The Boston Globe
Calif. firm's sales soar in embargo
By Farah Stockman, Globe Staff
TEHRAN - Behind an unmarked door on a crowded side street in Tehran, a stack of Hewlett-Packard printers rises to the ceiling. A fleet of motorbikes swarms outside, as deliverymen wait to deliver printers to buyers across this sprawling capital.
HP printers have become a top seller here, despite a comprehensive embargo that prohibits the California-based company from sending its products to Iran.
The prevalence of such American-made goods in Iran has led US officials to crack down on the cottage industry of smugglers in nearby Dubai who purchase everything from iPhones to Bratz dolls to sell in Iran. But the lion's share of HP printers, among the most visible of US goods here, come not through smugglers, but through a series of international transactions that enable HP to sidestep US sanctions.
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.
If 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 despite the crackdown on US companies who sell their products in Iran, some American firms whose products are sold through third-party distributors like Redington Gulf have so far avoided scrutiny.
"Using a distributor makes it much more difficult to prove that the manufacturer has knowledge of the sales to Iran," said Robert Clifton Burns, a Washington-based lawyer who specializes in export law.
An HP spokeswoman 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."
But in 1999, before sanctions enforcement became as rigorous as it is today, Albrecht Ferling, the general manager of HP Middle East, was quoted in the press as estimating HP's growth rate in Iran to be about 50 percent per year.
"Iran is a big market for Hewlett-Packard printers," he was quoted as saying in Gulf News, an English-language newspaper in the United Arab Emirates. Attempts to reach Ferling, who has left HP, were unsuccessful.
In any case, HP's ability to avoid sanctions undermines the impact of the US economic boycott of Iran, which President Clinton announced in 1995 to pressure the country to stop funding militant groups Hamas and Hezbollah, and to curb its nuclear program, which the US government fears is aimed at building a nuclear weapon.
In recent years, the Bush administration has cracked down even harder on companies that find ways to do business with Iran, making HP's sales there increasingly out of step with the rest of the US business community.
"The easier it is for the targeted country or entity to avoid or circumvent the sanctions measures, the lesser their impact and utility," said Victor D. Comras, who supervised sanctions policy for the US State Department.
"Computers and related products are keystone items in today's economy," Comras added. "Inhibiting trade in such products imposes a greater cost than more mundane and easily substituted products. That makes inhibiting the availability of such products an important part of US trade sanctions program. HP is an important player in this sector."
The vehicle for all HP's sales in Iran remains Redington Gulf, an Indian-owned firm that is therefore not obliged to follow US laws. Redington Gulf laid the foundation for HP's popularity about a decade ago when it opened a cluster of small second-floor offices in Tehran decorated with huge, colorful maps created by HP printers.
Since then, it has opened a fully equipped service center for HP products in Tehran and licenses Iranian retail firms to sell HP printers at their own stores.
One firm that says it got a license is Bamdad Rayne, on Khosro Alley in downtown Tehran, where deliverymen on motorbikes mill around all afternoon, waiting to carry printers to clients around the city.
One client of Bamdad Rayne's, a retail office equipment store on a corner nearby, displays a series of HP deskjet 2180s for $61 and an HP5610 all-in-one for $150, both slightly older models than those currently on the shelf in the United States.
This system of sales has helped HP dominate the printer market in Iran, a country of 65 million people.
A poll published in 2007 by Tehran's Taliya News estimated that HP had 41 percent of the printer market in Iran, while the second bestseller had 24 percent.
Some types of sophisticated printers and servers are on a Commerce Department list of items with possible military applications, which therefore may never be sold to Iran, even if no Americans are involved in the sales. But a Redington Gulf employee who spoke on condition of anonymity said that HP does not provide Redington Gulf with any of those sensitive products.
But if HP is aware enough of Redington Gulf's sales in Iran to control the types of products that are offered there, it could be in violation of US export laws, according to sanctions specialists.
Andrew DeSouza - a spokesman for the US Treasury Department, which is charged with administering the sanctions - said US companies are barred from selling their goods to a distributor if they have "knowledge or reason to know" that the goods are intended for Iran.
If, for example, a US company dealt with a distributor that operates predominantly in Iran, then the US company could be held liable for violating sanctions laws, he said.
Chandragiri, the Redington Gulf manager in Dubai, confirmed that the company had started off selling only HP printers in Iran. But since then, he said, Redington Gulf has grown to a thriving business that sells numerous name bands across the Middle East and Africa.
Using Redington Gulf to distribute its products in Iran has helped keep HP out of the spotlight of bad publicity that has struck American companies that used their own overseas subsidiaries to avoid US sanctions. Such activity is legal, as long as no Americans are involved.
But the pressure on US companies to terminate all business ties to Iran has been intense since 2004, when Congress directed the Securities and Exchange Commission to uncover and publicize the names of publicly traded companies that have any ties to Iran on the grounds that such activity is an "investment risk."
Several US companies announced a halt to their Iran work after receiving letters from the SEC. In February 2006, SEC officials wrote to Xerox, the Connecticut-based manufacturer, asking about the third-party distributors Xerox used to sell its copiers in Iran, Sudan, and Syria, according to SEC filings.
"We note from your website that you may have operations associated with Iran, Syria, and Sudan, which are identified as state sponsors of terrorism by the US State Department and subject to economic sanctions imposed," stated the letter from Cecilia D. Blye, chief of the SEC's Office of Global Security Risk. "We note also a public media report that Xerox products are sold in Iran."
Xerox responded by explaining that it had entered into agreements with foreign distributors who were within their legal rights to sell in Iran. But by August of that year, Xerox announced that it was voluntarily terminating those distributor agreements in those countries, forgoing more than $7 million in annual revenues.
HP does not mention Iran sales in any of its public filings. Its 2006 annual report said only: "Our products and services are available worldwide."
In Iran, HP is a well-recognized brand. Medhi Hussein, 30, a salesman at a printer store in Tehran's upscale Vanak Square, said he sells twice as many HPs as other printers because of their excellent reputation.
Like half the population of Iran, Hussein is too young to remember much about life before US sanctions hit in 1995. He said he has never heard of Redington Gulf and assumes that all American products have come to Iran illegally. That gives HP printers the allure of the forbidden.
The real impact of sanctions, he said, is not in any shortage of ink or spare parts, but rather in the mindset of people.
"There is psychological impact," he said, but perhaps not the impact that the US government has in mind: Iranian customers are drawn to American products in part because the US government tries to prevent them from reaching Iran. And that makes HP an especially hot seller.