Recently, Zhang Ting and Lin Ruiyang were once again on the hot search list. According to relevant media reports, the Darway company founded and operated by Zhang Ting and Lin Ruiyang was suspected of engaging in pyramid selling activities, resulting in the closure of 96 properties held by the company's wholly-owned subsidiaries, Shanghai Zhenhong Biotechnology Co., Ltd. and Shanghai Giant Yiwang Industrial Co., Ltd., with a value of 1.7 billion yuan. From the end of 2021 to the beginning of 2022, our compliance team introduced issues related to corporate compliance construction regarding the suspected pyramid selling incident of Zhang Ting Lin Ruiyang Company. This article will then explore issues related to key compliance areas in the film and television entertainment industry through this event.

1、 Concept introduction: compliance elements, compliance topics, and compliance areas

1. Compliance Elements

The compliance elements refer to the areas that enterprises need to focus on in compliance management, reflecting the regulatory focus of regulatory agencies on enterprises and the expectations of the public on the compliance operation of enterprises. The Guidelines for Lawyers Engaging in Compliance Legal Services issued by the Jiangsu Lawyers Association states:

Within China, the main compliance elements that companies focus on include, but are not limited to, the following categories: ① environmental protection, ② safe production, ③ food safety, ④ medical product safety, ⑤ advertising compliance, ⑥ value-added telecommunications services, ⑦ personal data protection, etc.

Globally, the main compliance elements of corporate compliance include: ① fair employment and prohibition of forced labor, ② anti fraud and anti commercial corruption (including gifts and invitations, sponsorship and donations), ③ anti monopoly and anti unfair competition regulations, ④ financial and tax compliance, ⑤ anti money laundering, ⑥ consumer rights protection, ⑦ personal data information protection, ⑧ intellectual property protection, ⑨ compliance management of business partners, etc.

2. Compliance Topics

The topic of compliance is the area where compliance obligations lie. Currently, scholars and compliance practitioners have conducted certain research on many compliance topics. The book "Enterprise Compliance Affairs Management (Advanced)" prepared by the China Enterprise Review Enterprise Compliance Professional Committee proposes a framework for classifying A-Z compliance topics:

The topic of basic compliance is a compliance issue that all enterprises must face, including A qualification compliance, B corporate governance compliance, C financial compliance, D tax compliance, E internal audit compliance, F external audit compliance, and G labor employment compliance.

The topic of value chain compliance is the compliance issues that may be encountered at various stages in the formation of an enterprise's value chain, including H safety production compliance, I product quality compliance, J warehousing and logistics compliance, K procurement compliance, L direct sales compliance, M channel sales compliance, N consumer rights protection compliance, O net export compliance, P trade embargo compliance, Q charity activity compliance, R infrastructure construction compliance.

Advanced compliance topics are compliance issues that require special attention and resources to address, including S information security compliance, T intellectual property compliance, U competition law compliance, V environment and resource protection compliance, W anti-corruption compliance, X fraud compliance, Y internal control compliance, Z particularly strengthened compliance requirements, and other compliance requirements.

3. Compliance areas

After understanding the connotation and extension of compliance elements and compliance topics, you may find that the meanings of compliance elements and compliance topics are similar and slightly different. The "Guidelines for Central Enterprise Compliance Management (Trial)" issued by the SASAC directly uses the terms of the compliance field, proposing:

Central enterprises should strengthen compliance management in the following key areas: (1) market transactions, (2) safety and environmental protection, (3) product quality, (4) labor and employment, (5) financial taxes, (6) intellectual property rights, (7) business partners, and (8) other areas that require special attention.

2、 The film, television, cultural and entertainment industry involves key compliance areas

The key compliance areas involved in each industry vary depending on the industry characteristics, business model, and regulatory intensity of the business. Film, television, cultural, and entertainment enterprises should also continuously adjust their key compliance areas based on changes in the external environment and their own realities. On the basis of comprehensively promoting compliance management, they should highlight key areas, key links, and key personnel, and effectively prevent compliance risks.
Based on long-term experience and recent regulatory trends in the film and television entertainment industry, the author believes that the key compliance areas of the film and television entertainment industry mainly include:

1. Qualification compliance

Enterprises in the film, television, cultural and entertainment industry need certain industry qualifications to legally carry out business activities. For example, the shooting and broadcasting of TV dramas requires obtaining licenses and qualifications such as "Radio and Television Program Production and Operation License", "TV Drama Production License" (classified as Type A or Type B), "TV Drama Shooting and Production Record Publicity Form", and "TV Drama Distribution License". For example, for films to be released on the cinema line, it is necessary to obtain a "Film Public Release License (Dragon Label)" and a "Film Public Release License".
Although Zhang Ting Lin Ruiyang Company has consistently responded that it operates legally and pays taxes in accordance with the law, its business activities are seriously suspected of pyramid selling and do not strictly comply with its qualifications, resulting in significant compliance risks, which may lead to legal liability, related penalties, and economic or reputational losses.

2. Financial and tax compliance

Financial and tax compliance has been the hottest topic among companies in the film, television, cultural and entertainment industry recently. Since the 2018 tax inspection of the film and television industry, the tax authorities have repeatedly stepped in, with a number of popular stars and well-known anchors receiving huge fines. In September 2021, the State Administration of Taxation issued a notice on "Strengthening the Tax Management of Employees in the Cultural and Entertainment Industry". With the launch of the fourth phase of the Golden Tax, the legal risks related to taxation in the film and television cultural and entertainment industry have normalized, and film and television cultural and entertainment enterprises should pay special attention to financial and tax compliance.

3. Intellectual Property Compliance

Intellectual property compliance, especially film and television copyright compliance, is very important in the film and television cultural and entertainment industry. Film and television cultural and entertainment enterprises should closely monitor the production, acquisition, use, and protection of their intellectual property rights, such as applying for film and television copyright registration in a timely manner; Standardize the licensing and transfer of distribution rights, broadcasting rights, screening rights, and information network dissemination rights; Strengthen the protection of film and television business secrets and intellectual property rights; Standardize the use of intellectual property rights of others according to law, prevent infringement of the rights of third parties in the use of intellectual property rights, and so on.

4. Performance Brokerage Compliance

Performance brokerage compliance is a unique compliance area in the film and television entertainment industry, mainly divided into two aspects: entertainer performance and entertainer brokerage. Whether an artist signs a performance contract with a film and television company or signs a brokerage contract with a brokerage company, there are a lot of legal relationships involved and there are many legal risks. Film, television, cultural and entertainment enterprises should pay special attention to the compliance of various aspects in the compliance field, such as format contracts, contracting parties, ethical provisions, remuneration standards, personal safety, sky-high termination fees, and huge compensation.

5. Advertising endorsement compliance

Artist advertising endorsement compliance is also a key compliance area in the film and television entertainment industry. When advertising endorsements, artists need to pay special attention to the prohibitive provisions on advertising endorsements in laws and regulations such as the Advertising Law, the Food Safety Law, and the Civil Code, as well as the provisions that may bear joint and several or tort liability, and pay attention to the "work content, exclusivity during the endorsement period, exclusivity of competing products, and special artist requirements" in advertising endorsements.

This time, Zhang Ting Lin Ruiyang Company is suspected of pyramid selling, which has revealed that many celebrity artists have endorsed and promoted their products. If Zhang Ting Lin Ruiyang Company is suspected of pyramid selling and suspected of false advertising, it has been verified that the stars involved in advertising endorsements may have to bear certain legal responsibilities.

6. Public opinion and crisis public relations compliance

The film and television entertainment industry is inherently closely related to public opinion and crisis public relations compliance. Public opinion and crisis public relations generally refer to monitoring and discovering public opinion, tracking public opinion, and taking a series of stop loss measures, controlling the development of events, restoring network reputation, and so on. Recently, the Propaganda Department of the Central Committee issued the "Notice on Carrying out Comprehensive Governance Work in the Field of Culture and Entertainment"; The Office of the Central Committee and the State Council issued the Opinions on Strengthening the Construction of Network Civilization; The release of the "Opinions on Further Compacting the Responsibility of the Main Body for Information Content Management on Website Platforms" by the Central Network Information Office further declares that the film, television, cultural and entertainment industry has entered a period of intensive consolidation. Once an enterprise violates the red line, public opinion and crisis public relations compliance become particularly important.

7. Anti Corruption Compliance

Anti corruption compliance is a long-standing problem in the film, television, cultural and entertainment industry. The film, television, cultural, and entertainment industry has been criticized for its numerous disruptions, such as a large number of non-standard operations that push up actor remuneration, leading to increased risks; Corruption and corruption in the purchase and sale of films and television make it impossible for the market to form healthy competition; Fake ratings make production agencies lose their weather vane; There are also various "hidden rules" in the production and distribution of film and television. Film, television, cultural and entertainment enterprises should pay attention to anti-corruption compliance, handle and control various types of corruption, and strive to create a clean and positive industry development environment.

8. Business Partner Compliance

Business partner compliance mainly refers to conducting compliance investigations on important business partners, promoting business partner behavior compliance through signing compliance agreements, requiring compliance commitments, and other means. Due to the needs of business development, film and television cultural and entertainment enterprises have a large number of business partners. For example, the shooting of film and television dramas involves many shooting venues, locations, settings, props, equipment, clothing providers, as well as directors, actors, photographers, editors, service technicians, recording, and other types of cast personnel. All of these require certain compliance management to prevent risks.

In summary, the author believes that companies in the film, television, cultural and entertainment industry need to focus on the above compliance areas. Regarding the above key compliance areas, our compliance team will also continue to explore relevant legal issues such as "How lawyers provide compliance legal services". We welcome your continued attention.