According to reports US regulators are investigating alleged improprieties in the way Hollywood conducts its business with the booming market.
Reuters reported on Tuesday (24) that the Securities And Exchange Commission has sent letters to at least five studios over the past two months including Fox, Disney and DreamWorks Animation.
Representatives of the US studios and Motion Picture Association (MPA) attending this week’s Beijing International Film Festival declined to comment on the story.
The letters appear to be part of a preliminary fact-finding mission by an increasingly vigilant SEC and no legal action has been initiated. However, the timing of the investigation, just a few months after the US-China film agreement, could create problems for the US studios just as they appear to be making headway in the world’s fastest-growing cinema market.
The US announced in February that China has agreed to import an additional 14 3D or “enhanced-format” foreign films each year on a revenue-sharing basis, and also increase the foreign distributor’s box office share from a ceiling of 17% to 25%.
The agreement followed years of US lobbying through the World Trade Organization (WTO), which set China a March 2011 deadline to comply with a ruling on greater market access. Although China overshot that deadline by almost one year, an agreement was finally reached during the visit of China’s vice president Xi Jinping to the US in February.
According to industry sources, the US-China film agreement will be signed imminently at WTO headquarters in Geneva.
Due to China’s tight quota rules, the US studios must compete with one another to secure a portion of the 20 (now 34) annual revenue-sharing slots, or to set films up as Sino-foreign co-productions, which yield the foreign partner a box office share of up to 40%. It appears the SEC wants to investigate whether payments were made to Chinese officials to secure these coveted production and distribution contracts.
Under the US’ Foreign Corrupt Practices Act (FCPA), it’s illegal for a US citizen to bribe foreign officials even if such payments are considered normal business practice in other parts of the world.
The legislation was used in 2009 to prosecute US film producers Gerald and Patricia Green for paying kickbacks to the former head of the Tourism Authority of Thailand (TAT), Juthamas Siriwan, to secure contracts to organise the Bangkok International Film Festival.