US regulators are investigating major US movie studios’ dealings with China as the entertainment companies try to get a greater foothold in one of the fastest-growing movie markets in the world.
The US Securities and Exchange Commission (SEC) has sent letters of inquiry to at least five movie studios in the past two months, including News Corp’s 20th Century Fox, Disney and DreamWorks Animation, a person familiar with the matter said.
The letters ask for information about potential inappropriate payments and how the companies dealt with certain government officials in China, said the person, who was not authorized to speak publicly about the letters.
The Chinese film market is seen as one of the largest potential markets for Hollywood, but it has also historically been tightly controlled by the state-owned China Film Group (中國電影集團).
China Film Group had limited foreign films to 20 per year, but it eased some control in February of this year, after Chinese Vice President Xi Jinping (習近平), who is known to admire some US movies, spent a week in Washington.
US Vice President Joe Biden and US Trade Representative Ron Kirk hailed the deal, which allows 14 premium-format films, such as IMAX or 3D, to be exempt from the quota, as will the 2D versions of the films.
Also in February, DreamWorks Animation announced a landmark deal of its own in which it will build a production studio in Shanghai with some of China’s biggest media companies.
DreamWorks Animation found success in China last year with Kung Fu Panda 2, which became the highest-grossing animated movie in China with ticket sales of about US$100 million.
China Film Group did not respond to repeated requests for comment. Representatives of DreamWorks, Disney and News Corp declined to comment.
A spokesman for the SEC declined to comment.
The inquiry reflects stepped-up scrutiny from the SEC and US Justice Department into potential violations of the Foreign Corrupt Practices Act (FPCA), a 1970s law that bars US companies and individuals from paying bribes to officials of foreign governments.
US authorities have active bribery investigations into high-profile companies, including Avon Products and Hewlett-Packard Co. News Corp is also separately under investigation for alleged bribery at its UK media properties.
Wal-Mart Stores, the world’s largest retailer, has disclosed to the SEC and Justice Department an internal investigation, and lost US$10 billion of its market value on Monday after the New York Times reported on allegations of widespread bribery in Mexico.
All of the companies have previously said they are cooperating with federal authorities and investigating the allegations.
US anti-corruption regulators have specifically focused their interest in countries like China, where much of the economy is state-run.
Since 2002, the US has brought around four dozen FCPA enforcement actions related to corruption in China, second only to those involving Nigeria.
The SEC has also initiated several so-called industry sweeps for potential foreign bribery across an industry. Last year, for example, it sent letters to a handful of banks and private equity funds and said it was investigating possible FCPA issues in their dealings with sovereign wealth funds.
“Typically those [sweeps] arise where the agencies, most commonly the SEC, see a situation in a particular company that it believes for some reason may reflect a broader practice or pattern in the industry,” said Homer Moyer, a partner with Miller & Chevalier who has worked on FCPA issues for decades.