This is a guest column; ‘Mihael Willman’ is the pseudonym for a concerned Canadian – JG.
by Mihael Willman
This is part one of two; part two appears immediately below this post.
“There is also little evidence that immigrant investors as a class are maintaining ties to Canada or making a positive economic contribution to the country.” – Former Finance Minister Jim Flaherty.
Since its very inception by Brian Mulroney in 1986, Canadians have viewed the immigrant investor program as nothing more than a way for rich foreigners to buy their way into Canada. What they probably were totally unaware of, was that the program was riddled with fraud and corruption almost from the very beginning.
At the start of the program applicants had to invest between $150,000 to $250,000 for a three year period, what amounted to the price of a nice house in Toronto or Vancouver. Most of the applicants at that time were coming from Hong Kong (before the island reverted to mainland China) and Taiwan, and followed by communist China, a distant third.
There were two ways an investor could qualify for immigration. Either by investing directly into a business in Canada, or by having dozens of potential immigrants invest in funds set up by immigration consultants, who were responsible for selecting appropriate investments. Because the former required considerably more paperwork, the funds soon became the more popular route. However, it is very likely that popularity of the funds was for a completely different reason.
As recently as 2011, former immigration minister Jason Kenney declared that Ottawa would continue to maintain the Investor Immigrant program (IIP), as it was shown to be of benefit to Canada. He defended its fast-tracking of applicants saying: “Obviously, we do want to attract high-net-worth individuals. Our hope is they’ll stay in Canada and be a positive force in the economy.” Of the 45,000 IIP applications received the previous year, 32,000 applications were from mainland China.
Not until early 2014, did government officials finally admit that the program had been abused. Former Finance Minister Jim Flaherty, in his 2014 budget, when he announced the cancellation of the IIP, stated: “There is also little evidence that immigrant investors as a class are maintaining ties to Canada or making a positive economic contribution to the country.”
In an interview with The South China Morning Post, Immigration Minister Chris Alexander said that Chinese nationals had abused the program whose purpose had been for wealthy foreign businessmen to move to Canada and set up businesses to stimulate the economy. Instead, Chinese businessmen brought over their families, while they stayed to run their businesses in China. In other words, they never intended to live in Canada. Unsaid was the reality that the possession of a Canadian passport and citizenship was very likely only sought as a form of insurance against possible future reversals in fortune and for all the benefits it could provide the recipients.
According to a recent report by Ian Young, a Chinese-Australian who is correspondent for the South China Morning Post, of all the investor immigrants, only 16 per cent actually operated businesses in Canada, 40 per cent continued to conduct their business overseas, presumably in their country of origin, and another 40 per cent were either unemployed or retired. No mention of the remaining 4 per cent.
Cancellation of this program was clearly long overdue. With only 16 per cent actually investing or operating businesses in Canada, it was clearly a total failure, despite all those glowing assessments from successive governments, whether Conservative or Liberal.
While Alexander stated that the program was intended to have wealthy foreign businessmen set up businesses in Canada, however, unlike the entrepreneur program, the IIP only actually required a passive five-year, repayable, investment in some Canadian company, and virtually nothing else. Just buying an expensive house in Vancouver, the Greater Toronto Area, or some other exclusive area, was considered a sufficient boost to the local economy by some proponents of the program.
Sergio Marchi, former Minister of Citizenship and Immigration under Jean Chretien, from 1994 to 1996, clearly saw nothing wrong with the program during his tenure as minister of that department. In his critical article published February 25th in the Toronto Star, entitled “Why has Canada given up competing for immigrant investors?” he claimed “It is not as if our intake of immigrants is being overwhelmed by the investor class.” He went on to state that the investor group only constitutes 2 to 3 per cent of the annual 250,000 immigration numbers. If you only count the investors as immigrants, then that would be the case. But what Marchi omitted to include in this figure is that each investor immigrant brings a spouse and at least one child. (In 2011 the backlog of applicants had risen to 91,248, of whom 26,158 were investors and 65,090 were family members.) That quickly brings the immigration figure to nearly 5 per cent! Still not an enormous number, but when we consider how little Canada actually gets in return, large enough, especially if many of them submitted fraudulent documentation. (This subject is dealt with in the following article.) And we have no figures on how many of these investor immigrants then go on to sponsor parents and grandparents.
Rather than cancelling the program, Marchi would have preferred that the government had “consulted extensively, in an effort to address these problem areas.” Which, the way governments tend to work, would’ve taken years to come to any decisions and would probably simply have been shelved after the expensive process was completed. If there was “abuse” (Marchi’s quotes), which Ottawa wished to end, “If there were shortcomings, it is incumbent to fix the problems and tighten the criteria.”
For all his praise for the IIP in this article, Marchi must have been living in a bubble, if he was unaware about the audit by David Webber, senior forensic accountant with the World Bank, commissioned by the Immigration Department. Conducted from 1994 – 1998, the investigation began under Marchi’s watch and would lead to several changes in the program. But probably not enough to get rid of the program’s underlying problems.
After years of touting the economic benefits of the IIP, Ottawa has finally seen the light. Apparently the decision to cancel the program was made because Ottawa finally concluded that the benefits to Canada were not as great as had been claimed over the past 27 years. One striking conclusion was that investor class immigrants pay considerably less in taxes than other immigrants, this despite their supposedly generous assets. Over twenty years, average investor immigrants paid almost $100,000 less in taxes then live-in caregivers. So much for targeting wealthy businessmen who would actually help stimulate the economy and create jobs for Canadians. In the end they did neither of these, and even ended up paying less in taxes then workers in low-paying jobs! No government official, on the other hand, has yet bothered to quantify just how much these investor immigrants and their families are costing the Canadian taxpayers, in health care costs and other taxpayer provided benefits.
Another concern was the fact that they have been shown to be less likely to remain in Canada over the long term. This was made clear by one Chinese immigration consultant interviewed by the Globe and Mail in 2011 who said: “If you want to apply to change to Canadian nationality, you need to stay there for three years out of the five. After you are a Canadian citizen, it’s okay for you to return to China and stay whatever, 100 years. There’s no problem for you to land in Canada any time you want.” In other words, should you or your family require health care at the expense of the Canadian taxpayer, you can simply fly back to Canada and take advantage of it, having contributed next to nothing for the privilege! If you need to skip China for other reasons, Canada will accept you no questions asked. If this wasn’t what Ottawa had intended, it certainly is how Chinese investor immigrants have viewed the program, probably from the very start.
In the words of immigration minister Chris Alexander: “In the case of this program we had long wait times [and] abuse on a large scale. Residency fraud where people would pay money, claim to be living in Canada, meeting the residence requirement … without setting foot in Canada – and this is happening on a large scale.” He continued: “There were people who applied on the program, received permanent residence and in some cases received citizenship, but through various machinations involving corporate consultants and lawyers, never actually resided in Canada for any length of time and never even intended to reside in Canada.”
Something is clearly not right here. Some Canadians who have lived their entire lives in Canada, dutifully paid all their taxes and then decide to retire abroad, run the risk of losing their citizenship and benefits by doing so. Yet immigrants from China, some who may not even have set foot in Canada, or actually fulfilled the requirements to gain Canadian citizenship, can simply return to China while retaining Canadian citizenship and a Canadian passport and all the benefits this provides.
Ottawa has no way of tracking just how many of these investor immigrants are still in Canada after five or ten years. The only official figures for this come from Quebec, which has its own immigrant investor program. It found that between 2003 and 2007, only “about half” of them were still living in the country. While the majority, 90 per cent, ended up moving to other provinces, violating the terms of the program, according to a statement by Jason Kenney in 2013. But they did manage to get their valuable Canadian citizenship and passport, didn’t they?
Concerns about how the program was actually working came to light within years of its inception. Evidence of fraud was more than abundant by the early 1990s, while internal studies by the immigration department clearly showed that the IIP was not attracting the kind of people Ottawa was seeking. Yet despite all this evidence, the program was allowed to continue merrily along its way for several decades.
Though it was geared to investors or businessmen, a 1997 Immigration Department study found that the investor immigrants questioned could not function in either of Canada’s two official languages, (nearly two-thirds spoke neither English nor French) and to top it off were poorly educated. Nearly 50 per cent of these immigrants had only up to 12 years of education. How could anyone expect such immigrants to contribute in any substantial way to the Canadian economy in the long term? The Department also raised the issue of money laundering and involvement of organized crime, yet the program continued along unhindered.
“IMDB 2008 Immigration Category Profiles – Business Immigrants – Investors,” dated March 2012, by Citizenship and Immigration Canada, provides a rather interesting assessment of the program.
It acknowledges that the leading source for investors since 2000 has been from the People’s Republic of China, with 6,817 investors or 58.2 per cent coming in 2010. In examining the average employment earnings of different classes of immigrants over a 15 year period, the study came up with some rather startling results. Taking into account salary, wages and tips (but not income from self-employment or investments), investor immigrants reported: “average entry employment earnings of roughly $20,000 and demonstrate minimal growth with time spent in Canada, reaching average employment earnings of roughly $25,000 after 15 years.” Meanwhile, non-business immigrants started at about $24,000 and reached over $35,000 after 15 years.
The report continued: “Since the Investor Program began in 1986, entry employment earnings of investor principal applicants have trended downward; in 1993, average employment earnings one year after landing of this business category were roughly $21,000, or 61% of the Canadian average; by 2003, entry earnings for investor principal applicants had fallen to $17,500, or 46% of the Canadian average.” This conclusion explains the rather unlikely statement, by Jim Flaherty, that investor immigrants pay less in taxes.
And while some may see the initial purchase of expensive homes and cars as an economic benefit to Canada, residents of Vancouver, Toronto, Markham etc., are not as happy to see the rising cost of housing. According to a South China Morning Post report (Feb. 7, 2014) “The queue of millionaires at Vancouver’s doorstep has major implications in a city where housing is rated the second-least affordable in the world, behind Hong Kong. Census data shows 96 per cent of all recent Chinese immigrants to British Columbia live in greater Vancouver and the proportion among the wealthy is even higher.” And yet David Mulroney, former Canadian ambassador to China from 2009 – 12, talking about wealthy Chinese moving to Vancouver, said that in his opinion: “it would be nice to see more parts of Canada benefiting from immigration and the dynamism that that brings,” such as is being experienced in Vancouver. Guess he hasn’t bothered to ask Canadian citizens whether they are as eager to experience these same questionable benefits.
The SCMP report concluded that their investigation into the IIP “revealed the extraordinary extent to which it has become devoted to a single outcome: Helping rich mainland Chinese settle in Vancouver.”
So Marchi’s question: “Did the ministers of Finance and Immigration, for example, examine and quantify the impact of the collective investments; or tabulate the additional consumer expenditures that these high net worth individuals made, or the contributions that their children are making to our nation? ” has been clearly answered. The “consumer expenditures” aside, the program only benefits the investor immigrants and their families and not Canada as a whole.
Because of the growing backlog of IIP applications, Ottawa decided in 2010 to raise the requirements for applicants. Requirements for application were a personal worth of $1.6 million Canadian, with documentation to prove that it had been legally obtained and taxes paid on it, and an investment of $800,000 ($400,000 for those who applied before 2010) which would be returned after five years and two months without interest. Applicants also had to prove that they had “at least two years’ experience in managing either a business of their own or no fewer than five full-time co-workers.”
Despite this increase, the number of applicants continued to rise. Unlike other Canadian programs, it appears that the investor class group had no cap, which explains how 34,427 applications were received in 2010 in Hong Kong, with the majority of them coming from China. This probably also explains how the backlog continued to grow, when it was supposedly one of the quickest ways to get into Canada. While investor applications to Canada numbered in the tens of thousands, by contrast the U.S. has about 6,517 applications, Great Britain 594 and Australia 545. In addition, these countries ask for greater investment amounts, which are not refunded, while immigration to the U.S. and Australia is not permanent.
How come it took so long for Ottawa to finally realize what had been happening with the IIP, probably from the very beginning? Clearly the will to monitor the program for abuses was lacking in the department. And if abuses were uncovered, as they were by David Webber in the late 1990s, they were simply buried and kept from the Canadian public.