Guidelines Pertaining to Concerns about the Documentation and Provenance of Funds

Last Updated on August 29, 2016

The Guidelines Pertaining to Concerns about the Documentation and Provenance of Funds

The authorities require business immigrants to have a net worth. In addition, they require business immigrants to have the relevant business experience as well. However, the officers have the ability to require evidence for establishing the admissibility of the applicant. Moreover, they have the power to reject an applicant for failing to discharge the obligation as well.

The provisions specified in A16 (1) impose the obligation on applicants to ‘answer truthfully’ and ‘produce all relevant evidence and documents’ that the officer requests for. Similarly, the provisions specified in A11 (1) instructs officers to issue visas only if the officer ‘is satisfied that the foreign national is not inadmissible and meets the requirements of the Act.’

The Immigration and Refugee Protection Act (IRPA) enables officers to provide broad grounds for rejecting applicants. For instance, A40 (1) (a) carries provisions concerning the rejection of applicants for the misrepresentation of a material fact. It states that the officers could reject applicants ‘for directly or indirectly misrepresenting or withholding material facts relating to a relevant matter that induces or could induce an error in the administration of this Act’. Similarly, A41 (a) provides officers with the authority to find applicants inadmissible for ‘an act of mission which contravenes directly or indirectly a provision of this Act’.

The Immigration and Refugee Protection Act (IRPA) provides officers with the tools needed for reasonably requiring evidence for establishing admissibility. This is in accordance with the provisions specified in A16 (1). As such, officers could refuse the applicant when they are not satisfied that the applicant is not inadmissible. This is in accordance with the provisions specified in A11 (1). Similarly, officers could refuse applicants when the applicants provide them with false material information. This information could, among other things, pertain to the control and ownership of the business and net worth. This is in accordance with the provisions specified in A40 (1) (a). In addition, the officers could also refuse applicants under the provisions specified in A41 for any act or omission.

In many cases, organised crime follows a common practice of presenting a legally sound business as a front for criminal activity. This is why the Regulations enable officers to go beyond the specific requirements of the qualifying business and its net worth. Doing this helps officers to examine the context of these figures. For instance, officers would be able to establish the relevant context by obliging applicants to establish the legality of their assets. In this manner, the officers would be able to reasonably require evidence that establishes the legality of the assets of the applicant. In addition, they would easily be able to refuse applicants who:

• Do not comply with this request as specified in the provisions of A16 (1)
• Do not meet the presumption as specified in the provisions of A11 (1) or,
• Purposely dissemble as specified in the provisions of A40 (1) (a)

By requiring that entrepreneurs and investors demonstrate that they have obtained their net worth legally, the officers would easily be able to weed out any applicants with links to criminal activities.

However, it is worth highlighting that the risks of applying a legally obtained provision poorly and inaccurately could lead to poor case decisions and jurisprudence. At the same time, its successful use places a considerable evidentiary burden on the officer. In addition, a legally sustainable refusal would also need to deal with issues of defining both ‘legal’ and ‘obtained’. For meeting this policy objective, the provision for legally obtained net worth provides officers with a context to examine the provenance of funds. This would be useful for supporting sustainable rejections under the provisions specified in A11.

By providing a regulatory obligation for business applicants to establish the legality of their net worth, the authorities:

• Provide clear rules and expectations for clients and officials
• Serve to use these as deterrents and,
• Provide the legal context for officers to examine the provenance of funds of business immigrants and to make legally sustainable refusals

The relevant documents that the officers would typically need to examine would include:

• The personal net worth statement
• The business balance sheet
• The business financial statements and,
• The corporate employee payroll

These documents typically provide an accounting of the applicant’s assets and liabilities. As such, they enable the officers to determine whether the applicants have the required business experience. More details on these statements follows.

The Personal Net Worth Statement

The Regulations prescribe a requirement for a minimum net worth of $300,000. However, these Regulations do not specify any requirement for a minimum amount that the investor needs to transfer to Canada.

What Details Should a Personal Net Worth Statement Typically Include?

Form IMM 0008E schedule 6 includes the personal net worth statement. This statement captures the business and personal assets and liabilities of:

• The applicant and,
• The spouse, common-law partner or conjugal partner

Therefore, officers would need to:

• Review this document for satisfying themselves about the completeness, valuation, ownership, existence and presentation of the component assets and liabilities
• Request the applicants to provide the relevant documentation for supporting the value of assets referred to on this statement
  • Such documents could typically comprise bank statements, property valuations etc.
• Confirm whether there are any funds that are in non-convertible currencies and,
• Be mindful of the fact that the prevalent exchange controls might restrict the movement of capital to Canada

The Business Balance Sheet and the Business Income Statement (Financial Statements)

It is worth highlighting that when it comes to assessing the applicant, the officers would typically rely on the balance sheet and the income statement. As such, these statements hold great importance for the officers when they review applications.

Therefore, when reviewing these documents, the officers would need to:

• Consider the performance of the business over time
  • For this, they would need to request the applicant to provide financial statements for the previous five years for comparative purposes
  • In addition, officers would use these statements for verifying that the applicant met the definition of entrepreneur in at least two of the previous five years
• Review the income statement for verifying the completeness, measurement, occurrence and presentation of the component revenue and expenses and,
• Bear in mind that when they review the income statement, the statement remains based on transactions
  • As such, it is advisable that they look at the individual components and not merely the net income, especially in the case of small enterprises

Note:

• For instance, business valuators usually normalise income by considering the amount the owner has expended in salaries along with the amount that would be a reasonable salary needed for paying an employee to do the same job
• It is worth noting that some owners might not charge any salaries at all
• As such, these individuals could show a considerable net income or alternatively, allocate a large amount to salary expenses and show very little net income, or even a loss for tax purposes
• Therefore, the officers would need to enquire about the number of employees in the business as well as the amount of salary expenses which the officers could consider attributing to the owner

The Integrity of the Financial Statements

Officers would need to consider the integrity of the financial statements provided by the applicant carefully. In Canada, three essential levels of assurance exist for public accountants to provide to the users of financial information. These comprise:

• Audits
• Review engagements and,
• Compilation engagements

When they get their tax returns professionally prepared, a vast majority of small companies or companies that do not have to report to a bank or other creditors would simply receive a compilation. It is worth mentioning that most countries have a similar range of reporting engagements. This is especially so if the country has had a British influence in the past such as Hong Kong. Such countries would usually follow standards closely aligned to Canadian standards.