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Carly Fiorina's controversy over HP printers sold in Iran, explained

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Like several other Republican candidates, Carly Fiorina has made President Barack Obama's nuclear deal with Iran a key part of her presidential campaign. Fiorina has described the agreement as a "very dangerous deal," because it opens up the Iranian economy without getting US inspectors sufficient access to Iranian nuclear facilities.

Yet in recent days, Fiorina has faced criticism for her own past dealings with Iran. Specifically, when she ran Hewlett-Packard, the company indirectly sold hundreds of millions of dollars worth of equipment — mostly printers — in Iran. She claims that she didn't know about the sales and didn't violate sanctions laws. But the reports, which have been circulating at least since her 2010 Senate campaign, makes it awkward for her to strike a hawkish pose on the Iran issue today.

HP looked the other way as a Middle Eastern distributor sold printers in Iran

Since 1995, the US has had a sanctions regime that imposes strict limits on US companies selling their products in Iran. The sanctions are intended to pressure the Iranian regime to improve its human rights record and abandon its efforts to get a nuclear weapon, among other objectives.

HP didn't sell its products in Iran directly, but a lot of HP products wound up being sold there anyway. A 2008 Boston Globe investigation explained why:

In 1997, two years after President Clinton banned trade with Iran, HP struck a partnership with a newly formed company in Dubai to sell its products in the Middle East. At the time, the company, called Redington Gulf, had only three employees and its sole purpose was to "sell HP supplies to the Iran market," says a history on Redington Gulf's website and Rajesh Chandragiri, the administrative manager in Redington Gulf's Dubai office.

Redington Gulf maintained offices and a service center in Tehran, and licensed Iranian retailers to sell HP printers in their stores. The result: one poll found HP was the leading printer brand in Iran, with a 41 percent market share.

There's also evidence that HP personnel — thought not necessarily Fiorina personally — were aware of the extent of HP product sales inside Iran. The San Jose Mercury News has reported that in 1999, "the company's Middle East general manager was quoted in a United Arab Emirates English-language newspaper calling Iran 'a big market for Hewlett-Packard printers.'"

The Globe investigation prompted an SEC investigation into HP's dealings with Iran, leading HP to sever ties with Redington Gulf in early 2009. At the time, HP estimated that sales of HP products in Iran were around $120 million in 2008, a tiny fraction of HP's $118 billion in worldwide revenues that year.

HP wasn't the only company selling printers in Iran

Fiorina ran HP from 1999 to 2005, so HP was allowing Redington Gulf to distribute its products before, during, and after her tenure. A spokeswoman for Fiorina's 2010 Senate campaign said that "to her knowledge, during her tenure, HP never did business in Iran and fully complied with all U.S. sanctions and laws."

Experts say that HP was operating in a legal grey area. "At the time it was ambiguous to many people as to whether it was illegal or not," one sanctions expert told Bloomberg recently.

And HP wasn't the only American company who used intermediaries to sell their products in countries subject to sanctions. For example, in 2005 the SEC sent a letter to Xerox asking about its relationships with companies that did business in Iran, as well as Syria and Sudan — which were also subject to US sanctions at the time. Xerox responded that it was "terminating all its distribution agreements related to sales in Iran, Sudan and Syria."

Most of HP's major competitors in the printer business are based outside the United States, and so haven't been as constrained by US sanctions. For example, the New York Times reported in 2010 that the Japanese printer giant Canon had been selling products in Iran for at least a decade. Epson, another leading printer company based in Japan, has also had extensive dealings in Iran. Samsung, based in South Korea, has an Iran section on its website.

Last week, Bloomberg described HP as having "unusual omnipresence" inside Iran, but this isn't really accurate. It's true that HP was Iran's leading printer vendor with an estimated 41 percent of the market in 2007. But that's because HP is the leading printer brand around the world, and has been for years. HP sold 49 percent of the world's page printers in 2005, 44 percent of multifunction printers in 2008, and 40 percent of all printers worldwide in 2013. The main reason HP printers have been so popular in Iran is that they're popular everywhere.

HP's Iran sales probably weren't illegal, but they are awkward for Fiorina

It seems pretty easy to defend Fiorina's conduct on the merits here. A CEO's job is to maximize shareholder value while staying within the bounds of the law, and Fiorina seems to have done just that. The law required HP to avoid dealing with Iran. It didn't necessarily require them to scrutinize the activities of every distributor to guarantee that none of its products ever wound up in a country subject to sanctions.

Moreover, the practical damage from HP's actions seem awfully minor. Printers aren't essential military equipment. And if HP had worked harder to block its printers from entering the Iran, that wouldn't have meant Iranians couldn't get printers. It just would have meant they'd buy printers from competitors like Samsung, Canon or Epson.

Fiorina's problem is that it's hard to make this kind of pragmatic argument while simultaneously blasting the Obama administration for his own pragmatism on the Iran issue.

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