The same issue also arrises when you add a new disk to your system and
wish to encrypt it. The disks utility offers you the encryption option,
but then returns the none obvious error as stated before, instead of
telling you that cryptsetup is not installed.

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https://bugs.launchpad.net/bugs/1310174

Title:
  "cryptsetup" should be included and installed by default in ubuntu
  14.04

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