By Film financing is facing greater scrutiny over money laundering risks as complex ownership structures, cross-border funding and fragmented production chains create opportunities to conceal illicit funds, according to financial crime technology company ZIGRAM.
The company said the risks do not mean film and entertainment are inherently criminal, but that the industry’s project-based structures and large financial flows can create vulnerabilities that require stronger due diligence and transaction monitoring.
Money laundering in film industry transactions can involve attempts to disguise the origin of criminal proceeds through legitimate-looking production, distribution or investment activities.
ZIGRAM said the traditional three stages of money laundering — placement, layering and integration — can also apply to film finance.
Placement involves introducing illicit funds into the financial system, layering involves moving money through transactions designed to obscure its origin, and integration involves bringing the funds back into the legitimate economy.
In film-related transactions, ZIGRAM identified potential vulnerabilities including cash revenues, payments to informal vendors, shell companies, special-purpose vehicles and cross-border financing arrangements.
The company said film projects often use special-purpose entities for legitimate reasons, including separating the financial and legal affairs of individual productions.
But those structures can also make it harder to establish who ultimately owns or controls a company when beneficial ownership information is incomplete.
Cross-border productions can add another layer of complexity. A single project may involve investors, producers, distributors and service providers in several countries, each operating under different financial and regulatory requirements.
ZIGRAM said such arrangements can create opportunities for criminals to exploit differences between jurisdictions, particularly when information about the source of funds or the beneficial owners of companies is difficult to verify.
Cash-intensive parts of the entertainment business can also create risks, the company said. These may include cinema receipts, payments to small vendors and informal production-related services.
Another potential vulnerability is the use of invoices and contracts that do not accurately reflect the underlying transaction. ZIGRAM cited inflated production costs, fictitious vendors and payments for services that were not provided as examples of schemes that could be used to disguise illicit funds.
Film financing has previously featured in major money-laundering investigations.
One of the most prominent examples is the 1Malaysia Development Berhad, or 1MDB, scandal. The U.S. Justice Department said more than $4.5 billion was allegedly misappropriated from the Malaysian sovereign wealth fund between 2009 and 2015 and laundered through financial institutions in several jurisdictions.
U.S. prosecutors also alleged that money diverted from 1MDB was transferred to accounts associated with Red Granite Pictures, which financed the 2013 film “The Wolf of Wall Street”. A Justice Department forfeiture complaint said more than $100 million linked to the alleged theft was used to finance the film.
In 2020, the Justice Department announced a settlement involving more than $60 million in assets acquired by Riza Aziz, a Red Granite co-founder, with funds allegedly embezzled from 1MDB. The settlement did not establish criminal liability by Red Granite through an admission of wrongdoing.
The case illustrates why the source of production financing can attract scrutiny even when funds ultimately move through conventional financial institutions and legitimate businesses.
ZIGRAM also highlighted independent film production as an area where controls can be more limited. Smaller productions can depend on a small number of private investors, operate with limited auditing and change ownership structures during production.
The company identified several warning signs that financial institutions and production partners could examine, including investors seeking to route funds through personal or offshore accounts, large investments arriving from recently inactive companies and pressure to use particular vendors without an obvious commercial reason.
Other potential warning signs include unusually complex related-party loans, opaque lenders, questionable pre-sale agreements and investment structures that do not appear consistent with a project’s size or commercial prospects.
For financial institutions handling film-related transactions, ZIGRAM said customer and business verification should include identifying beneficial owners, assessing geographic risk and establishing the source of funds and source of wealth where appropriate.
Transaction monitoring can also help identify unusual patterns, such as large transfers from high-risk jurisdictions into newly established production companies or repeated payments and refunds involving the same counterparties.
Sanctions, politically exposed person and adverse-media screening can provide additional information when assessing investors, production companies and other participants in the financing chain.
The regulatory position varies between jurisdictions. ZIGRAM said film producers are generally not directly classified as obliged entities under anti-money laundering rules in many jurisdictions, but their transactions can still pass through banks, payment providers, insurers and investment intermediaries that are subject to financial crime controls.
The company said the growth of streaming, tokenised film financing, non-fungible tokens and decentralised finance could create additional risks as new ways of raising and transferring money develop.
At the same time, technology could help identify relationships that are difficult to detect through manual reviews. ZIGRAM said network analysis and other data tools can identify common beneficial ownership, links between vendors and investors, unusual geographic connections and activity involving dormant companies.
For producers and investors, ZIGRAM recommends segregated production accounts, independent oversight of production budgets, due diligence on investors and major vendors, financial crime training and transparent communication with banks and compliance partners.
The broader issue is not whether film financing is legitimate, but whether the origin and movement of money can be independently established.
As film production becomes increasingly international and financially complex, the ability to identify who is providing the money, where it came from and how it moves through a production may become an increasingly important part of financial oversight.
