97. Selling The World's Secrets: Why The Brits Won The Falklands War (Ep 2)

0:03For exclusive interviews, bonus episodes, ad-free listening, early access to series, first look at live show tickets, a weekly newsletter, and discounted books. Join the Declassified Club at therestisclassified.com. Now streaming on Acorn TV. There's a killer on the loose. Brooke Shields leads an all-star cast in the hit original mystery series, You're Killing Me. I solve mysteries for a living. I think I'm good to go. Maybe in one of your books. Not in real life. Catch every killer episode. You're someone who can vouch for your whereabouts at the time of What are you, the alibi police? That's literally who he is.

0:41Exactly who I am.

1:07and family over to kick off the party. Start celebrating with low prices guaranteed at The Home Depot. Prices may vary by store. Exclusions apply. See homedepot.com slash price match for details. David, David, I've got some top secret information to share with you today. Oh, Gordon, what have you done this time? Don't worry, don't worry. It's good news. So I'm excited to share, and I think actually you know this news already, but it's really to share with everyone listening, that we are going to be putting on our first ever live show on the 31st of January, 2026 at the South Bank Centre in London.

1:42Luckily, the date and location aren't secret. Which is wonderful because we'll finally have an opportunity in person to discuss why you are so terribly wrong and morally misguided about Edward Snowden and the JFK assassination. Well, I look forward to proving you wrong live on stage. But yes, we'll be delving into the weird and wonderful world of intelligence failures and maybe some conspiracy theories as well. And we'll be unpacking some iconic moments of spy fiction from those thrillers and dramas that people love. And we'll be answering your most burning questions about the world of spies and secrets.

2:18That's right. The wonderful world of intelligence failures. Nothing more wonderful than an intelligence failure. And if listeners want finally to get their questions answered about Gordon's home address, I'll be happy to share it with you live on stage. But Gordon, when can our fantastic listeners and our secret squirrels get tickets for this exciting event? Well, members of the Declassified Club, the famed Secret Squirrels, can get members-only pre-sale tickets live from tomorrow, Thursday 6th of November at 10am GMT, while the general sale for everyone else will be from Friday 7th of November at 12pm GMT.

2:58Now, the links for the general sale tickets will be in the description for this episode and the rest is classified dot com. So make sure you're signed up for alerts to be the first person to secure your spot at the most anticipated espionage event of 2026. And with that, back to the nutty story of Crypto AG.

3:25Hello, welcome to The Rest is Classified. I'm David McCloskey. And I'm Gordon Carrera. And the question, Gordon, is what do you do if you're the CIA and you're running a cryptology company in Switzerland and the CEO is about to retire and his son and likely successor has absolutely no idea that the CIA is involved? You hope you can get him on board. But what happens if you don't? I guess that's what we're about to find out in the second part of our series on crypto Oh, you've set it up in a very conspiratorial way, Gordon. I have. As usual, I'd expect nothing less from you. That's right. We're telling the story in this second and final episode of our dive into this insane sort of intelligence story around Crypto AG, a Swiss cryptology company that when we left you last in the process of sort of being absorbed by the Central Intelligence Agency, and we looked last time at this really, I think, remarkable friendship between Boris Hagelin, the founder and CEO of Crypto AG, and William Friedman, this sort of cryptology and signals intelligence pioneer in the US who worked for the NSA, and this friendship at the heart of this, what becomes a partnership that allowed the US to gain access to encryption machines that are sold around the world to over 130 countries.

4:56But now, Gordon, these guys are old. Friedman is retiring. Hagelin, it's the 1960s. He's thinking it's time to step down. He's getting close to 70. And the NSA, where Friedman had worked and been more or less running this operation up to this point, is kind of uncomfortable, maybe with the human touch that's required. And the Central Intelligence Agency has, you wrote muscled in, but I like to say, starting to sweep this company right off its feet. Every stereotype about NSA and CIA people could come into this episode. So we've had this amazing operation where the NSA has been able to work, thanks to this friendship, to basically rig the sale of all of these machines around the world.

5:43But the crucial question is boris hagglin wants to retire so it becomes a question of succession and this has got echoes of the tv series and some of those questions because boris hagglin has got a son bo jr good name and he's definitely viewed as the successor he's been groomed as such he's a capable inventor himself he invents a kind of pocket-sized cipher machine you can carry around but actually has a little bit of a battle with his father over who gets credit for that and you can sense from that. There's some strains between them. Bo doesn't know what his father has been doing. The gentleman's agreement with William Friedman that's grown into a more formal arrangement.

6:25The father has certainly kept it from the son, which I think is interesting. The more we talk about the story, the more flummoxed I am by Hagelin Sr.'s motivations. I guess it's just one thing at a time that he ends up at this place in the 60s where he's trying to hand off a company that he's built in secret partnership with American Intelligence. He's potentially handing this off to his son. But Hagelin Sr. has put so much at risk in this operation, but his entire business is potentially at risk. It's kind of built on a lie. Yeah. It's built on a lie. He must have been so ideologically committed, I think, to this, and probably got some secret thrills out of it that he was willing to continue with.

7:09It just, It's immense risk. And Bo Jr. actually goes to the US himself, and he's working as a sales manager for the Americas for the company. But the tensions kind of start to grow with the father. Bo Jr. marries an American woman called Edith, who his parents don't like. Familiar story. They think she's keeping him from coming back to Switzerland to be where their headquarters are. They think he's careless with money because he wants more. He wants to be a playboy, perhaps, but the father doesn't really give him enough money. It feels like one of those classic generational succession stories.

7:42The father has built the business and he's worried that the son doesn't have the work ethic and what it takes to maintain it and to keep it going in the same way as he's built. It's an age-old story, isn't it? But you can sense that's part of the tension between father and son. The father thinks the son's not really putting his weight. He's enjoying himself too much. So yeah, it's Logan Roy and the family and the drama succession, isn't it? And Beau is actually a pretty good salesman. And because he doesn't know about his father's secret with the CIA, with the Americans, starts to sell really advanced, borderline, unbreakable machines to countries that we would really all prefer they wouldn't, so that we could listen to their communications.

8:26I mean, well, you can't blame him because he's thinking like, hey, kind of goes to the brazilians and thinking new market and he starts selling in 1960 like the top machines but the problem is these are the machines that are not supposed to be sold to anyone other than kind of nato and allied countries you know it's the cx-52 and so the u.s kind of freaks out they're like well we won't be able to read brazilian messages anymore so then boris you know has to kind of get involved and convince brazilians to instead buy a model that you know can be read so the issue is he's due to take over but can he be trusted not everyone is sure u.s intelligence describe him as a wild card and wonder if the deal is going to survive the succession you know and that grows as the 60s progress and as boris haggling gets older and what's going to happen to the company is it going to be able to adapt to a kind of new machines electronic machines so at this point the first signs of a new plan is hatched which is that boris is going to sell the company and he doesn't tell his son who he's going to sell it to, but he talks about selling it.

9:29But the reality is he's thinking about selling it to the CIA, not openly, but through a series of front companies. And only three people are aware of the plans to sell the company, Boris, the CEO, and Beau Jr. But Beau Jr. doesn't know that it's the CIA. Because we should say by this point, Boris Sr. is not the CEO. Yeah, exactly. He's kind of stepped back. Yeah. And so Beau is already kind of probably annoyed because he thought he'd be the CEO and he's not happy with a sale. So there's a kind of problem. And then 1970, the problem to some extent goes away because Bo, Bo Jr. dies in a car crash on the Washington Beltway just outside of DC.

10:12Now - Okay. You've said this in very dark tones here, Gordon. Officially, there is no sign of foul play. The Beltway is very dangerous. People die on the Beltway all the time. But you wrote down, there are a strange lack of details on the crash. What does that imply? What are you suggesting? I try to find out, like, tell me more about the crash. Who else was in? You can't find any details about it. What would be an appropriate set of details to have on a random car crash in 1970? I don't know. How deep down in the rabbit hole did you go? Of a young businessman. I'm not trying to revisit my JFK assassination theories about the CIA.

10:51That's good. it. But it is incredibly convenient that Beau Jr. dies. Now, look, some in European intelligence are going to wonder if something happened. Boris himself is going to wonder what happened with his son. He's going to hire private detectives to try and find out if there's something more to it. Others I've spoken to say they just can't believe the CIA or someone would have bumped off, someone like that, even if they have the potential to screw up a world-changing intelligence operation. Okay. We should say, I mean, you've covered this in sort of a gloss of paranoid conspiracy, Gordon.

11:31It's the 70s. We're in the 70s now. Yeah, we're in the 70s. There's absolutely no evidence of foul play here, right? There's not evidence of it. It is true that it sets the stage for the CIA to take over crypto aging. I mean, Bo Jr. was a potential hurdle on that path, and he's now out of the picture. So it's so interesting, this bit, which is how does the CIA, and we flagged also the Germans, come to buy it? Now, as we'd said before, the NSA had kind of got less interested in this, partly because their top target is the Soviet Union, and they're not using Hagelin machines, and they're kind of focused on computing power.

12:07And the CIA is kind of very interested in this. And I guess it's fair to say, isn't it, the CIA has always had a little bit of game in that kind of communications intelligence, signals intelligence world, hasn't it? It's not that it always leaves it to the NSA. Well, yeah. I mean, I asked a couple of examples. One that comes immediately to mind is the Berlin Tunnel operation run by a friend at the pod, Bill Harvey. Later involved in the JFK assassination, allegedly. Alleged by Gordon Carrera. Sorry. Conspiracy theorists. Yes. I've added that to your nut file, Gordon. So that bullet point has been added.

12:44It's a big file. But yeah, so the Berlin Tunnel was CIA digging a tunnel into the Soviet sector of Berlin, wasn't it? To literally tap the communications. It also reminds me of an operation, Gordon, we mentioned briefly in our series on Adolf Tolkachev, the so-called billion dollar spy. The codename for this one, I believe it was GT Taw. And it was an effort by the CIA to essentially send someone down into a manhole outside of Moscow and place a collar on a communications line that the Soviet Ministry of Defense used. And so there you had this example of the agency essentially, I mean, tapping a communications line, collecting signals intelligence from that.

13:37But at the core of the operation is a human, right? It's a CI officer who's responsible for maintaining that collar and all of the tapes associated with it. what is often not well understood about signals intelligence is how much of it is human enabled in some way. Like you go through the chain of the operation and how this stuff is physically collected. And at some point there's a human involved in the process. Right. And oftentimes oftentimes the access that that human has has been curated by the CIA, and it's a natural fit. So there's more of a partnership, I think, between the CIA and the NSA on signals intelligence than is often well understood.

14:29Yeah, because even if you go back to Stuxnet, the virus that gets into the Iranian system, at one point they're getting a human engineer to put a USB stick into an Iranian computer. You need a person to do that. And I guess that's the point about this operation, is that yes, it's about collecting communications intelligence, but it's actually, as we've established, about managing people, salesmen, engineers, persuading other countries to buy and trust things. And I guess that's why the CIA feels more comfortable with it maybe than the NSA did. But the other question is, how come the Germans? Now, this is really interesting because it seems like some Western European services knew or had worked out what was going on with Hagelin.

15:06In 1967, the French approached Hagelin to buy the company with the Germans, but Hagelin says no and tells the CIA because obviously he's got a relationship with them. And then I love this, the CIA director, Richard Helms, another friend of the pod, says to the Germans, if you ditch the French, we'll buy it with you. It's basically, I think it's fair to say, the CIA are like, yeah, yeah, yeah, it's a good idea buying it, but I think we're the ones to do that. Because I think it's fair to say that the CIA and the French did not entirely trust each other at this point. That's shocking. The relationship with the Germans, though, between the BND and the CIA is much closer, though, isn't it?

15:50When you look back on it, it's interesting, isn't it? Because the BND, obviously, after the Second World War, Germany needs a new intelligence service, the old Gestapo and the military intelligence is gone. And it's basically founded by the CIA. And And it's kind of the CIA half running it for them. It's their people. They've got deep relationships with the Germans in that kind of early Cold War period. So it kind of makes sense, doesn't it, that CIA and BND kind of trust each other? And then there was other reasons why I thought it was interesting why the CIA would be happy working with the Germans.

16:20I mean, one of them is that you've got a company which is based in Switzerland, so obviously neighbouring Germany, and you're going to need engineers and people to help. And it's a lot easier if you've got the Germans on board and you can send some engineers from Siemens, the company, it's a kind of German company which German intelligence can have a relationship with. You can send them over and to kind of deal with it. You can have people going back and forth in a way that looks a lot less suspicious than a bunch of Americans turning up at crypto AG headquarters to talk to them or to deal with it.

16:50You know, you can see why there's a kind of benefit to keeping it covert if you use the Germans as a partner. If you think of the French were already onto it, that the Germans also had some understanding that the agency was involved at this point and that Hagelin had been collaborating with the Americans. So, I mean, if they're not included, is there potential that they raise a fuss about it to maybe word gets out or something like that? The BND probably already knew. Yeah, I think so too. And it's interesting, I think the Swedes know, because of course Hagelin is Swedish and the company originated in Sweden.

17:20So there's a bit of knowledge around and it's interesting, they do keep it quiet. But the CIA and BND are going to go halves on it, sale for about$5.75 million to buy the company, organised through lawyers, shell companies in Liechtenstein. So it's not like the CIA on the company's records, it says, bought by CIA BND. This is part of the reason why even now a lot of the details are so murky is that a lot of our understanding of this is coming from work by journalists. It's been done really just in the past six or seven years and some CIA write ups on the history of this operation that are still not declassified, but that journalists have gotten access to.

18:03But the other angle for the secrecy is that it's really hard to understand this Lichtenstein component because a lot of this stuff is such a maze and it's still hard to get down into the roots of the documentation in Lichtenstein. Yeah. And the shell companies and whatever else was there. And so all the staff of the company, Crypto AG, don't know who owns it, which is kind of nuts. I mean, they think it's some business group, I guess, one of these shell companies. So only Boris Hagelin and the CEO know about it. All the profits go through Liechtenstein and then come to Munich. And I love this fact, the BND pick it up and they pick up a load of cash and they hand it over in an underground car park in Munich to the CIA, who were running an operation out of the consulate in the city.

18:52I mean, you just imagine literally bags of cash being handed over in an underground car park. I mean, it's crazy. You would think two services running a joint operation, there is going to be tension and misunderstanding and differences of perspective. But I was amused to see that the CIA thought the BND was primarily using this as a money-making operation for the service. Yes, the tension grows because the CIA think, well, the Germans just seem to be more worried about the money than the spying. But I love the fact the Germans are shocked, shocked that America is using this to spy on lots of countries that appear to be allies, including NATO members like Spain, Greece, Turkey and Italy.

19:37And of course, you know, you're the Germans. You're like, there are European partners. Long tradition of Germans being shocked by spying on allies, which I think is total garbage. personally. They are very good at play acting. The shocked partner, oh my goodness, we're going to spy on the Greeks. You Americans. Gambling in this casino. Yeah. So through the 70s, the operation is still going to be very successful. So again, just a few quick examples of the success of it. Egypt is a big customer. 1978, President Sadat of Egypt taking part in the Camp David negotiations with Israel, brokered by the US.

20:14And all the Egyptian communications back to advisors in Cairo from Camp David are monitored because they're using crypto AG machines. They can see what the Egyptians bottom line is, you know, and this is described as priceless intelligence. So again, you get a sense of the value of this. Following year, 1979, Iran hostage crisis, NSA is reading about 85 % of Iranian comms. Well, it's interesting because they're still taken by surprise. And Bobby Inman, who is head of the NSA at this time, I mean, has said on the record, I think, to journalists at The Washington Post that during, I think it was during the Camp David negotiations, that the NSA was able, through providing the transcripts of, you know, these diplomatic communications and sort of the back and forth between Sadat, who's negotiating, and then, you know, his advisors, presumably some of whom are in Cairo, that he was able to answer well over 80 % of the White House's questions.

21:08on sort of how the Egyptians were positioning themselves. So Inman basically said it was absolutely critical intelligence to have and so, so valuable. I also found a great story from this period, Gordon. Billy Carter, who is the sort of boorish brother to then president Jimmy Carter, and who also, Gordon, famously promoted something called Billy Beer in the United States. Did you ever have Billy Beer? I never had Billy Beer. I haven't either. I think collectors still try to get the cans. Essentially, he was using his access to the White House and the Carter name to make money. There's an intercept of Libyan communications in this period that show that Billy Carter was on Gaddafi's payroll as a kind of lobbyist, right?

21:58Getting access to the White House. And Inman, who is the NSA director at the time, sees this intercept and is like, oh, crap, you know, like, what do I do? And goes to the Justice Department and they approach Billy Carter and he denies it. He just lies. And eventually they work out a deal where he has to register as a foreign agent. But that whole chain of events is because the Libyans are using crypto AG machines. And that's the thing. There's so much we don't know. The other bit that's interesting, I think, is it's being used a lot in Latin America. And in the 1970s, you get this wave where countries are overthrown by some pretty brutal military hunters and dictatorships emerge where they're going to use repression against their political enemies and their own people.

22:45And these militaries that take over are using crypto AG to communicate. And I think a lot of researchers have raised the question, well, does that then mean that the US government knew exactly what these militaries were doing in terms of repressing their own people. So Salvo Allende gets overthrown by the Chilean military led by General Pinochet with CIA help, it's worth saying, and thousands are killed. Then you get the same in Argentina, you know, where Hunter takes over in 77. People are getting thrown out of aeroplanes, dissidents disappeared, all these things. And it does raise the question, well, does that mean the US knew all about what these militaries were doing against their own people because they were inside their comms because of crypto AG.

23:28That's right, Gordon. I think maybe there you mentioned Argentina, which is going to be so critical to how this operation almost entirely unravels. Let's take a break. When we come back, we'll see how the CIA, hopefully, Gordon, manages to hold this entire thing together. Hi, this is Gary Lineker from Goldhangers. The rest is football. This episode is brought to you by WISE. It's only when you start moving money between currencies that you really think about the exchange rate, the fee, and what might be hidden away in the small print. Whether you're living abroad, paying someone overseas, or just trying to manage your money across borders, you want a fair exchange rate, an easy transfer, and no surprises along the way.

24:11WISE keeps things simple. WISE is a smart way to move the currencies you need around the globe. It works in more than 160 countries and with over 40 currencies. Most transfers arrive instantly. Wise uses the mid-market exchange rate, like the one you see on Google, with no markups or hidden fees. So when money needs to move, you can see the rate, know the fee and get on with it. Join millions saving billions on hidden fees by downloading the Wise app today. Be smart, get wise, T's and C's apply. Study and play. Come together on a Windows 11 PC. And for a limited time, college students get the best of both worlds.

24:55Get the Unreal College Deal. Everything you need to study and play with select Windows 11 PCs. Eligible students get a year of Microsoft 365 Premium and a year of Xbox Game Pass Ultimate with a custom color Xbox wireless controller. Learn more at windows.com slash student offer. While supplies last, ends June 30th. Terms at aka.ms slash college PC.

25:44So good, so good, so good. Brought to you by State Farm. Listening to this podcast instead of doom scrolling? Smart move. Another smart move? Getting help from one of State Farm's 19 ,000 local agents when you choose to bundle home and auto. Bundling. Just another way to save with the personal price plan. Prices are based on rating plans that vary by state. Coverage options are selected by the customer. Availability, amount of discounts and savings, and eligibility vary by state.

26:14Well, welcome back, Gordon. We left on the cliffhanger that Argentina was going to almost screw this entire thing up. But before we get there, Gordon, I think it's fair to say that in the 1970s, mo' money, mo' problems, as they say, right? For the good folks at Crypto AG. Yeah, it's really interesting. So in the 70s, it seems to be motoring along, but you can start to see the tensions which are actually going to lead to the unraveling of this operation. Crypto AG, big company, successful company, 250 people. But of course, some of the engineers inside the company are getting a little bit suspicious about things that they don't know.

26:54Where do some of the algorithms come from? Why are some of the flaws in the machines not being fixed? It's getting harder to keep this all secret. And one of the reasons is the staff are frankly doing their job. The engineers are seeing a problem of vulnerability and they're fixing it. And interesting things start to happen. They're reading the Syrian codes. And then in 1977, the NSA complained, suddenly they can't read them anymore. And the reason is that one engineer from the company has seen some complaints from Damascus, and he goes and just fixes it. He's doing his job, but he basically gets fired, partly because he's suspicious about what's going on.

27:30And the CIA is actually a bit annoyed about this, because they think maybe it'd be better to keep him on the payroll, to keep him quiet. And you get other engineers who are kind of aware of something secret. They're going to start drinking. They're going to start telling their family, you know, these crazy, what sound like conspiracy theories that they're spies behind the company and people think they're nuts. The company is going to start hiring engineers, you know, one who's described as too bright to remain unwitting. And it's a woman who starts to build more secure machines. When countries buy these machines, I mean, they're not just going to buy them and trust a company.