Introduction:
I like watching good movies in the theatres, after going by the reviews and word of mouth publicity, so far so good but since the year 2010 till date, I have started listening to the news of Select Blockbuster movies earning anywhere from 350 crores to 1000 crores on a Budget ranging from 200 cores to 500 crores. But as a Chartered Accountant and having my feet firmly on the ground about the costs I used to always feel that the producer of the movie tends to increase the Production cost and Revenue generated by the movie for an entirely different cause and could be a clear case of money laundering either singly handily or with a group of Investors.
What is Money laundering?
> Placement
The first step is called Placement, which involves the physical movement of currency or monetary funds derived from Legal / Illegal activities into a less suspicious form. This step is often as simple as taking paper currency and depositing it in an ordinary Bank account or getting a loan at least on paper from a foreign source who has no interest whatsoever in the film making except for some commission on the deal and parting his name for the venture alternatively he could be paid through Hawala had he given the loan genuinely or request to act him as the Distributor/ Exhibitor and announce in media promptly that this movie was sold at an exorbitant rate of 5 Million USD and minted Double the amount in the Box Office asking him to remit the money through Legal Channels or have some other Out of account Quid pro quo basis of dealings which is very common and not known to the authorities, there is no authority in India to verify the accuracy of claims of the producer in a foreign country because I have practically experienced it when I was abroad, the entire cinema hall used to have 10 or 12 patrons but was declared a super-duper hit by the planted stories in media that’s where my Training in CA raised red flags.
> Layering
The second step is Layering. The goal of layering is to separate the illegal proceeds from any connection to their illegal source by taking the funds and making a series of financial transactions that are designed to obscure any audit trail or attempt to follow the funds. Money launderers can layer by inflating the total ticket sales even when the movie is in fact a flop, Cinemas can be classified according to
Tier 1 Cities consisting of Multiplexes and single-screen cinemas
Tier 2 Cities same as above
Tier 3 Cities are mostly single-screen cinemas.
I cannot rule out the possibility of tearing up the tickets upwards at the Box -office in both multiplexes and single-screen cinemas inflating the total collections so as to easily convert the Black money into White money and show it as legitimate source of income. Once the money has been layered and moved to separate it from its original source, the money launderer will want to bring the money back to him by making it appear as if it is legitimate business earnings. Even the software can be suitably modified as per their Targeted / Budgeted figures of collections.
> Integration
And the third step is commonly called Integration. If the money launderer operates a business, one means of bringing the “Cleaned” money back into his control is by overvaluing his assets or overstating his profits. For the types of businesses that deal with large amounts of cash sales and keep only minimal sales records such as having businesses in Restaurants, Shopping Complexes, Retail Stores & Business Etc, Money laundering is easily accomplished because money from illegitimate sources can be combined with legitimate income to hide its original source with relative ease and little risk of detection. There is no clear indication of exactly when money is laundered. Two People Known to me who were total strangers to the business of movie-making suddenly became producers overnight in Tulu & Kannada Films, now I am getting a clearer picture because our Relatively small Tulu film industry with a new release every 2 weeks had a Golden run until the Covid 19 hit them very badly and now it’s showing signs of recovery. During 80’S Kannada film industry was producing anywhere between 80-90 films per year but now it has crossed 200 plus and some movies are just produced to get the censor certificate to claim the subsidy amount ranging from Rs 10.00 Lakhs To 18.75 Lakhs Per Film, from the Government of Karnataka which is more than the production cost of the movies thereby making a profit, there is an organized syndicate which was caught and investigations carried out by the committee some time back.
Conclusion: Take the Box Office Collections with a pinch of salt and enjoy the movie let’s get entertained at least and conclude with the words of Actress Vidya Balan “ Entertainment, entertainment, entertainment “ from her National Award award-winning movie The Dirty Picture.
Author Bio
The subject is interesting and requires fair bit of more elaboration. I appreciate the efforts made by you. An humble suggestion. It will be more reader friendly on your part if you can cut down long sentences into smaller ones for the reader to understand what exactly you want to say. The second sentence under the heading Placement is a case in point.
Since I have some , though little, knowledge about the functioning of the Film Industry, I fully appreciate your effort in highlighting in your article the money laundering angle in the ‘ Box Office ‘ collection. However, what is not understood is as to how the film production house escapes paying full income tax on the net income on the basis of inflated Box Office Collection? , unless there is Tax exemption on the receipt from collection I outside India.
Please read my article twice or thrice to understand the multi-layered approach to understand what I want to convey because there are many hidden meanings.
In the first paragraph itself, I have mentioned clearly that even the expenses are shown higher with respect to sales, so the profitability is determined by the producers and not the authorities unless there is a scrutiny assessment or searches in the producer’s place of business.
The tax rate at present is 30 % plus a surcharge of 37 % for income exceeding Rs 10 crores, and on the top of that, you have an education cess payable at 4 % reaching a total of 42.75 % which is better than the huge penalties levied under various sections for a charge against undisclosed income for the block period under section 158 BFA, 221,234,270,271 or 272 which can range from 50 % to 300 %.
Only people with deep pockets enter the film production and they benefit a lot by converting Black to White by just paying 42.75 % Tax. I hope I have made the points very clear.