Canadian arrested by France after cooperating with US on Sky ECC cryptophone investigation

Sky ECC investigated from 2018

The court heard that Sky ECC was being investigated from 2018-2021 over the alleged use of Sky ECC encrypted phones by organised criminal groups importing narcotics, arms trafficking and money laundering.

A judge told the court that criminal gangs were using the service to conduct business and that Sky ECC management and distributors including Herdman knew what was going on.

The Canadian businessman is charged in France with 22 offences, including laundering the proceeds from the importation of drugs by organised crime as a result of distributing Sky ECC encrypted phones and supplying cryptographic equipment without properly declaring it.

A grand jury in the Southern District of California initially indicted Herdman, described as a distributor of Sky ECC’s phones, and Sky Global CEO founder Jean-Francois Eap in March 2021. The indictment accuses the executives of racketeering and knowingly facilitating the import and distribution of illegal drugs through the sale of encrypted communications devices.

US ‘got facts wrong’

Herdman has denied the charges. He told the court on 3 September that the Americans had got significant facts wrong about his role with the now-defunct encrypted phone service.

US investigators claimed that he was the right-hand man of former CEO Jean-François Eap, but Herdman stated this was not true: “I wasn’t involved in the development of Sky ECC or the management.”

Thomas Herdman

Herdman was hired by business acquaintance Grant Persall as the account director of Canadian company Levup Technologies Inc in 2017, which had won a contract from Eap to distribute Sky ECC phones.

Levup has claimed to be one of the smaller distributors for Sky ECC Phones, with less than 6,000 customers, equivalent to 6% to 8% of the Sky ECC users worldwide.

“I was an employee and did an interview with a company that looked good,” Herdman told the court, adding that there was no evidence of complicity with drug trafficking and such claims were “egregious lies”.

Herdman said that Levup had never distributed Sky ECC phones in France and that the Levup had no-resellers in the country.

FBI Operation Trojan Shield ‘linked to Sky ECC’

Herdman told the court that his case was linked to an “American entrapment” operation, known as Trojan Shield. The operation provided criminals with encrypted mobile phones that were covertly under control of US law enforcement.

Between 2018 and 2021, an FBI-run encrypted device company called “Anom” (also known as “Am0m”) sold more than 12,000 encrypted phones to criminal groups, who were unaware that their encrypted messages could be read by law enforcement.

Herdman said that it was clear the Trojan Shield operation had closed down other encrypted phone networks, such as Sky ECC, to move users over to the Anom “spy platform”.

US undercover agents targeted Herdman

Defence lawyers have also questioned claims by prosecutors that Sky ECC was almost exclusively used for criminal activity.

Legal proceedings in Europe suggest that only 10,000 people appear to have been implicated in criminality in Europe, equivalent to about 10% of users.

In Herdman’s case, searches Europol’s secure information exchange (Siena) revealed that out of 130 of Herdman’s Sky ECC clients, only two were of interest to the courts and none have been identified by name and none have been convicted.

US undercover agents secretly recorded phone conversations with Herdman and arranged a meeting which led to them buying three Sky ECC phones. 

The agents are understood to have been engaged on Operation Trojan Shield, which attempted to persuade organised criminals to adopt Anom encrypted mobile phones secretly controlled by the FBI.

They allegedly told Herdman that they were working for a drug trafficking organisation and made enquiries with Herdman about using his network to convert the proceeds into cryptocurrency.

However, defence lawyers argue that there was no explicit references to any crime and criminal use in the transcript and the records of conversations between Herdman and the undercover agent.

Ohayon told the hearing that European and French prosecutors have made no formal approaches to Sky Global to request assistance in their investigation, but at the same time have accused the company of refusing to cooperate.

Bail denied

The court heard that there had been propositions from his legal team to place Herdman under house arrest with electronic tagging and bail deposit of €250,000 provided by Herdman’s family and a payment of €5,000 a month.

At the beginning of August, the prosecutor in charge of the case requested the release of Herdman with a payment of €5m bail. That request has been rejected by the investigative judges.

Herdman said that he was not a flight risk: “The only risk of me not showing up at court is if I die. The time it takes to get to court is a crime”.

He said that he wanted his day in court. In other countries, it takes six months for cases to be heard. He was ready to be tried, but the courts were not, he said.

Herdman told the court that before his arrest he had taught at a university in Japan for 17 years. He had been a soccer coach for around 25 years and had never been involved with crime, never had legal problems or been in prison.

Lawyer Philippe Ohayon said that Herdman’s continued detention was not in the French spirit. “We are not the United States, you can’t buy freedom,” he added. 

Flight risk

A Court of Appeal general prosecutor told the court that Herdman is the only person due to go to court – under an indictment issued by the French authorities against 30 individuals involved in Sky ECC – and it was necessary to make sure that he attended. 

She said that in her opinion there was a major risk of Herdman fleeing because he had the impression he had been duped by the American authorities.

Herdman had always insisted he wouldn’t flee because he would face a much harsher punishment, but that’s an easy argument to make, she added.

She told the court that Herdman’s past way of life, which included travelling to different countries, and his alleged resources and network meant he was at high risk of absconding.

Sky Global, which is owned by the Eap Family Trust, was registered in British Columbia in 2010 by Eap, a Canadian entrepreneur with a background in computer science and the telecommunications industry, according to US court documents.

It launched its Sky ECC encrypted phone network in 2013 and sold phones through third-party distributors which employed their own resellers and were bound by contracts not to supply phones for illegal use.

The judge denied Herdman’s application for bail. 

Speaking after the hearing, lawyer Paul Sin-Chan told Computer Weekly that Levup, which employed Herdman, was one of the smallest distributors of phones for Sky ECC, with only 6% of world-wide users.

“Levup did not distribute Sky ECC phones to French resellers and there is no evidence that Levup’s resellers had been polluted by criminal users,” he said.