SEC Probing Hollywood Dealings in China (Report)

1:31 PM PST 04/24/2012 by Alex Ben Block

Reuters reports that the regulatory commission has sent letters to at least three major studios seeking info about potential bribes paid to Chinese government officials.

The Securities and Exchange Commission has sent letters to major movies studios including Fox, Disney and DreamWorks Animation, seeking information about potentially inappropriate payments to government officials in China, according to a report by Reuters on Tuesday.

The U.S. regulators are said to be investigating whether the American entertainment companies have paid bribes or had any illegal dealings with Chinese officials. Reuters said its source was an unidentified person who had knowledge of letters sent to the studios in the past two months.

Calls and email requests for comment that The Hollywood Reporter sent to Fox, Disney and DreamWorks Animation were not immediately returned. Reuters said that China Film Group and representatives of Fox studio owner News Corp., DreamWorks Animation and the Walt Disney Co. had all declined comment.

China has become a top priority for American entertainment companies looking to take advantage of its booming population and love of entertainment. The state-owned China Film Group tightly limits the number of foreign releases allowed in the country to about 20 per year, though in February a deal was cut to allow more American films to screen in the country. U.S. Trade Representative Ron Kirk and Vice President Joe Biden announced the new trade expansion with China with great fanfare.

Disney, which is building a new theme park in China in partnership with a government-owned company, last week announced that it is partnering with China's DMG Entertainment to co-produce its upcoming Iron Man 3. DreamWorks Animation has made several deals in China, including a September pact to build an animation facility in Shanghai to make content for the Chinese market.

If true, an investigation could lead to prosecution for violations of the Foreign Corrupt Practices Act, which makes it illegal for Americans to pay bribes to foreign government officials in order to facilitate their business dealings. While the law has been on the books in the U.S. since the 1970s, it has only been used a few times. An action against Hollywood studios would be a bombshell case.

The total Chinese box office has soared in recent years as multiplex theaters have been built across the mainland. In 2009-10, the Fox film Avatar grossed more than $193 million in China, helping the film become the highest-grossing of all time. That occurred even though the 2-D version of the movie was taken off Chinese screens for a time.

Email: Alex.Benblock@thr.com
Twitter: @ABBlock

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