The Rest Is Classified – Episode 96

Title: Selling The World's Secrets: Is The CIA Reading Your Messages? (Ep 1)
Date: November 3, 2025
Hosts: David McCloskey & Gordon Corera

Overview

In this episode, David McCloskey and Gordon Corera launch a deep dive into one of the most audacious intelligence operations of the Cold War: the Crypto AG story. At the intersection of technology, espionage, and human relationships, this episode unpacks how a seemingly neutral Swiss company selling encryption machines became a key cog in a decades-long multinational spying campaign – with the CIA, NSA, BND (German intelligence), and even GCHQ exploiting the world’s trust to read the diplomatic and military secrets of over a hundred countries.

Key Discussion Points and Insights

1. The Paranoia of Modern Surveillance (02:01–03:23)

• The hosts question how much our current technology keeps us secure versus how much it actually exposes us to spying.
• David jokes about donning a "tinfoil hat" after learning just how easily technology can be rigged for espionage.
• Gordon tees up the episode’s focus: the true story of Crypto AG, a case where a spy agency secretly rigged and owned a company that the world trusted for its communications security.

"What if a spy agency actually secretly owned the company that made the devices that promised you security? I mean, that is the slightly crazy story we're telling today."
— Gordon Corera (02:43)

2. Crypto AG: The Greatest Intelligence Operation of the Cold War? (03:23–06:12)

• Comparing it with famous Cold War spies, McCloskey argues Crypto AG may have been "the greatest intelligence operation of the Cold War," given its scale and the global communications it compromised.
• Discussion of the secrecy and reach of this operation, which compromised staggering volumes of diplomatic traffic for decades and fundamentally shaped international relations.
• The operation was a joint American-German effort, with a nod to the UK’s involvement.

“It feels like this story connects some of these themes...the compromise of so much global telecommunications traffic that our two countries have done together, really jointly.”
— David McCloskey (06:28)

3. Encryption 101: Setting the Stage (07:15–11:44)

• Gordon provides a primer on encryption, starting from ancient ciphers like Caesar’s and moving to electromechanical devices.
• Introduction of Arthur Scherbius and the Enigma machine (“Enigma...because it’s so mysterious”—09:51), tracing how encryption became core to both business and state secrets.
• They draw a direct line from the wartime codebreaking at Bletchley Park, which cemented US-UK intelligence alliances, to the peacetime focus on breaking (and manipulating) commercial encryption.

"You probably could say that it's the start of the modern US, UK intelligence relationship is really birthed at Bletchley park and the breaking of, of German codes."
— David McCloskey (10:40)

4. Boris Hagelin: The Ingenious Salesman (11:44–15:47)

• The story pivots to Boris Hagelin, a technological entrepreneur and the founder of Crypto AG.
• His progression: Born in Russia, raises Swedish, educated in Stockholm, eventually head of A.B. Cryptograph. By 1940 he flees Europe with two cipher machines, sells to the US Army (14:44), and later moves the company to Switzerland.
• By the 1950s, he creates a cipher machine too strong for American codebreakers (CX52).

5. Private Sector Threats and Government Response (15:47–18:48)

• David draws parallels from the historic dilemma (governments fearing unbreakable commercial encryption) to recent controversies like Pegasus spyware.
• The intelligence challenge: “How do you, as a government or intelligence agency, deal with a threat in the private sector...selling their wares to rivals?” (16:45)

6. The Friendship That Changed Intelligence: Hagelin & Friedman (16:48–21:02)

• Enter William Friedman, NSA’s “father of American cryptology,” and his under-the-radar friendship with Hagelin (19:14).
• Both men had Russian backgrounds and a lifelong love for codes.
• Their personal relationship would become central to a global intelligence coup.

7. The “Gentleman’s Understanding”: How the Operation Worked (24:56–27:39)

• Over dinner at Washington DC’s Cosmos Club in 1951, Friedman convinces Hagelin to only sell the best, most secure encryption machines to countries approved by the US.
• The genius: Instead of obvious “backdoors,” machines were subtly weakened by changing operating instructions, thus making interception and decryption easier for the NSA (and impossible for everyone else to detect).

"If you have either literally a backdoor or...in terms of code, a backdoor, other people can find it. So the trick in this is to reduce the complexity of the code so you can break it...And 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."
— Gordon Corera (27:39)

8. Scope and Impact: Who Got Spied On? (31:29–32:39)

• Over 100 countries purchased Crypto AG machines, believing their communication was secure—while the US and allies read their diplomatic and military traffic.
• Notably excluded: top adversaries (Soviet Union, China).
• Included: close allies (e.g., Italy, Greece, Turkey, Germany) and regional players (Egypt, Iran, India, Vatican, etc.)

"It is a massive list of very interesting other countries like Egypt, Iraq, Iran, Saudi Arabia, Syria, Pakistan, India, Jordan, the Vatican...here there's signs of this kind of appetite for spying on other Western allies at the same time."
— David McCloskey (31:29)

• Gordon cites that by the 1980s, compromised Crypto AG traffic made up as much as 40% of the NSA’s diplomatic intercepts (32:18).

9. Examples and Consequences (33:05–34:23)

• Real-world impact: details on the 1958 Iraqi coup—British intelligence learned of the plot through intercepted Crypto AG-encrypted traffic, enabling rapid response.
• The hosts underscore that the true scale of this intelligence boon is only now being discovered.

10. A Deal Built on Friendship (and Its Weaknesses) (34:23–39:19)

• The collaboration was sustained as much by friendship and personal favors as by money.
• Hagelin remained loyal, seemingly out of belief and gratitude more than greed—though the relationship was not without minor perks for his family.
• The hosts note NSA's preference for technical codebreaking over “agent handling,” and discuss the potential cultural reasons for the agency’s ambivalence toward running such an operation.

“I was struck by this. I mean, why do you think NSA was ambivalent in this period?...It just seems given the value of the product. I'm struck by the NSA's ambivalence there.”
— David McCloskey (36:16)

11. Passing the Baton: CIA Takes Over (37:41–39:19)

• As Friedman aged and left active service, the operation’s management shifted.
• The CIA stepped in as the lead agency, establishing formal agreements, licensing, and payments to Hagelin and the company.
• The operation scaled up during the 1960s–80s, requiring expanded “relationship management” and more insiders at Crypto AG.

“A new player has entered the game. Hello, CIA...the management of this program is going to come down to how you sort of liaise with and help run this company and strike arrangements with executives in the company.”
— Gordon Corera & David McCloskey (37:44–37:52)

12. A Cliffhanger Ending (39:19–40:04)

• The legacy of friendship and covert management is precarious: Boris Hagelin is preparing to retire, with his son in line to take over—who knows nothing of the secret deal.
• The episode teases ominous future developments: “a succession crisis,” a “mysterious death in Washington,” and the dramatic entrance of the Germans as key players in the story.

Notable Quotes & Memorable Moments

• On the scope of the operation:
  "It compromised an absolutely staggering amount of global communications...this to me feels like it's right up there in terms of the most impactful intelligence operations run in the past, maybe ever."
  — David McCloskey (03:23)

• On engineering cleverness:
  "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."
  — Gordon Corera (29:55)

• On the ethical ambiguity:
  "This company is going to get rich by selling customers compromised equipment. I mean, it's crazy, isn't it? I mean, in terms of a business deal and an intelligence deal..."
  — Gordon Corera (31:29)

• On the fragility of secret operations built on personal ties:
  "And the sustainability of this over time really hinges on the friendship, right, doesn't it, between Friedman and Hagelin?"
  — David McCloskey (34:23)

Important Segment Timestamps

• [02:01–03:23]: Technology paranoia; the premise of an agency withholding security it promises
• [07:15–11:44]: Encryption 101, origins of machine ciphers, and Enigma’s legacy
• [14:44–15:47]: Hagelin’s deal to provide encryption to the U.S. Army
• [24:56–27:39]: The Cosmos Club meeting and the origin of the “gentleman’s understanding”
• [27:39–30:11]: How weakened encryption and trick instruction manuals provided exploitable but undetectable weaknesses
• [31:29–32:39]: The staggering list of duped countries and downstream intelligence value
• [33:05–34:23]: A British intelligence coup via Crypto AG eavesdropping
• [36:16–37:39]: NSA’s cultural reluctance and shift to CIA management
• [39:19–40:04]: The looming succession crisis and teaser for the next episode

Tone and Style

• Witty and conversational, with the hosts riffing on spy lore, poking fun at intelligence jargon, and sharing personal asides.
• Balanced with gravity and historical weight when discussing the immense real-world consequences, the ethical dilemmas of mass interception, and the interplay between statecraft, business, and individual agency.
• Personal stories and small “human touches” (e.g., family favors, wine cellars, code-breaking couples) underscore the paradox: major world events often turn on personal friendships and decisions behind closed doors.

Summary

This episode expertly blends historical detective work, technical explanations, and strong narrative to show how the Cold War's greatest coup in communications intelligence hinged as much on two men’s friendship as on codebreaking genius. The secret rigging of Crypto AG’s machines enabled the NSA, CIA, and their Western allies to listen to much of the world’s diplomatic and military chatter—changing the outcomes of crises and shaping the contours of the 20th century’s greatest power struggles. With a cliffhanger promising betrayal, corporate intrigue, and a mysterious death, the stage is set for an even deeper dive in the next installment.

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