Hollywood and money laundering

I’m posting here instead of Cafe because my question is about the movie business and not about movies themselves. Of course, should a Mod decide that it is better placed there, I apologize in advance for my mistake in judgement.

I’d once heard that one of the reasons we see so many bad movies get made by Hollywood is that they are often done simply for the sake of investing in the making of a movie without much in the way of forethought about profits and such. Why? Because many of these movies are funded by offshore funds that are actually proceeds of drugs. Hollywood productions, given their large budgets, are an excellent way to launder large amounts of cash and bring it into the country legitimately. Even if the movie is a money loser, they will make out with more re-integrated, “clean” dollars than they might in some other schemes.

Can anyone tell me if there’s any legitimacy to this notion and if so, if it has ever captured the attention of the popular media?

There are an immense number of regular crooks in the movie business stealing money left and right that they really don’t need any “help” from outsiders. While there have been certain mob affiliations with studios in the past, it’s mainly the studio execs ransacking the studios that are doing all the dirty work now.

Many of the biggest grossing movies in recent years never made a dime according to the accounting “principles” used by studios. Never take a percentage of the net, only the gross (and then based on box office take).

At least one previous thread on money laundering was closed, so I won’t repeat what I posted there. But I will say that the movie business is not a good way to launder money. While there certainly is “creative” accounting methods used, they’re not sloppy. It would be no easier to explain a large amount of money from no reportable source in the film business than any other, which is the purpose of money laundering.

What you may be thinking of is the tax advantages of film financing. It is possible to create situations where it’s financially beneficial to invest money on a movie that doesn’t make a profit. But a tax shelter is not money laundering.

I’m trying to come up with a way this might work and failing.

Hollywood studios are large public corporations. Or, more accurately, they are relatively tiny components of huge multinational public corporations. Public is the key. As just emphasized by the vote of no-confidence against Disney’s Michael Eisner, the performance of the studios is closely watched by their shareholders, which are mainly firms like state pension funds and investment corporations - business that have both enormous clout and a need for utter respectability.

So first it’s hard to see where the need comes to accept huge bundles of outside and illegitimate cash: the studios can either finance their own films or work with one another to lay off costs. And second, while everyone knows that movie profits are more fictitious than the story behind Hidalgo, the gross amounts and their distribution are very closely watched, so making millions in secret payoffs to the mob sounds more like a spec script than a sound business practice.

There once was good reason to make bad movies: Hollywood studios needed to amortize their sunk costs - the studio lots, the contract actors, the union workers, the warehouses of props, etc - by keeping them in use at all times. But this hasn’t been true for the most part in decades.

And it’s difficult to truly lose money on a film today, given Pay-per-view rights, cable rights, broadcast rights, foreign distribution, DVD and VCR sales and rental, soundtracks, ad placement, merchandise, and the million and one other ways studios have or recouping their investments in the long run. A major bomb can lose a hell of a lot of money in the short term, but studios have the luxury of long-term thinking, even if they have to fire the CEO to get there.

Now could be this true if we throw the studios out and go down to the level of small-time producers grinding out direct-to-video and late-night-cable programming? It certainly used to be true that the mob was in the movie business. Read Profoundly Disturbing: Shocking Movies That Changed History! by Joe Bob Briggs and you’ll get tales more lurid than any movie about how the mob took the hundreds of millions of dollars that independent unexpected blockbusters like Deep Throat and The Texas Chainsaw Massacre made.

But even those don’t quite match your scenario. The mob wasn’t exactly laundering money: porn and splatter movie-making was just another quasi-legitimate business they controlled. And they never put their money in to begin with: they just took whatever came in before the legitimate owners could find it. And this was decades ago, and even the world of the schlock producers has changed some since then.

So, maybe, sorta, kinda, possibly, in a certain sense, but mostly to my mind your theory doesn’t even come up to the level of a theory. It’s an accusation, but an unlikely one.