Fact check: Carly Fiorina misleads on HP and Iran

Lori Robertson and Eugene Kiely | FactCheck.org

Carly Fiorina made several false, misleading and unsubstantiated claims in responding to questions about Hewlett-Packard's involvement with a foreign subsidiary that sold products in Iran.

• The former HP CEO claimed that a Securities and Exchange Commission investigation "proved that neither I nor anyone else in management knew about" a Hewlett-Packard subsidiary doing business in Iran. We have found no such ruling from the SEC, nor could Fiorina's campaign provide one.

• She also claimed that the company that actually sold HP products in Iran was "not honest" with HP about its dealings. But that company said in a 2003 press release that its relationship with HP had begun in 1997 to focus on "one market — Iran."

• Fiorina said "it's impossible to ensure that nothing wrong ever happens" in such a large company, which she said had "a larger budget than any one of our 50 states." That's incorrect. California and New York had larger budgets in fiscal year 2005, which was Fiorina's last with HP.

We can't say what Fiorina knew about an HP subsidiary's dealings in Iran and when she knew it. But the company defended the subsidiary's sales to Iran in a 2009 letter to the SEC — three years after Fiorina had left the company — saying such sales by a foreign subsidiary weren't subject to the law governing U.S. companies. There's other evidence suggesting that HP management, but not specifically Fiorina, may have been aware of the arrangement several years before then.

THE IRANIAN CONNECTION

United States sanctions against Iran, implemented in 1995, prohibited U.S. companies from directly trading with Iran or investing in the country. In 2012, President Obama signed an executive order that more broadly held U.S. companies liable for their foreign subsidiaries' business dealings in Iran — whether the U.S. companies had arranged such dealings or not (see Sec. 4).

Fiorina, who was CEO of HP from July 1999 until February 2005, was asked on Fox News Sunday about the company's dealings with Iran. Host Chris Wallace asked, "Are you saying you didn't know about it?" To which Fiorina responded:

Fiorina, Sept. 20: In fact, the SEC investigation proved that neither I nor anyone else in management knew about it and the facts of the matter were the European subsidiary apparently was doing business with another company in the Middle East. That company was doing business with another company that was doing business with Iran. And when the company discovered this three years after I left, they cut off all ties with those companies. The SEC investigated very thoroughly and concluded that no one in management was aware.

We have found no evidence that the SEC ever said that "no one in management was aware." In fact, HP's response to questions from the SEC in 2009 indicated that management was aware.

In a March 12, 2009, letter to the SEC, Paul T. Porrini, HP's vice president, deputy general counsel and assistant secretary, responded to questions from the SEC, including questions about Redington Gulf, a Dubai-based wholesaler, selling HP products in Iran. The SEC had said in its Feb. 10, 2009, letter to HP that it was aware of news reports on this relationship.

"We also are aware of January 2009 news reports stating that you acknowledge you have been aware of Redington Gulf's sales of your products into Iran, and that you have now decided that you will explicitly prohibit Redington Gulf and your other distributors from selling your products into Iran," the SEC wrote. The SEC had asked HP to describe its business dealings with Iran, both direct and indirect.

Porrini's response letter didn't say that HP management was unaware of an HP subsidiary selling products in Iran. Instead, it said that "[d]uring the past several years," Hewlett-Packard Europe B.V., a Dutch subsidiary, "has sold printers and related parts and supplies to third-party distributors based in the United Arab Emirates, including Redington Gulf," which then sold "a limited range of those printer products and supplies for redistribution into Iran."

HP said that the sales were allowed under U.S. law. It argued that since the Dutch subsidiary wasn't a U.S. company, its sales were not governed by U.S. regulations.

HP letter to the SEC, March 12, 2009: The products that have been sold by The Meyrin Branch [Dutch subsidiary's Geneva branch] to Redington Gulf and the other distributors were limited to printers and printer supplies that were authorized for redistribution into Iran under the Export Administration Regulations (the "EAR") administered by the Department. More specifically, substantially all of the printers authorized for distribution were EAR 99 Products, while two products were classifiable under Export Commodity Classification Number 5A992. Thus, there are no restrictions against the redistribution of these products into Iran under Departmental licensing requirements for that country. In addition, neither the Dutch subsidiary nor The Meyrin Branch is a "United States person" within the meaning of section 560.314 of the Iranian Transaction Regulations as administered by the Office of Foreign Assets Control ("OFAC") of the U.S. Department of the Treasury. Thus, the regulations administered by OFAC are not applicable to the sales of products by The Meyrin Branch to Redington Gulf and the other distributors authorized to sell for redistribution into Iran.

The letter went on to say that HP had "no knowledge" of any of its products being used by the military in Iran, in response to the SEC's question about whether the company knew of any use of its products by the military in Iran. HP concluded: "HP does not believe that the Iran Freedom Support Act of 2006 applies to the HP products redistributed into Iran." The 2006 law was another measure that codified sanctions against Iran.

But, HP said, the Dutch branch had ended its agreement with Redington Gulf. And it said that the 2008 sales of printers and printer supplies to Iran would have amounted to $120 million, or less than one-quarter of 1 percent of HP's printer/print supply sales.

The SEC responded to that letter on March 30, 2009, but said nothing about the Iran issue. It only asked two questions on unrelated matters. The two entities exchanged a few more letters about these unrelated matters, and on July 1, 2009, the SEC wrote that it was finished with its review of the company's 2008 filing, saying: "We have completed our review of your Form 10-K and have no further comments at this time on the specific issues raised."

The SEC didn't comment on whether HP management knew about the sales to Iran or not, and HP's correspondence indicates that the company clearly did know.

And there's more evidence that HP management may have been aware of the arrangement.

A Dec. 29, 2008, Boston Globe article — to which the SEC referred — examined HP's sales through Redington Gulf. It said: "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."

The Globe quoted an HP spokeswoman on the issue, saying that she "declined to say how much the company knows about its printers' popularity in Iran, offering only a statement that HP has 'a policy of complete compliance with all US export laws.' "

The paper had more evidence: It cited a 1999 article in Gulf News, an English-language paper in the United Arab Emirates, which quoted Albrecht Ferling, the general manager of HP Middle East, as saying HP's growth rate in Iran was about 50 percent annually. "Iran is a big market for Hewlett-Packard printers," Ferling said. The newspaper couldn't reach Ferling, who had left the company by that time.

A week after the Globe article, the Associated Press reported that HP had issued a statement, saying that it knew about the sales, but that they weren't in violation of U.S. laws. HP said it would stop Redington Gulf from selling HP equipment in Iran anyway "to go beyond the letter of the law."

Associated Press, Jan. 9, 2009: The computer and printer maker acknowledged that it knew the sales were occurring despite trade sanctions on Iran, but maintained it did nothing illegal and was halting the practice "to go beyond the letter of the law." … The company emphasized that it never shipped directly to Iran and doesn't have any employees there.

In an Oct. 5, 2003, press release, Redington Gulf boasted that it had reached the milestone of having more than $100 million in shipments from HP for that year. The release said: "The seeds of the Redington/Hewlett Packard relationship in the Middle East were sowed six years ago for one market – Iran, and one product group – IPG [Imaging and Printing Group]. Today it boasts of covering the entire region and across multiple product groups and support services."

The press release also includes a photo credit line that says: "The management of Redington Gulf FZE and seniors from HP celebrating this milestone achievement."

That year — which was during Fiorina's time as CEO — HP named Redington Gulf "HP supplies wholesaler of the year" at the fourth annual "HP Middle East Business Partner Awards" luncheon, according to a press release that was sent out over the Middle East Company News Wire on Oct. 22, 2003. Wallace asked Fiorina about that award, saying, "So, how can it be that they were doing all this business with Iran, you were calling it the — HP was calling it the Wholesaler of the Year and you didn't know what was going on?"

Fiorina responded that Redington was "not honest" with HP.

Fiorina: The Wholesaler of the Year that you're describing was doing business with another company that was doing business with Iran. Clearly, that Wholesaler of the Year, which should not have been the Wholesaler of the Year, was not honest in their dealings with us and they were not honest in their dealings with this third company. And that's why the dealings with this organization were cut off immediately. It is why the company cooperated with the SEC in a very thorough investigation. And it is why no charges were ever dropped — were ever filed, because it became clear that this third company was not honest or trustworthy. Neither was the other organization that they were doing business with.

But Redington was upfront about its business dealings in Iran. It said in a press release that was issued before the wholesaler of the year award that the Redington/HP relationship had its roots in "one market — Iran."

And the "investigation" by the SEC — which was actually a few letters between the SEC and HP — says nothing about HP believing that Redington Gulf was dishonest or deceptive. As we've explained, HP defended the actions of its wholesaler, saying that its sales to Iran weren't governed by U.S. sanctions.

Fiorina also says that "dealings with this organization were cut off immediately," but HP said it would continue to do business with Redington Gulf, just not in Iran. HP's 2009 letter to the SEC said that its Dutch subsidiary was terminating sales to distributors "insofar as they may involve redistribution of such printers and printer supplies into Iran. Redington Gulf will continue to be authorized to sell HP products in certain other countries in the Middle East and Africa." In fact, HP's website lists Redington as a "partner" in the Middle East.

The 2008 Globe article said that "[i]f American executives at HP cut the deal knowing the printers were destined for Iran, it would be in violation of the law, sanctions specialists said." But the third-party distributor put distance between HP and the actual sales to Iran. "Using a distributor makes it much more difficult to prove that the manufacturer has knowledge of the sales to Iran," Robert Clifton Burns, a lawyer who specializes in export law, told the Globe.

The sale of U.S. products in Iran through third-parties wasn't unique to HP by any means. The Globe article noted that the SEC had asked Xerox in 2006 about the sale of its products in Iran. Xerox, too, said the sales were by foreign distributors and therefore legal, but it said it would terminate those agreements anyway. A New York Times investigation, published in 2010, revealed a list of 74 companies — both U.S.-based and foreign — who had done business with the U.S. government and in Iran over the previous decade. The Times wrote: "[M]ultiple administrations have struggled diplomatically, politically and practically to exert American authority over companies outside the embargo's reach — foreign companies and the foreign subsidiaries of American ones."

Again, none of this is proof that Fiorina had any personal knowledge of a subsidiary of HP selling products in Iran. But Fiorina claimed that the SEC determined that HP management wasn't aware of the situation, and we have found no evidence that the SEC ever reached such a conclusion. Nor is it the reason HP gave to the SEC for being in compliance with U.S. sanctions on doing business in Iran.

We have asked the Fiorina campaign to provide the SEC statement to which she referred, but we have received no response. We will update this article if we do.

OVERSTATING HP'S BUDGET

In responding to Wallace's question on Fox News Sunday, Fiorina initially said "it's impossible to ensure that nothing wrong ever happens" in such a large global company, which she described as having "a larger budget than any one of our 50 states." That's incorrect.

In the fiscal year 2005, Fiorina's last year with the company, HP reported total operating expenses of $83.2 billion, according to its annual report (page 71) to the SEC. Two states had larger budgets in fiscal 2005:

• Fiorina's home state of California had a $105.4 billion budget, according to the California Department of Finance. And that was after then-governor Arnold Schwarzenegger used his veto power to cut $116 million from the budget.

• New York enacted a 2004-05 budget that totaled $101.2 billion, according to the Office of State Comptroller. The governor at the time? Fiorina's presidential primary opponent George Pataki, who vetoed $235 million in spending and overcame a legislative effort to restore $116 million of the budget cuts.

Campaign spokeswoman Anna Epstein told us Fiorina was referring only to "general revenue funds," which would exclude federal aid and other sources of revenue. The New York budget, for example, included $36.8 billion in federal grants and $16.3 billion in "miscellaneous receipts," such as $274 million in lottery revenue.

But Fiorina didn't say "general revenue funds." She said "budget," which would include all revenue and expenditures.