You are correct that privacy without cryptography is infeasible. Urbit definitely does make heavy use of cryptography. Some government agencies may not appreciate this, but the point of the cryptography isn't primarily so that the NSA can't read it, but that other people don't impersonate you. It's important to not only not violate the current letter of the law, but also the spirit of the law.
The goal isn't simply to minimize government attention to maximize the chance of "success". "Success" that doesn't accomplish the rest of our goals isn't success at all, so there are some things that Urbit can't compromise on.