Vincent Ramos, the chief executive of encrypted smartphone company Phantom Secure, has been arrested by the US Department of Justice and indicted, along with four associates. Charged with racketeering and conspiracy to aid the distribution of drugs, the accusations centre on the companys products being knowingly supplied to drug cartels.

Phantom Secure, which is based in Canada, sold devices on a subscription basis, charging between $2,000 and $3,000 (£1,400 and £2,100) for six months of use. The modified Blackberry devices were designed to heavily encrypt all data, and also enabled users to remove key functionalities to prevent tracking.

While many smartphone manufacturers and software developers offer encrypted messaging services, including Facebook, Google and Apple, Phantom Secures business model drew the attention of law enforcement. In order to become a customer, an existing user had to vouch for the new buyer, supposedly as a way to prevent law enforcement officials from getting hold of the devices.

According to investigators, around 20,000 Phantom Secure-modified devices are in circulation, and were knowingly provided to members of international criminal organisations such as the Sinaloa Cartel. In addition to encryption and other modifications, the smartphones were designed to automatically route communications through servers in Panama and Hong Kong, making data more difficult to trace.

“This organisation Phantom Secure was designed to facilitate international drug trafficking all through the entire world,” said US attorney Adam Braverman in a statement to the BBC. “These traffickers, including members of the Sinaloa Cartel, would use these fully-encrypted devices to facilitate their drug trafficking activities in order to avoid law enforcement scrutiny.

“Our understanding is there are a handful of other organisations that exist like this. The FBI, and our office, will continue investingating not only Phantom Secure but any other company that provides this kind of communication device to criminal organisations.”

The charges mark the first time that US authorities have targeted a company for knowingly making encrypted technology for criminals. US law enforcement has clashed with larger technology companies including Apple in the past over the use of encryption in messaging software, with some law enforcement leaders called for a back door to be created enabling authorities to access messages during investigations and prosecution.