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I was under the impression that Amazon fought to have the servers in Amazon data centers, but eventually relented. Amazon employees will be constructing servers inside CIA facilities. Other AWS services won't be running on those servers.

It's actually the other way around--the spooks want to make sure you aren't on any of the same physical hardware as they are. You can host anywhere you want and they'll still get you (if they want to).

I don't see why this is a problem. Any private service today can host CIA, NSA 's service. You'd think herkou is not used by NSA, digital ocean or Aikamia or Cloudflare are not used by government agency? If Tor has been used by the FBI and the police for years to take down criminals, why is this news surprising? Building a cloud for CIA is also like CIA using the public cloud infrastructure anyway. It probably relies on the same technology, except, with a strict firewall access control sits in front of the proxy.

To make my point clear: business is business.