By: Heather Ham-Warren, Journal of Transnational Law & Policy Articles and Notes Editor

Given China’s importance in the international market, it is no surprise that the Obama Administration has kept a watchful eye on possible violations of the Foreign Corrupt Practices Act (FCPA) between American businesses and Chinese officials.

The FCPA has two main provisions.  The first provision, the bribery provision, is enforced by the Department of Justice and can be found in United States Code Annotated (U.S.C.A) under 15 U.S.C.A. §§ 78dd-1, 78dd-2, 78dd-3, 78ff(c).  This provision essentially criminalizes the bribing of foreign officials to secure an unfair advantage in business practices. The second provision, the accounting provision, is enforced by the Securities and Exchange Commission (SEC); and is typically violated when businesses or individuals keep fraudulent records to hide illegally dispersed funds. The accounting provision can be found under 15 U.S.C.A. § 78m(b)(2) to (7).

In the spring of 2012, the SEC opened an investigation into the American film industry, suggesting that government officials might not believe Hollywood is fully complying with the FCPA. Initial speculation has led to the belief that these possible violations have occurred during business relationships in China- the fastest growing cinema market in the world. In fact, China is expected to be the world’s largest cinema market within a mere decade, which could mean big bucks for Hollywood. Unfortunately, the Chinese government only allows thirty-four foreign films to be shown in China annually; and the competition to secure one of these coveted spots is fierce.

However, just because it is difficult for American movies to break into the Chinese film market does not mean that there is a lack of Chinese interest in Hollywood hits.  In fact, the Chinese people have an increasing demand for these films; and, correspondingly, the black market has become a hot spot of illegal DVDs and downloads.  As a result, piracy has become a big concern for the film industry.

Centuries ago the United States Supreme Court deemed the pirate “hostis humani generis,” meaning the “foe of mankind.”  This label is even more accurate in today’s world because although some patrons of illegal copies of films may believe that piracy is a victimless crime, it is not. In fact, some estimates claim that piracy is costing the American film industry as much as three to four billion dollars annually.

Because of the serious and damaging reality of piracy in China, members of the American film industry have even more of a reason to fight for one of the limited foreign film positions.  All of the members of this industry have the funds to pay for their spots legally, but is it possible that one or even all of them took their desires a step too far and violated the FCPA as a result? We will have to wait until the investigations have ended for an official answer, but violations of either provision would come as no surprise.

For more information on this topic please see:

http://www.shearman.com/anti-corruption-and-foreign-corrupt-practices-act–fcpa/

http://articles.latimes.com/2011/mar/22/entertainment/la-et-china-piracy-20110322

http://www.forbes.com/sites/kenrapoza/2012/07/22/in-china-why-piracy-is-here-to-stay/

http://www.chinahearsay.com/comparative-corruption-sec-goes-after-movie-studios-over-china-deals/

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