The following is
a submission of the National Citizenship and Immigration Law
Section of the Canadian Bar Association, prepared by Colin R.
Singer, Attorney, with the invaluable assistance of fellow
section members, in response to the proposed regulation
modifying the immigrant investor program and scheduled to take
effect on April 1, 1999. Mr. Singer appeared as a witness
before the Standing Committee on Citizenship and Immigration
on February 18, 1999 to present this submission on behalf of
the Canadian Bar Association
National
Citizenship and Immigration Law Section
The
Canadian Bar Association
February
1999
| Submission
on Redesign of the Immigrant Investor Program |
PREFACE
- i -
I. OVERVIEW 1
II. SUMMARY OF
PROPOSED CHANGES 2
III. THE CURRENT
INVESTOR PROGRAM 3
IV. THE PROPOSED
REGULATION 4
A. General Comments
4
B. Threshold
Increases 5
C. Single Federal
Window 7
D. Rate of Return 8
E. Provincial
Allocation 9
The Allocation
Period 9
The Allocation
Formula 10
F. Additional
Considerations 10
V. CONCLUSION AND
RECOMMENDATIONS 11
PREFACE
The Canadian Bar
Association is a national association representing over 35,000
jurists, including lawyers, notaries, law teachers, students
and judges across Canada. The Association's primary objectives
include improvement in the law and in the administration of
justice.
This submission was
prepared by the National Citizenship and
Immigration Law Section of the Canadian Bar Association.
The submission has been reviewed by the Legislation and Law
Reform Committee and approved as a public statement of the
National Citizenship and Immigration Law Section of the
Canadian Bar Association.
I. OVERVIEW
The National
Citizenship and Immigration Law Section of the Canadian Bar
Association (the Section) is pleased to provide this
commentary on the regulatory package pre-published in Canada
Gazette, Part I on December 19, 1998. The Section
comprises lawyers practicing all aspects of immigration law
across Canada. We have provided ongoing input to Citizenship
and Immigration Canada (CIC) on its legislative, regulatory
and policy initiatives. The Section provides these comments
with a view to assisting CIC in developing sound, effective,
transparent immigration policies, practices and procedures
which conform to the goals and objectives of the Immigration
Act.
The proposed
regulatory package would replace the current program of
attracting experienced business persons and new investment
capital to Canada through private sector, provincially
administered venture capital funds under two investment tiers,
with a single Canada-wide investment amount remitted through a
single federal window. The investment and personal net worth
amounts, important criteria of selection, would be
significantly increased to $500,000 and $1 million,
respectively. The guaranteed investment under Tier III would
be abolished.
The proposed
regulatory modification has been presented by CIC as an
improved redesign of existing rules, emphasizing increased
economic benefits for the provinces under a simplified, more
efficient format.
The Section
believes, however, that the proposed rule change is
fundamentally flawed. As subordinate legislation to the
existing Immigration Act, the regulatory package is
premature in that it precedes the White Paper tabled in
January 1999. The White Paper proposes a legislative overhaul
of the Immigration Act, including the business
program. The White Paper proposals for reform of the business
program include introduction of the definition of significant
business experience, increased education and language skills
and a provision addressing the origin of funds under the
investor program. In our view, all these elements constitute
issues of selection, as are investment and personal net worth
amounts.
Given that the
Government intends to proceed with imminent replacement of the
current Immigration Act, to be preceded by extensive
public consultations, we submit that this regulatory change is
premature. The Section urges the Government to extend the
existing program and address the proposed regulatory
modification following the White Paper review.
The Section also
believes that raising investment and personal net worth
thresholds at this time will likely result in a significant
reduction of applicants who qualify under the immigrant
investor program.
The Section is of
the view that the proposed rule change significantly reduces
the role of the private sector to market and administer the
program, which may also contribute to a reduction in immigrant
investors under the federal program.
The Section believes
that a number of issues arising from the proposed modification
require further examination and or clarifications.
Finally, the rule
change of the nature proposed presents a further example of ad
hoc amendments, a practice the Minister has specifically
sought to end through upcoming legislative reform.
II. SUMMARY
OF PROPOSED CHANGES
The proposed
regulatory package would present the following changes:
- Increased
eligibility net worth requirement to $1 million from
$500,000 and increased amount to be invested to $500,000
from $250,000 (under Tier I) or from $350,000 (under Tier
II). Both tiers would therefore be eliminated. The
guaranteed investment under Tier III would also be
abolished.
- CIC designated as
the depository for all investments and CIC role expanded
to administer multifarious aspects of the program
including the allocation of immigrant investment to
provincial or territorial funds according to an allocation
formula.
- The federal
selection process applied exclusively to those who
participate in the federal program.
- The Quebec
selection process applied exclusively to those who
participate in the Quebec program.
- Immigrant
investor would receive from each approved fund, a
provincial guarantee representing the portion of the
investor's investment in the approved fund.
- Zero percent rate
of return on investment to the immigrant investor.
- The five-year
allocation period beginning on the first day of the second
month after CIC informed the fund that the investor has
landed.
III. THE
CURRENT INVESTOR PROGRAM
The current business
immigration program seeks to promote economic development and
employment by attracting international business people to
Canada, based on their ability to successfully establish
themselves in Canada. The primary objective of the business
immigration program is to develop new economic opportunities
for Canadians, and to improve Canada's access to global
markets by permitting people familiar with those markets to
make Canada their new home.
The business
immigration program was developed to further the objective
stated in section 3(h) of the Immigration Act:
| It
is hereby declared that Canadian immigration policy
and the rules and regulations made under this Act
shall be designed and administered in such a manner as
to promote the domestic and international interests of
Canada recognizing the need [...]
(h) To
foster the development of a strong and viable economy
and the prosperity of all regions in Canada.
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By way of summary,
the current federal investor program provides for admission to
Canada under the federal selection criteria. Investments are
made with provincial government-administered funds. Most
investors select financing provisions which enable them to
deposit approximately $80,000 for Tier I investments or
approximately $120,000 for Tier II investments and borrow the
remainder for a total investment of $250,000 or $350,000.
Loans to investors are secured by the investment in the
eligible corporation. The investor is liable for repayment of
the loan in the event of the failure of the investment.
Investors must transfer their investment to a fund prior to
visa issuance. The five-year investment period begins when
funds are invested in the eligible corporation. Investment in
an eligible corporation may take place prior to visa issuance.
Investors proceeding with a financing option, typically
receive a reimbursement of approximately $10,000 at the
conclusion of the investment period. Irrespective of the
investment vehicle selected, the return of the principle
and/or interest cannot be subject to a guarantee.
Approved funds are
independently managed and marketed. Commissions ranging from
5% to 10% are typically paid when the Escrow Agent releases
the investment to the fund. Applicants proceeding under the
federal selection criteria may participate in a Quebec based
program.
Quebec (which
promotes its own immigrant investor program under the
authority of the Canada-Quebec Accord Relating to
Immigration and Temporary Admission of Aliens), operates
a $350,000 program with licensed investment dealers and
financial institutions acting as fund managers. Most investors
select financing provisions that will enable the investor to
deposit between $88,000 and $97,000 and borrow the remainder
for a total investment of $350,000. In a maximum financing
arrangement, the investor will typically receive no return of
capital at the end of the investment period. Loans to
investors are secured by the investment in the eligible
corporation. The investor is liable for the repayment of the
loan in the event of the failure of the investment. Unlike the
federal model, investors receive security on their investment,
which conventionally takes the form of assets of the eligible
corporation, pledged as collateral to the investor in the
event of a default by the corporation. The assets pledged are
generally in the form of an instrument such as commercial
paper. Investors destined to Quebec must transfer their
investment prior to the issuance of a Quebec Certificate of
Selection. Investors participating in the Quebec program
destined outside Quebec must transfer their investment prior
to visa issuance. The five-year investment period begins when
funds are invested in the eligible corporation. Investment in
an eligible corporation may take place prior to visa issuance.
Approved funds are
independently managed and marketed by the investment dealer.
Commissions generally ranging from 6% to 8.5% are payable by
the fund investment dealer in whole or in part following the
investment in an eligible corporation. Investors investing in
a Quebec program may be assessed under the Quebec or the
federal selection criteria, depending on the intended
destination.
IV. THE
PROPOSED REGULATION
A. General
Comments
The Regulatory
Impact Analysis Statement (RIAS) describes the proposed
regulation as a redesigned, simplified version of the existing
rules which retain the fundamental intent of the original
Program of attracting qualified business people who, in
exchange for admission to Canada, will make substantial
investments in Canada.
The RIAS further
stipulates that simplification will occur by eliminating
complex rules governing the use of investors' monies and by
introducing a role for CIC to act as agent for approved
provincial funds who will in turn invest their funds according
to their own independent priorities. After five years, the
funds will repay CIC and CIC will repay investors.
In our view, the
RIAS does not objectively reflect the true impact of the
proposed changes. To the contrary, we firmly believe that the
impact will be at variance with the specific objectives of the
Immigration Act, Regulations and stated Ministerial
policy in the following respects:
- Immigration
levels for the immigrant investor component of the 1998
Immigration Plan will be significantly reduced.
- Regional
disparities, for a foreseeable period of time, will
continue to exist between the provinces participating in
the new federal model and the Province of Quebec.
- Certain regions
will incur a substantial reduction of economic benefit as
a result of the new program.
Moreover, the
Section observes that the RIAS provides no insight as to why
the investment threshold, a critical component of program
re-design, is being increased at this time.
B. Threshold
Increases
Since its inception
in 1986, Canada's immigrant investor program while accounting
for $4.22 billion in investment (RIAS statement), has proven
to be a model of success which other countries such as
Australia, Singapore, New Zealand and the United States have
reviewed with interest in devising their investment programs.
Indeed, these programs present viable alternatives to
potential investors. The future success of the Canadian model
requires a keen awareness of all factors that affect the
choices and qualifications of investors.
The proposed
regulations stem in part from the Not Just Numbers
report released by the Legislative Review Advisory Group in
January 1998. The commentary in that report was based on
economic indicators that were applicable well before the Asian
Economic Crisis took effect.
Since the release of
the report, the economic performance of leading source
countries in Asia and Eastern Europe, has declined
considerably, along with the personal net worth and investment
capability of many potential applicants. This factor has
translated into a precipitous decline in immigrant investor
applications to Canada in 1998.
Similarly, the value
of the Canadian dollar on the international market has
declined considerably relative to many of the leading
currencies, particularly the United States and to a lesser
extent, Australia, countries that offer competing immigrant
investor programs. An eventual recovery in the value of our
dollar relative to these currency's would increase the cost of
the Canadian product, relative to these competing products,
assuming all other related factors remain unchanged.
Additionally,
evidentiary documentation and program integrity is a major
concern for CIC under the current program. Obtaining
evidentiary documentation that satisfies recently implemented
program integrity initiatives, proving both personal net worth
under existing thresholds and satisfactory linkage between the
accumulation of $500,000 and an applicant's own endeavours is
becoming increasingly difficult for many applicants
world-wide, given that documentation now being requested did
not even exist in some source countries until the mid 1990's.
Moreover, the manner
in which personal net worth is calculated in the assessment of
an application varies significantly between missions. These
issues are critical to the qualification of a prospective
applicant and must be satisfactorily addressed in a regulatory
enactment of this nature, before thresholds are increased.
Current federal
investment options have evolved over the past number of years
into complex financing formulas designed to reduce the cost of
investment and minimize the element of risk for the investor,
within the prescribed limits of the regulations. Although the
return of capital and interest cannot be subject to a
guarantee (except under a Tier III investment), for all
practical purposes there is minimal element of risk of return
of capital and, where applicable, interest, in the existing
program.
One raises the
question, therefore, as to the rationale for the proposed
investment increases, which we believe can be explained only
perhaps by the misconception that the redesigned program
provides investors with increased prospects of a return of
capital from the current program.
The Section believes
that proceeding with regulatory threshold increases in any
form at this time, without further assessing the impact of
these issues beforehand, will likely discourage and disqualify
a substantial number of source country applicants. This in
turn will severely hinder the stated objectives of section
3(h) of the Act, by significantly reducing the number of
business immigrants seeking admission to Canada. The Section
therefore opposes any increase to the investment or personal
net worth thresholds.
In the event that
CIC decides to proceed with some form of threshold increase,
the Section has differing views on the extent to which an
increase should materialize.
With respect to
investment the Section believes, for reasons outlined above,
that any increase from the current level should be modest at
best. For example, some members are of the view that an
investment requirement of $350,000 would be a suitable amount
as this represents a 40% increase in investment over the
current Tier I investment level which has historically
accounted for a substantial portion of immigrant investment to
Canada.
Other members
believe that an investment requirement of $400,000 represents
a proper balance between the preference to increase the
stature of the program and the importance of acknowledging the
factors outlined above.
With respect to
personal net worth criterion, should CIC proceed with an
increase contrary to the Section's recommendations, the
Section recommends the inclusion of all assets, including
joint marital property, accumulated through lawful economic
activities in the calculation of personal net worth.
C. Single
Federal Window
The Section fully
supports initiatives aimed at streamlining the administrative
infrastructure of the program and increasing economic benefit.
Indeed by all accounts, the current rules governing the
creation of investment funds and the use of investors' monies
have proven to be highly complex, inefficient and largely
ineffective in achieving program objectives.
Many of our members
argue, however, that the Province of Quebec under the single
federal window system will maintain distinct advantages over
the federal program allowing Quebec to continue to retain a
substantial share of the immigrant investor market. In such a
case, the problem of regional disparities would persist, vis-à-vis
the unequal benefit the program now provides to "all
regions in Canada" within the meaning of section 3(h) of
the Act. This assumes that the Quebec government will continue
to market its own independent investor program. On the basis
of current practices, advantages favouring the Quebec program
will include without limitation, a less expensive overall cost
of investment, a secured investment, flexible/efficient
processing service standards and freedom of inter-provincial
mobility provided by the Canadian Charter of Rights and
Freedoms to permanent residents.
The role of the
private sector to effectively market the immigrant investor
program is one of the major factors that has enabled Quebec to
maintain a substantial share of the Canadian immigrant
investor market. The Section therefore, urges the Government
to undertake efforts to include the private sector in an
incentive, commission structured capacity to market the
redesigned federal program, an element which is linked to the
success of a business related undertaking of this nature.
Additionally, some
Section members believe the redesigned program should also
include an administrative initiative allowing for fast track
processing of selected applications, in a designated Regional
Processing Centre inside Canada, to increase efficiency and
reduce processing times of the federal program. Current
federal processing delays for business applications exceed
processing delays for Quebec business applications on average,
where applicants undergo a two step approval process.
Procedurally,
applications filed at any existing area business centre would
be pre-screened for qualified applicants who would be issued a
notice with a choice to attend an interview inside Canada
where delays to interview would be less than six months from
submission, or at the mission where the application is
submitted where delays would be longer.
A minority of our
members suggest, however, that the single federal window
system may result in a substantial decline in the number of
investor applicants choosing the Quebec program. Reasons in
support of this position pertain to a conceptually more secure
program that will arise from CIC's new role as the depository
for all investments, a provincial guarantee provided to
applicants participating in the federal program and the Quebec
selection system being applied exclusively to those who
participate in the Quebec program and who intend to reside
there.
The Section
believes, therefore, that proceeding with a single federal
window program at this time is premature, and should be
delayed to permit further consultations between CIC and the
Quebec government, an influential participant in the current
Canadian market, with the objective of harmonizing the two
programs to safeguard the objectives of the Act.
D. Rate of
Return
The Section has
serious concerns with a zero rate of return on investment to
the immigrant investor, under the proposed changes. In
addition to being financially harsh to those who seek
admission under the program, the use of capital by the
Government of Canada during processing may inadvertently
become an incentive by CIC to prolong immigration processing
periods. Indeed the potential benefit to the Government is
significant. By way of illustration, a delay of only six weeks
in the processing period for immigrant investors at any given
time would provide the Government with a financial gain
exceeding $4 million. This illustration is based on short-term
interest rates in Canada of 4%, with an active inventory of
1800 business immigrant investor applications.
In an effort to
eliminate such a possibility, and to encourage efficiency and
accountability to the applicant by CIC, the Section urges CIC
as a minimum, to prescribe an annual rate of return on
immigrant investor capital during the period prior to visa
issuance. Thereafter, interest should be paid by each
participating approved fund in accordance with the prorated
share of an investor's investment in the approved fund. The
interest rate would be prescribed by regulation and set
periodically to reflect prevailing rates and other factors.
Additionally, and
from a marketability perspective, this mechanism could be
advantageous to CIC in that it would also allow the program to
become more competitive while lowering the cost of the
Canadian product relative to other programs in the immigrant
investor market, should interest rates eventually exceed
current levels.
E.
Provincial Allocation
The
Allocation Period
The Section, in
reviewing the provisions defining "allocation
period" in section 1. (1) of the amending regulations, is
concerned that the allocation period described as five-years
will in fact result in a substantially longer period exceeding
six years. Section 1(1) provides:
| Allocation
period means, with respect to the provincial
allocation of an investor, the period of five years
beginning on the first day of the second month after
the month in which the investor informs the approved
fund, through the agent, that the investor or any
accompanying dependant was granted landing. |
Funds are not
transferred to the provinces until the investor has landed.
The delay between the transfer of an investor's investment to
the depository (CIC), and the landing of the investor (or any
accompanying dependant) may be substantial, representing a
lost opportunity cost of capital (raising the overall cost of
the Canadian option) to the investor and an increased
financial benefit to the Government.
To address this
concern, and irrespective of whether our above noted comments
regarding interest rates are persuasive, the Section
recommends the inclusion of a deemed allocation notice
provision in favour of the investor allowing for the five-year
allocation period to begin when the investor's funds are
initially transferred to the Government.
The
Allocation Formula
The proposed
compensation mechanism between CIC and the provinces allocates
immigrant investor capital to the provinces based on a fixed
point in time. The reality is that investor immigrants are
mobile inter-provincially over the five-year term of the
investment. A more equitable method of allocation may be
achieved by implementing a formula that reflects the mobility
patterns of the investor throughout the entire five-year
investment period.
F.
Additional Considerations
The following
comments represent additional considerations raised by the
Section:
Although financing
is permitted, a clarification is required on the nature,
timing and modalities of the investment to ensure that an
investor will be permitted to finance the investment prior to
visa issuance.
The provinces must
undertake to act responsibly to ensure that provincial
allocations are used towards job creation and not used to
replace existing debt financing.
Consideration may be
given to ensure that marketing and promotion expenditures by
or on behalf of the approved funds are regulated.
The transitional
provisions require investor applicants to sign a subscription
agreement or an investment agreement as the case may be, in
order to benefit from the application of this grandfather
clause. The Section recommends a modification to require a
completed application and applicable filing fees.
Some applicants who
perceive the Quebec program to be advantageous may apply
through the Quebec program without intending to reside in
Quebec.
Initiatives should
be undertaken to require approved funds to adhere to periodic
audit practices.
The Section
perceives a contradiction between the RIAS which states that
"Canada welcomes immigrant investors, who can now be
assured of the financial security of their investment under
the new program" and the White Paper which conveys under
the business immigration commentary section, that "Simply
requiring capital to invest, directly or indirectly, is not
sufficient".
The Section provides
the following alternative models for consideration by the
Government:
- Introduce an
investment model providing for a $200,000 non-refundable
prescribed investment payable prior to visa issuance. This
model is consistent with the government guarantees of
investment reimbursement provided to investors under the
re-designed program and will eliminate the government
infrastructure required to monitor and thereafter refund a
five-year investment.
- Introduce an
investment model that replicates the Quebec immigrant
investor program across Canada as initially presented in Canada
Gazette, Part I on March 22, 1997, with additional
considerations not referenced in that proposal.
- Introduce an
investment model that permits individual provinces to
market their own Provincial Immigration Bonds.
- Introduce a
$200,000 investment model that reimburses the investor the
capital after five-years and prohibits financing. This
approach will increase the benefit to the program in
accord with CIC objectives.
V.
CONCLUSION AND RECOMMENDATIONS
Delay
Implementation
The Section
recommends that implementation of any proposed modification to
the investor immigrant program be delayed until after
completion of the White Paper review, subsequent replacement
of the current Immigration Act and further
consultations with the Province of Quebec. The Section further
recommends an extension of the existing immigrant investor
program during this interim period.
Threshold
Increases
The Section
recommends no increase to the investment or personal net worth
thresholds. Should CIC proceed contrary to the Section's
recommendations, the Section recommends that any increase from
the current investment or personal net worth levels should be
modest.
As well, the Section
recommends the inclusion of all assets including joint marital
property accumulated through lawful economic activities, in
the calculation of personal net worth.
Marketing
and Commissions
The Section
recommends inclusion of the private sector in an incentive,
commission structured capacity to market the redesigned
program.
Regional
Processing Centre
The National
Immigration Law Section recommends an administrative
initiative under a redesigned program, providing for fast
track processing of selected applications, in a designated
Regional Processing Centre inside Canada.
Rate of
Return
The Section
recommends that an annual rate of return be paid by the
Government, prescribed by regulation, on immigrant investor
capital during the period prior to visa issuance. Thereafter,
interest should be paid by each participating approved fund in
accordance with the prorated share of an investor's investment
in the approved fund.
Provincial
Allocation
The Section
recommends inclusion of a deemed allocation notice provision
in favour of the investor allowing for the five-year
allocation period to begin when the investor's funds are
initially transferred to the Government.
The Section further
recommends a more equitable method of allocation be achieved
by implementing a formula that reflects the mobility patterns
of the investor throughout the entire five-year investment
period.
Additional
Considerations
The National
Immigration Law Section recommends that clarification is
required on the nature, timing and modalities of the
investment to ensure that an investor will be permitted to
finance the investment prior to visa issuance.
The Section
recommends that initiatives be taken by CIC to ensure that
provincial allocations are used towards job creation and not
used to replace existing debt financing.
The Section
recommends that additional consideration be given to ensure
that marketing and promotion expenditures by or on behalf of
the approved funds are regulated.
The Section
recommends that initiatives be taken by CIC requiring approved
funds to adhere to periodic audit practices.
The Section
recommends that the transitional provisions enable investor
applicants to receive assessment under the current program who
submit a completed application and applicable cost recovery
fees and allow for the submission of the subscription
agreement or investment agreement as the case may be, during
the period of processing.
The Section
recommends that CIC further evaluate the merits of alternative
models which may include:
- An investment
model providing for a $200,000 non-refundable prescribed
investment payable prior to visa issuance.
- An investment
model that replicates the Quebec immigrant investor
program across Canada as initially presented in the Canada
Gazette on March 22, 1997, with additional considerations
not referenced in that proposal.
- An investment
model that permits individual provinces to market their
own Provincial Immigration Bonds.
- An investment
model providing for a $200,000 five-year investment which
prohibits financing by the investor.
In conclusion, the
members of the National Citizenship and Immigration Law
Section would be pleased to discuss any aspect of these
recommendations and to consult at greater length on any
further proposals from the Department.
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