Australian crims used half of the Phantom Secure modified BlackBerry handsets

A Canadian businessman has been arrested in the US for allegedly modifying and encrypting BlackBerry smartphones used by "upper echelon" Australian criminals, Mexican drug cartel members, and other members of the global underworld.

Vincent Ramos, 41, the chief executive of Vancouver-based Phantom Secure, was taken into custody in California last week after a global investigation involving the Australian Federal Police and the seizure of shipments of cocaine from the US to Australia.

Phantom Secure technicians gutted BlackBerry handsets of their original hardware and software and installed new encryption software and an email program, according to a criminal complaint filed in the US District Court.

Of the 20,000 Phantom Secure devices in service around the world, 10,000 were allegedly in Australia, according to estimates touted by the FBI.

"According to law enforcement sources in Australia, Canada, and the US, Phantom Secure devices are used by the upper echelon members of various transnational criminal organisations to communicate with their criminal compatriots and conduct the illegal activities of the organisation," FBI Special Agent Nicholas Cheviron wrote in the complaint.

Phantom Secure allegedly charged customers between $2,000 and $3,000 for six-month subscriptions and were "specifically designed to prevent law enforcement from intercepting and monitoring communication".

The phones' emails were allegedly routed through encrypted servers in Panama and Hong Kong, nations Phantom Secure claimed in marketing materials were "uncooperative" with law enforcement.

A transnational drug trafficker and associate of Mexico's infamous Sinaloa cartel, known in court documents as Cooperating Witness One (CW-1), told authorities cartel members used Phantom Secure phones.

"CW-1 stated that over the course of several years, his drug trafficking organisation moved hundreds of kilograms of cocaine per month from Mexico through the US, ultimately destined for Canada and Australia," the FBI special agent wrote.

"CW-1 used a Phantom Secure device to co-ordinate and complete each of these drug transactions."

In August 2015, using Phantom Secure devices, "CW-1 and his Australian conspirators co-ordinated a shipment of 10kg of cocaine from the US to Australia, which was seized by the Australian Border Force," according to court documents.

In 2016 Australian Federal Police seized a Phantom Secure device from an Australian arrested for drug smuggling, according to the FBI.

"During this period, the AFP communicated with an unknown individual in Los Angeles who packaged and shipped 16 kilograms of cocaine to Australia where it was intercepted on September 11, 2016," the FBI special agent wrote.

Ramos faces racketeering conspiracy, conspiracy to distribute narcotics charges, and aiding and abetting charges.

The arrest of the head of an organisation helping criminals avoid legal surveillance will, more than likely, be used by those seeking a decryption magic bullet.

Last month, Australian Minister for Home Affairs Peter Dutton labelled "ubiquitous encryption" a "significant obstacle" to terrorism investigations.

According to the minister, more than 90 percent of counter-terrorism targets are using encryption for communications, including for attack planning in Australia.

"Decryption takes time, a precious commodity when threats may materialise in a matter of days or even hours," Dutton said at the time. "Law enforcement access to encrypted communications should be on the same basis as telephone and other intercepts, in which companies provide vital and willing assistance in response to court orders."

Speaking at a recent Senate Estimates hearing, Secretary of the Department of Home Affairs Michael Pezzullo said the government's decryption solultion, when details on it are unveiled, would not "undermine legitimate encryption" and would balance societal needs for encryption.

"The challenge for governments and parliaments all around the world is how do you ensure that encryption is used for legitimate societal purposes, and not misused by -- in the same way the internet is misused through the dark web -- that encryption is available to those who use it for legitimate purposes and not otherwise," Pezzullo said last month.

The secretary for Home Affairs struck out at descriptions of the decryption proposal as a "backdoor".

"That's the shorthand, colloquial, and in many respects, highly ill-informed shorthand that is sometimes used in this field," he said.

"You assume that a backdoor has to be created, I'm just saying that that is a cartoon-like assumption -- not that you are making -- but you've seen the literature."

Later in the hearing, the department said the national facial recognition system it is developing was protected due to its "hub-and-spoke" topology, and a unique characteristic of its network.

"We've also got a moat on the outside of the gateway, don't we?" Pezzullo said to Department Deputy Secretary of Intelligence and Capability Maria Fernandez.

After Fernandez replied in the affirmative, Pezzullo said the system also has a number of "forward posts ahead of the moat".

Details on the department's cybermoat have yet to be fleshed out.

In November, Ben Flatgard, director for Cybersecurity Policy on the US National Security Council during the Obama administration, told ZDNet that Australia's push for decryption was reckless policy.

"We've been discussing this as long as encryption's been used in commercial applications," Flatgard said.

In January, a US senator said the approach to encryption by FBI director Christopher Wray was an ill-informed policy proposal.

For years, these experts have repeatedly stated that what you are asking for is not, in fact, possible," said Democrat Senator Ron Wyden in a letter.

Wray had previously stated that an inability to access encrypted devices was an urgent public safety issue, and the agency was not able to access evidence, despite lawfully being able to.

With AAP

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