LOS ANGELES — Hunkered down. Lawyered up. Looking over your shoulder for the prosecutors.
That is a not a comfortable way to do business. But it may become business as usual for those who have been struggling to make China both a customer for Hollywood films and a partner in the production of them.
Last March, word reached several studios of a confidential inquiry by the Securities and Exchange Commission and the Justice Department into possible violations of the Foreign Corrupt Practices Act by people or companies involved in the China film trade. Since then, executives and their advisers have been waiting for some public sign of the scope or focus of the government’s interest.
So far, there has been none.
But official silence has not kept the investigation from casting a chill over dealings between Hollywood and China. At a discussion in August sponsored by the Beverly Hills Bar Association, some panel members said deal-making had been complicated by the investigation. This concern was repeated in recent interviews by people involved in the Chinese-American film trade, though only on the condition of anonymity to avoid attracting the attention of regulators.
The legal concern is arising precisely as Chinese consumers — once presumed to be an easy audience for American-made films like “Skyfall” or “The Dark Knight Rises” — have been showing a preference for homegrown, Chinese-language blockbusters.
Those include the comedy “Lost in Thailand,” which surpassed American films to collect more than $200 million in China’s theaters after it opened last year, and the action-fantasy “Journey to the West: Conquering the Demons,” which had sales of $50 million in its first four days this month, according to the China Film Biz blog.
Asked last week about the corrupt practices inquiry, spokesmen for the Justice Department and the Securities and Exchange Commission declined to comment. All the major studios, in addition to DreamWorks Animation and Marvel Entertainment, which have extensive dealings in China, either did not respond or declined to comment.
Last April, people briefed on the inquiry said virtually every Hollywood company with significant dealings in China had been notified in prior weeks of the inquiry into possible violations of the Foreign Corrupt Practices Act, which forbids American companies from making illegal payments to government officials or others to ease the way for operations abroad.
Last week, a government official close to the inquiry, who spoke on the condition of anonymity in order not to prejudice the investigation, said the inquiry was continuing.
Bethany L. Hengsbach, a lawyer in Los Angeles versed in China dealings, said last week that she could not discuss the action because she had been retained by an involved party.
At the Beverly Hills Bar Association panel in August, Ms. Hengsbach spoke publicly of indications that federal officials were involved in “an industry sweep of the studios,” while warning that it was rare for such investigations “to turn up nothing.”
In the meantime, business has moved forward on projects like “Kung Fu Panda 3,” a Chinese coproduction from DreamWorks Animation, and “Iron Man 3,” which Marvel, a Walt Disney Company unit, has shot partly in China.
Thomas E. McLain, the chairman of the Asia Society Southern California, said he had not seen evidence that deals were being put on the back burner until the inquiry was resolved. But he acknowledged that the investigation was a topic of conversation at the society’s annual U.S.-China Film Summit. The event was held here last October, and drew some important figures from the Chinese film industry, including Han Sanping, the chairman of the China Film Group.
To keep Washington focused less on fears of corruption than on the possible benefits of film trade with China — where the growing box office reached $2.7 billion last year — the U.S.-Asia Institute, a policy-oriented nonprofit, has begun including movie operations among the stops made by lawmakers and their staff on institute-sponsored trips to China.
Kent A. Lucken, the institute’s president, said in an interview last week, “They need to see that there are American companies operating in China, fully regulated and under the law, conducting business, and thriving.”
Some who are involved in Hollywood’s entry into China are privately expressing hope that the Justice Department inquiry will be resolved before they run out of time on what one of them last week called a “ticking clock,” as Chinese consumers outgrow their receptivity to Hollywood fare.
The squeeze started last year when they began to spend more money on some homegrown films than on the American blockbusters.
But Michael W. Emmick, who was formerly a prosecutor with the Justice Department, and now focuses on the corrupt practices cases, among other things, in his private law practice, said a resolution could be a long time coming.
“This is still early in the game,” he said.
While Mr. Emmick is not representing clients in the investigation, and said he had no direct knowledge of it, he said that regulators sometimes use such industrywide inquiries as a “cost effective” way of putting an entire business sector — like the pharmaceuticals industry or the portion of the financial industry dealing in sovereign debt — on notice.
“Sometimes, they’re trying to send a message, to make companies keep their records, beyond the usual document retention policy,” Mr. Emmick said. He cautioned against characterizing the Hollywood action as a “sweep,” which he said might indicate imminent civil suits or arrests.
In a summary published this month, lawyers for the WilmerHale law firm said that new foreign corrupt practices enforcement cases by the S.E.C. and the Justice Department declined to just 27 last year, after spiking to a recent high of 90 in 2010, though violations of the act remain a stated priority for both agencies.
Looking ahead at the rest of the year, the lawyers predicted the “continuation and outcome” of industrywide government examinations of “financial institutions’ dealings with sovereign wealth funds, movie studios’ operations in China, and oil and gas companies’ business in Libya.”
Asked to elaborate on his expectations for the film industry investigation, Roger M. Witten, one of the authors of the report, in an e-mail last week echoed what those hunkered-down studio representatives have been saying for the last year.
“Unfortunately, I’m not in a position to talk about this on or off the record,” he said.
S.E.C. Inquiry Into China Film Trade Unnerves Hollywood
This article
S.E.C. Inquiry Into China Film Trade Unnerves Hollywood
can be opened in url
http://spraynewstar.blogspot.com/2013/02/sec-inquiry-into-china-film-trade.html
S.E.C. Inquiry Into China Film Trade Unnerves Hollywood
