by Robert Cain for China Film Biz
April 29, 2012
The SEC doesn’t often make headlines in Hollywood, much less in China, but last week they dropped a bomb that made waves on both sides of the Pacific. Chinese and American film industry circles have been atwitter with talk over the SEC’s announcement that it is investigating all six of the major U.S. studios for possible violations of the Foreign Corrupt Practices Act (FCPA) with respect to their activities in China.
Although the SEC and the studios have all been very tight-lipped about details so far, the common presumption is that someone may have paid bribes to Chinese officials in order to obtain favorable business treatment.
If any such dirty dealings did take place—and I’m not saying they did, but it’s highly unlikely that the SEC is just fishing here—they would have most likely involved bribes or kickbacks to Chinese officials from an American company (or companies) in exchange for film import quota slots. Because China severely limits its number of Hollywood film imports, and because Hollywood films are doing bang-up business there—major Hollywood releases are now routinely cracking the $50 million mark at the Chinese box office—each quota slot represents a big, valuable chunk of business. It’s not hard to imagine six- or seven-figure “gifts” going to Chinese film officials for quota slot allocations.
The SEC’s announcement could hardly have come at a worse time for China’s Communist Party. Already beset with the radioactive political and PR fallout of the sordid Bo Xilai scandal (which includes, by the way, allegations of massive government corruption and bribe-taking), the Party is likely to stonewall the SEC and probably deny, in its usual ham-fisted fashion, that any wrongdoing ever occurs in the People’s Republic of China. That the SEC chose to spring its very public press release during the middle of the Beijing Film Festival, China’s big annual showcase for its film industry, merely added salt to an already festering wound.
The controversy has cast light on an oft-considered challenge for U.S. companies doing business in emerging economies: How to compete without paying bribes in countries where bribery and corruption are de rigeur. Where, in fact, not paying bribes can be tantamount to not getting anything done at all. Is it really wrong—leaving aside the strictly legal issues—to pay bribes when bribery is an established, even expected, aspect of doing business?
Having lived and worked extensively in China, Russia, Mexico and the Middle East, all places where bribery is very much a part of the fabric of daily life, I have often been forced to confront these questions. Personally I find the abuse of public office for personal gain detestable, but I’ve often found my moral indignation to be quaintly irrelevant in the face of brutish demands for cash to win favor or resolve problems. And while I have never paid a bribe in 25 years of doing business in China, I can’t really claim that my hands are entirely clean.
For instance, In Moscow I once loaned my driver the equivalent of $120 in rubles to pay a traffic cop to write up a truthful police report so that she wouldn’t be blamed for an accident in which a cement truck had plowed into the side of her car. In a business emergency in Kiev I paid the stationmaster a 150 percent ticket premium to secure a berth on a “sold out” train when I knew full well that the train was nearly half empty. The situation was all too clear: no bribe, no ticket. And in a truly frightening incident in Moscow I paid three armed cops $150 to persuade them not to gang rape my assistant in the back of their police van.
In China I’ve always been able to read potential bribery situations as they develop and extricate myself before I’m confronted with such problems. In southern China back in the late 1980s when I was asked to give “tea money” or to “take tea” I knew that was a coded request for a bribe. Upon hearing such proposals I would tell the would-be bribe receiver to take a hike. Needless to say, I didn’t always get what I wanted.
The penalties for violating the FCPA are stiff, at least on paper: fines of up to $5 million and up to 20 years in prison. But in practice, in the 35 years since President Jimmy Carter signed the FCPA into law, the SEC has yet to actually send any FCPA lawbreakers to jail. Hollywood studio executives who might currently be under investigation needn’t worry much about personal repercussions; the SEC tends to prosecute and fine corporations, without ever naming the individuals who committed the crimes.
Given the risks and rewards, the decision matrix for an American corporate executive in China would seem to dictate paying bribes. The personal upside, in the form of enhanced business opportunities and bonuses, appears to far outweigh the personal downside of one’s company receiving a fine. Given this mix of motivations and disincentives, it’s likely that at least a few Hollywood executives have taken the risk and engaged in proscribed activities to benefit their businesses in China.
Still, at the risk of appearing naive or idealistic, I would urge anyone considering taking such actions to reconsider. For one thing, the SEC could well take a harder line on FCPA violations in the future. And engaging in bribery can be a slippery slope leading to unanticipated consequences. This kind of activity tends not to remain secret for long–after all, there must have been a whistleblower who brought the SEC’s attention down on the studios.
Although not always as expeditious as cold, hard cash, I’ve found that polite persistence, resourcefulness, and even stubbornness, can be effective ways of cutting through what might otherwise turn into bribery scenarios in China. Very often if one person is an obstacle, it may be possible to find another who will be more honest and honorable in their dealings. And sometimes the deal just might not be worth the trouble. Letting people know that you won’t negotiate with financial bullies can often be all that’s needed to keep your business dealings in China aboveboard.
Robert Cain is a producer and entertainment industry consultant who has been doing business in China since 1987. He can be reached at firstname.lastname@example.org and at www.pacificbridgepics.com.
Ah, but if such studios have UK operations, they could be subject to the now much tougher UK Bribery Act, recently implemented, that punish private sector in addition to public sector-related bribery. More possible trouble for Fox?
Awesome article Robert, never ceases to amaze me the depths you go to make sure the accuracy of these when you do write them. I often forget how well traveled you are and yes I am sure bribery is a way of life in many countries, just the norm nothing to be amazed at or ashamed of. again, I really enjoyed this…
I’m still waiting to be asked for a bribe, maybe they know how tight I am and don’t want to hear my laugh which is what I would do. I had a booth at the Beijing Int. film fesivtal market last week and noticed many Americans enjoying their tight group togethr in prime positions and kept to myself mainly because I was to busy.
It was a surprisingly active market and was good to me I think due to it not being to large, I met some people even in the last hours of pack up from Poly International and a new Chinese crowdfunding company who I might be doing something with in the near future.
Now I have some clarity about how to do things here it’s full steam ahead and as they say.
“Just do it” waiting for others to help won’t get you anywhere so I just work hard, play hard and stay genuine, that seems to win favour here as much or more than paying grubs money for something they may not even be able to deliver.
The future seems to be now here in China, for me at least in a small independent way.
How about a more detailed descriptiopn of how a $100,000 Hollywood bribe might be suggested and agreed to for a distribution slot?
Many of us in the independent sector have seen an amazing increase in the last year in sales to China specifically for VOD and TV rights. Recently I secured a sale for a large group of titles and supposedly all of them passed censorship. A first for me. I am 99 percent sure that my middle man in China was not able to do this without greasing some palms. This has always been the case in communist countries and always will be. I for one would not be willing to make this a practice but I can see why the studios are willing to. The unfair balance of so many imports from China and so few exports makes it necessary for US companies to break into such a large market. Also, the vast piracy in China means companies are giving away millions if they do not find a way to have a legit release
Excellent, insightful, thought provoking!
It must shame us as humans that we do not have a universally acceptable, ethical way of doing business in any sphere. That said, it is very much within the ambit of human need and nature to do things that may be morally questionable but legally sanctioned, ethically dubious, but perfectly “normal” and acceptable in some cases. Once the dark side is embraced, it is very hard for light to come through. While this may sound metaphorical, it may simply be the efficient way of doing business. Purely in mathematical terms, what is $100,000 compared to several millions to be made?
It is no secret that corporations routinely flout norms of all kinds, as long as they can get away with it. Some cut throat competitors may even go far enough to assess the full extent of the damage and arrive at a “management” decision to carry out a bribery. What is even more scary is that it is incredibly easy to justify such actions, when the bottom-line is driving the very purpose of existence! There must be some rather sexy term to describe such decisions, no doubt even derived from military jargon.
Corruption is also a form of violence. It denies fair competition, it denies merit, and it goes against the very nature of putting effort in the right direction. It retards progress, because it erodes the need to think for the good of the collective. There is every chance that an act of corruption has a very debilitating effect on someone’s honest and painstaking effort. It can cause extreme pain, poverty, instability, and a loss of faith. A lot of such damage is not easy to repair, much like the effects of rape.
Even worse, graft is in a lot of cases, blackmail. If you don’t pay, you don’t live. What are you going to do? Not all situations are as scary as some Rob has described, but the consequences are invariably dangerous.
It will take a lot of guts to put up whatever resistance we can, but do that, we must. To some of us, perhaps, self respect may stand above a business win. Hopefully, when at that point of decision, Rob’s suggestion of “polite persistence, resourcefulness, and even stubbornness” will at the very least, break the surface and ask us how we will sleep that night, while these qualities may indeed be our only lasting allies.
Thank you, Senthil, for your thoughtful and eloquent response. I agree, corruption has done great psychological damage in many places. China somehow manages to thrive despite it. Russia, unfortunately, is so weighed down by corruption that I don’t see that country ever reaching even a fraction of its true potential.
I’ve often wondered what truly counts as ‘a bribe’. In my experience the USA has been the worst for bribes – you have to give a bribe to the doorman, the taxi driver, waiters … everyone expects a bribe just to do their job.
Of course, in the USA it is called ‘a tip’ .. but it is clear that if you don’t give them the cash then you can’t expect to be treated like their other customers.
How is that not the same thing as a bribe? Just because the amounts involved are smaller? Either both are unethical or neither are.
The technicality under the FCPA rules is that a ‘tip’ is a bribe if I pay the ‘tip’ to a government official. So, for example, when I paid a (…umm… how to phrase this without getting into legal problems ….) … an ‘express service fee’ to get my passport faster – should that be considered as a bribe? It wasn’t a payment to get a passport I wasn’t eligible for .. simply to push me to the front of the queue – in front of others who weren’t as wealthy as I am. Was it unethical of me to pay the bribe? Was it unethical of them to offer me the opportunity? To be fair – I have no doubt that they only gave me the passport I was eligible for … simply that the poorly paid government workers made an effort to process my paperwork faster. Why should it be unethical for me to take them up on their offer ?
People do the same thing in other areas of service. It seems that if I pay a bit of cash to jump the queue at a railway or bus terminal (or even Disney World) under the FCPA rules it is only an unethical bribe if the railway happens to be government owned – otherwise I am merely an honourable traveller giving a tip for good service. A tip to jump the queue at Disney World? Fine. A tip to jump the queue at a National Park? A bribe! Why?
It was astonishing to me (as someone who grew up outside the USA) to see staff in expensive hotels in America resorting to begging for money from customers, with the implied threat that they would choose not to do their job if you didn’t give them a bit of cash.
Why is it considered poor taste in that scenario for me to refuse to pay them their bribe .. yet a jailable offensive if I pay someone in another situation the same bribe to do their job? Surely the unethical person in both cases is the waiter or government official who refuses timely service – I’m merely doing what I can to get my meal.
Either both are bribes or neither are.
Either I’m guilty of unethical behaviour in both cases or neither.
(PS: For those concerned about my legal (or moral) well being .. I should confess that I paid the extra bit of cash for my passport by ticking a box on the passport application form labelled ‘Express Service’. It just amused me that the action (handing over a bit of cash to get my passport faster) was changed from being a jailable offence to being ‘business as usual’ simply by listing it on the form! When an office adds a ‘transaction fee’ and distributes the money to employees in form of productivity bonuses I pay the same amount as if it was a bribe. The only difference is that when it is a bribe I know the money is truly being used as an employee bonus.)