: Strategischer Nachrichtendienst or SND) was part of the Untergruppe Nachrichtendienst (UG ND), which reported to the general staff of the Swiss army. In 2001, it was removed from the military hierarchy and turned into a civilian office, but still under the responsibility of the head of the Defense Department.

On January 1, 2010, the SND was merged with the domestic security service (Dienst für Analyse und Prävention or DAP) into the current federal intelligence and security service (Nachrichtendienst des Bundes or NDB), which is also responsible for signals intelligence.

Known divisions of the NDB are:

– NDBA for Auswertung (Analysis)
– NDBB for Beschaffung (Acquisition)
   – NDBB-A for Beschaffung Ausland (Foreign Acquisition)
   – NDBB-I for Beschaffung Inland (Domestic Acquisition)
– NDBS for Steuerung und Lage (Coordination)
– NDBU for Unterstützung (Support)

Headquarters of the Nachrichtendienst des Bundes (NDB) in Bern, Switzerland
(photo: Samuel Schalch – click to enlarge)

More details from the Crypto AG report

Besides the general conclusions as translated above, the GPDel report about the Crypto AG case also contains some more detailed information that is worth to be translated:

The MIVERVA report

The NDB provided the parliamentary audit committee (GPDel) with a copy of the internal CIA report about Crypto AG. This report is titled “MINERVA – A History” and describes how since the 1950s, US intelligence agencies cooperated with the Swedish owner of Crypto AG and was taken over by CIA and BND in 1970. The report includes the withdrawel of the Germans from the operation in 1993 and ends in 1995. The MINERVA report was written after the year 2000 with input from representatives of the BND.

It seems that around 2005, the Germans were provided a copy of the report and prepared additional assessments. This version of the American report, together with German documents, came in the hands of the press, which in February 2020 published about certain sections of the report. The full MINERVA report of almost 100 pages has not yet been released.

The GPDel analyzed the MINERVA report and additional information from the NDB confirmed the authenticity of the document. Regarding the situation in Switzerland, the report is not always accurate and contains small mistakes. Apparently the American authors were not very familiar with Switzerland and its government. (p. 9-10)

> See also: Codewords related to Crypto AG

Acquiring and using information about weakened algorithms

Since the autumn of 1993, the SND got informed about the fact that Crypto AG was owned by American and German intelligence services and that the company built encryption devices with weaker algorithms. The SND aimed at breaking the encryption of these weakened devices themselves and gathered technical information about the encryption methods of the exported Crypto AG devices. This knowledge could also be used to identify weak encryption methods used in devices bought by Swiss customers. (p. 20)

This search for information about the weak algorithms continued after the SND became a civilian office in 2001 and was only successful because American intelligence agreed that Switzerland got the necessary information but only as far as necessary. (p. 20)

In order to actually use its knowledge about the weakened encryption methods for national security interests, the SND also had to gain access to encrypted communications. Interception of radio communications was conducted by a unit of the Swiss army (Führungsunterstützungsbasis der Armee or FUB).

After modernizing systems to intercept short wave (high frequency) radio communications, Switzerland started to set up a system to intercept satellite links, which is codenamed Onyx and became fully operational in 2006. The decryption capabilities were integrated in the interception process managed by the SND. (p. 20)

The Onyx satellite intercept station in Leuk, Switzerland
(photo: Martin Steiger/Wikimedia Commons – click to enlarge)

Knowledge about Crypto AG at the SND and the NDB

At the SND the information about Crypto AG was a closely held secret. Only the head of the SND (Fred Schreier) and his successors (Hans Wegmüller and Paul Zinniker) and no more than two other employees of the SND knew about it. The director of the newly created NDB, Markus Seiler, was (orally) informed about the existence of weak Crypto AG devices when he assumed office in 2010. (p. 21)

Only during his last year in office, 2017, Seiler was also informed about what made his organization able to decrypt the weak algorithms, but he declined to accept a note about further options. Vice-director Paul Zinniker supported him in not taking further actions. The former heads of the Swiss Defense Department (VBS) were not informed about the fact that Crypto AG was under control of American intelligence and that Swiss intelligence was using its knowledge about the weak algorithms. (p. 21)

In the spring of 2019, the current director of the NDB, Jean-Philippe Gaudin, got basically the same information about Crypto AG as his predecessor two years earlier. But this time, Gaudin requested a detailed presentation and demanded a written position paper. On August 19, 2019, Gaudin also informed the head of the Defense Department (p. 21)

Mid-October 2019, the NDB was provided with a copy of the MINERVA report and its director was informed about its contents. As of the end of October there was an increase in the communications between the NDB, the American and other foreign intelligence services, also in order to anticipate the media coverage about the MINERVA report. (p. 22)

Awareness about weaknesses in encryption devices

In 2007, the GPDel was briefed about how the SND’s decryption capabilities are integrated in the process of intercepting foreign communications. A fact sheet showed that many manufacturers of encryption devices built in weaknesses for some of their customers. Behind this practice were the intelligence agencies of the United States and some of its allies. However, other states with the proper capabilities, like Switzerland, could also benefit from this. (p. 23)

According to the GPDel, the knowledge about the weakened Crypto AG devices provided useful intelligence for Switzerland as it could be used to decrypt the communications from foreign targets and exchange information with foreign intelligence services, which also strengthed the position of Switzerland. However, it should also be noticed that encryption methods and access to relevant communications are changing continously and know-how can rapidly loose its value. (p. 27)

The GPDel found that it was possible to identify weaknesses in various types of encryption devices used by Swiss institutions and to repair the deficiencies. This shows how important it is to have good insights on domestic manufacturers and influence the quality of their products. (p. 27) The GPDel was assured that all inspections made clear that Crypto AG never provided weak encryption devices to Swiss government agencies – unlike another company. (p. 31)

A second Swiss company selling weakened encryption devices

From hand-written notes from the head of the Defense Department, the GPDel learned that the security of encryption devices used by federal agencies had regularly been a talking point between the director of the SND and the head of the Defense Department. Somewhere between 2002 and 2008 it became clear that a Swiss manufacturer (not being Crypto AG) had sold unsecure equipment to the federal government and two large corporations. After learning about this, the Defense Department took measures to close the hole. (p. 28)

In November 2020, the Swiss broadcaster SRF revealed that this other Swiss company was Omnisec AG, which was founded in 1987 and dissolved in 2018. According to SRF, Omnisec had sold less secure encryption devices from their 500-series to Swiss federal agencies and even to the secret services SND and DAP. These weakened devices were also sold to at least two private companies, including the UBS bank – around the time when the US pressed Swiss banks to lift their banking secrecy.

Former headquarters of Omnisec AG in Dällikon, Switzerland
(photo: ZVG – click to enlarge)

Links & sources

– Second Swiss firm allegedly sold encrypted spying devices (Nov. 26, 2020)
– Professor Maurer und die NSA (Nov. 26, 2020)
– Geheimdienstaffäre, Corona im Milieu, Boni trotz Pandemie (Nov. 25, 2020)
– Res Strehle, Operation Crypto. Die Schweiz im Dienst von CIA und BND, Echtzeit Verlag, Juli 2020.
– Operation RUBICON – The secret purchase of Crypto AG by BND and CIA