This was prepared in response to CIC’s request for “Stakeholder and Public Consultations on Improving the Immigrant Investor Program”.  We revised it in light of this week’s headlines so as to take into account the recent revelations regarding residency fraud. Thanks to Jonathan Crangle, my articling student, for doing most of the work on this and finding all of the references. – JNG

Getting the Most for Canadians Out of the Immigrant Investor Program

By Jonathan N. Garbutt & Jonathan Crangle


The extent of residency fraud within Canada’s immigration system was revealed this week by Jason Kenney, the Minister of Citizenship and Immigration, when he announced that immigration officials were stripping 3,100 Canadian of their citizenship. [infopopup:Sep14,2012#1] He explained that 11,000 applicants were under investigation, among them 5,000 immigrants with permanent residence status. Immigration officials have beefed up their investigations of applicants for residency fraud, wherein “immigrants” claim to live in Canada but continue living abroad.

However, this is very old news. The so-called “astronauts” of the 1980’s and 90’s (Canadian immigrants from Hong Kong who spent their lives travelling back and forth between the two countries for business) were also extensively involved in residency fraud, or at least according to the number of such anecdotes you will hear from any immigration lawyer who was around during that period. More recently, in 2008, the RCMP investigated Maritime immigrant investor programs because of troubling findings by provincial auditors.[2] The provincial governments were completely mismanaging the programs. Immigrant proposals were not being read or followed up upon, money was being embezzled from its intended destination, sponsors were unqualified (or often did not exist), and immigrants disappeared from their supposed home-provinces to the urban-centers.

Along with vast majority of Canadians we applaud the effort to crack down on residency fraud and immigration fraud in general.[3] Although increased enforcement is a good thing, we believe that the causes of residency fraud lie within the structure of certain Canadian immigration program. Specifically, we believe that the current structure of the federal Immigrant Investor Program (IIP) actually promotes “astronaut” activity, among other types of immigration fraud, by wealthy immigrants.

The Immigrant Investor Program

According to Citizenship and Immigration Canada (“CIC”), the objective of the IIP is to create jobs and spark economic development. The track record of the program indicates otherwise. To qualify under the IIP, all an applicant needs to show is that they have business experience, a minimum net worth of CAD$1.6 million and make a CAD$800,000[4] investment with the federal government that will be returned without interest in five years. This is hardly a major investment, particularly since the major Canadian banks will all gladly loan prospective IIP applicants the funds necessary for a very reasonable fee. However, it is particularly telling that the Canadian government has never made any attempt to determine if the program actually works, in terms of creating jobs or otherwise promoting economic growth. Indeed, independent academic analysis of the program shows exactly the opposite.

Make no mistake—we believe that immigration is good for Canada and that targeting and bringing in wealthy immigrants who can make a positive contribution to the Canadian economy is a very good thing. However, there is a gap between what the IIP currently is, and what it could be. Since its inception, the IIP has never been anything but a cut-rate, ineffective, citizenship-for-hire program that costs Canadian taxpayers money. In our opinion, at its core, the program is well-conceived; the IIP could be positive for the Canadian economy. In a country that needs immigration to sustain economic growth, why not set aside a small number of spots for those who will promote such growth?

The truth is that wealthy families around the world are looking for two important things: a) a safe place for their investments, and a safe place to act as a lifeboat in case things in the “old country” go badly awry; b) a safe place to park their families while they continue to develop their businesses back in the old country. Wealthy families are willing to pay dearly for the security that Canada has to offer. Why not structure it so it maximizes the benefits for all Canadians rather than run an IIP promotes fraud because it does not address these realities?

The IIP is Failing Canadians

The IIP has not promoted meaningful job creation

The IIP’s largest flop is that it has been targeting the wrong prospective immigrants. The program proceeds based on the assumption that Canada needs to attract “investors” who will establish businesses in Canada and create positions in the manufacturing and knowledge sectors. This assumption might have been apt in the late 1980’s when the IIP was created. Now, the economic landscape is different.

In the late 1980’s through the 1990’s, Canada was in the midst of a “brain drain”. Canada was losing highly trained members of knowledge sectors to the United States and other countries faster than new positions could be trained. Canada’s economy was also highly reliant on manufacturing and resource-based industries. Targeting investors in this climate was simpler because we knew which positions needed to be filled.

By the mid-to-late 2000’s, the “brain drain” was no longer an issue—trade-educated citizens started to remain in Canada. We have also learned that it is not safe for Canada’s economy to rely too heavily on the fickle manufacturing and resource-based sectors. Yet the IIP proceeds to market itself to individuals that propose to feed these sectors.

To compound the ineffectiveness of the IIP, CIC has not tracked what immigrants who arrived under the program did with their proposals once they moved to Canada. CIC has been willfully and blissfully ignorant. As it turns out, the IIP does not accomplish any of its stated goals. Since CIC does not track the effectiveness of the program, they have been unable to make meaningful recommendations to improve the program.

Several academics did attempt to track the IIP immigrants. According to these independent academic studies of the program, similar trends exist regarding what immigrant entrepreneurs admitted under the IIP program do once they arrive in Canada, as summarized below.

  • Rather than start their own enterprises, immigrant entrepreneurs are more likely to buy already-existing enterprises in their new cities.[5] This makes sense; a businessperson will want to reduce their financial risk.
  • It is unlikely for a bank to finance a new venture by an immigrant entrepreneur.[6] This makes it more likely that immigrants would favour buying existing enterprises rather than starting from scratch.
  • The immigrant investors overwhelmingly ran businesses in the retail and service industries.[7]
  • The immigrants’ businesses were mostly staffed by family and local “co-ethnics”,[8] and served the local co-ethnic community rather than the general population.[9]
  • Educated entrepreneurs were unlikely to work in their fields of expertise.[10] Immigrants favour security for themselves and their families over working in their preferred fields.

Above all, it is clear that the immigrants under the IIP did not show any inclination of investing in knowledge-based or manufacturing industries.[11] To top it all off, after attaining permanent-resident status, many entrepreneurs close their business ventures and return back to their country of origin for increased profit opportunities.[12]

The IIP has not led to economic development

Currently, the largest hurdle for a prospective immigrant under the IIP is to gather together CAD$800,000 to invest. Luckily for them, Canadian banks are happy to step in and invest that money for them. The bank will loan the investor $800,000 for a lump-sum payment (or require instalments) securing the loan, plus the interest forecasted for five years. The bank charges a rate that would be much higher than the interest actually accruing on the loan. After five years, the government returns the bank`s investment (the investment is guaranteed after all) and the bank makes money doing nothing. You can see why Canadian banks love the IIP.

However, this scheme does not benefit the Canadian economy and undermines the goals of the program. The banks stifle foreign direct investment from entering Canada. The banks also disillusion themselves with these investors from the beginning. This is unfortunate, because a refocused effort by the banks could promote long-term economic growth by fostering a mutually beneficial relationship with immigrants (as shall be discussed later).

The IIP is inefficient and loses money

There are currently 25,000 applications backlogged for 86,000 prospective immigrant investors.[13] Application backlog has caused the IIP to be stopped and started several times over the period of its existence. On June 28, 2012, Federal Immigration Minister Jason Kenney once again froze new applications to the IIP.[14] Potential immigrant investors can wait years for a response to their application. CIC simply does not have the resources to handle the applications, nor vet proposals put forward by investors.

In 2011, the IIP earned the federal government a revenue stream of $65.6 million and brought in 2,980 investors along with 7,606 dependents.[15] This figure is down from 2010 when the IIP earned $74.8 million in equity and brought in 3,223 investors along with 8,492 dependents, 4% of total immigrants that year.[16] The revenue from the IIP is a liability since it must be returned five years henceforth.

In 2011, immigration programs cost Canada $232 million. If we assume that the expenses to run the IIP are 4% of the total immigration program expenses (since the IIP accepts this percentage of total immigrants), CIC spent $9.3 million administering the IIP in 2011.[17]

Here is the problem: if we invest the $65.6 million earned in 2011 at 5% interest,[18] compounded annually over 5 years, the investment will average $3.62 million interest earned per year. But the expenses to run the program are over $9 million per year. The IIP is losing money. That`s right, a program designed to create economic growth by bringing wealthy people into Canada loses the government money every year.

Is there a better way?

Target the wealthy

Attracting investors does not seem to work. On the other hand, attracting wealthy people who are going to live and spend money in Canada is relatively easy. The most valuable resource Canada has to attract the wealthy is security. Personal security, financial security, a high standard of living, high-quality healthcare, high-quality education and lifestyle reasons make Canada an attractive place to live. CIC rhetoric denies that the IIP is a citizenship-for-hire program, but that is exactly what it is. Wealthy people from countries lacking security are willing to pay for it, and a citizenship-for-hire program should take advantage of this fact.

This perspective invites some criticism. This paper is not saying that the people who have immigrated to Canada under the IIP did not deserve to be admitted or have not contributed to Canada in material ways. This paper is saying that the IIP is the wrong avenue for these immigrants. Investors and entrepreneurs will come if there are real business opportunities here. Moreover, the entrepreneur and provincial nominee programs are available for such people. If we want to admit more of these entrepreneurs into Canada, the entrepreneur and provincial nominee programs should be expanded. The IIP should not be kneaded to encompass and implement other immigration policies.

It is critical to note that wealthy people spend money on their houses, their staff (housekeepers, personal trainers, event planners, drivers, etc.), their cars, in restaurants, at high-end boutiques, on clothes and personal items, on financial services, on their lawyers, their accountants and interior designers every day. The wealthy help keep businesses providing high-value-added services going. Let’s face it, 78% of Canadians work in the services-producing sector,[19] not the goods-producing sector, so let’s focus the IIP on generating benefits to the actual economy, not some pretend branch plant economy of yesteryear.

The wealthy also have the funds to support charities and the arts to a far greater extent than most, and thereby support the standard of living of all Canadians. More importantly, the wealthy also pay a lot of taxes just on their annual living expenses in terms of excise tax and HST, even before we get to the issue of income taxes. Just do the math; someone who spends $1 million a year on living pays at least $130,000 per year in HST in Ontario, more if they buy luxury items, which the rich tend to do. How many “ordinary Canadians” pay that much tax?

Wealthy individuals will come to Canada just to live and enjoy their wealth for a variety of safety, financial security, standard of living, and lifestyle reasons. Compared to many developed countries, Canada’s tax system has evolved to become somewhat attractive to such individuals and families. Finally, wealthy people tend to become investors and start businesses, but that is just a bonus, and not something that really needs to be, or can effectively be promoted.

Bidding for citizenship

If we want to get serious about the IIP generating money towards the Canadian economy, the simplest way to do this is to auction off the positions. If prospective investors wish to enter Canada through the IIP, they would submit a silent bid. The government would then accept the highest qualifying bids until the IIP quota for the year is full.[20] The quota would be kept secret every year. Importantly, unlike the current IIP system, there would be no need for the government to return the money.

This system eliminates the bureaucratic bloat and the backlog of applications. If spots are filled on the same day every year, it becomes easy to send applicants their acceptance or rejection notices in a reasonable amount of time. Also, CIC staff would not be overwhelmed by the application process and there would be no backlog.

Making the IIP System Beneficial for all Canadians

Although it may seem callous to talk about this program in terms of pure dollars and cents, it makes no sense at all that a program designed to allow the wealthy into the country should cost the Canadian taxpayer money. The wealthy can afford to cover their costs and then some. Rather than costing Canadians money, such a system should more than pay for itself. Therefore not only would there be a fee, but we would also require that IIP applicants agree to pay their own way in a variety of other ways. We will discuss our proposals on that aspect of a more optimized IIP later on. However it is important that we understand how much Canadians can benefit directly from such a program if it were properly run.

Let’s imagine that the quota for one year under the bid program is 1000 people. Getting Canadian citizenship is valuable, and based on what we know of the amounts people are willing to commit already, we would not be surprised at all if the lowest qualified winning bid exceeded $1 million. So the program, on that basis, could earn the Canadian government $1 billion per year, or potentially more, just for letting in 1000 rich people. Now imagine there is a rule that the amounts received from this program, after all expenses incurred by the government have been covered, has to go against paying down the national debt. We could thereby make a significant dent in the national debt, assuring Canada’s ability to pay for social programs and maintain our way of life free from the fear that debt and the aging of the population will overwhelm our capacity to pay for it. In reality, by not charging the wealthy the “market rate” for the right to live here, we are effectively short-changing all Canadians.

If not an auction, then can we at least have a profitable and beneficial IIP?

Running the IIP like an auction might be too callous for many Canadians. If we do not accept a citizenship auction as an adequate solution, we can still run a profitable IIP that achieves its goals. We simply need to make the appropriate changes and set long-term goals for the program. However, we need to stop pretending that this is anything but a “buy your citizenship” program, and optimize the benefit for all Canadians.

Putting the Security and Safety of Canadians First

If security, safety or “origin of funds” is a concern with such a wealth-focussed program, then the solution is to require all such applicants to acquire, at their own cost, a clean review report from an approved agency prior to making any application.[21] These agencies have strong professional reputations to maintain; they will produce reliable reports. They will “out” the criminal and undesirable element simply by making full and complete disclosure a requirement prior to the application. When immigration officials beefed up their investigations of applicants for residence fraud, many applications were abandoned.[22] Knowledge that applications will be scrutinized dissuades criminals from applying in the first place.

Such organizations are staffed by former FBI/CIA/CSIS-type officers, and they are highly-trained professionals. An applicant would need to pay the full cost, up front, before the application could even be made. Those with something to hide will be far more concerned about facing professional scrutiny from people who know what they are doing and have the proper training, experience, language and economic forensic skills, and specific country knowledge, than they will from any Canadian civil servant. These agencies cannot be intimidated like Canadian immigration officers have been in the past.[23]

We should also make the approval agencies responsible in the event that they make a mistake. Approved and participating screening agencies should have to cover all costs related to the deportation of anyone that they screen that is afterwards found to be inadmissible. Therefore there would be accountability. The firms would not mind, and would merely increase the costs and intensity of the reviews in order to assure that they do not have to pay. In any event, participating agencies would then have to post a performance bond, just like any other government contractor.

Making the wealthy immigrant pay their own way

We should be focused on attracting wealthy families. Some suggested requirements for applications are the following.

  • If we do not auction IIP spots, the fees for an application should start at CAD$250,000 plus the cost of security checks. The fees should be raised or lowered as the market dictates. If there are still thousands and thousands of applications every year, raise the price and keep raising it until the numbers drop off.
  • The IIP applications should be streamlined and given a “three month yes/no guarantee”. If the cost has to be further raised to pay for this quick turn-around speed, then just raise the price further.
  • Applicants need to pass a valid security check done by professionals with the skills and capacity to properly review their applications, and who are accountable if someone gets in who should not.
  • Applicants need to invest substantial funds (at least CAD$10 million) in Canadian public company stocks and bonds, funds, hedge funds or any other widely distributed securities and investments. This requirement would continue until the applicant becomes a citizen.
  • These investments need to be handled by Canadian financial institutions (subject to immigration trust and family trust provisions in the Income Tax Act).
  • Applicants will need to purchase five years of healthcare coverage upfront for themselves and their dependents, and maintain private health insurance coverage until they become citizens.

These suggestions solve many problems plaguing the current system. As the IIP exists now, the interest earned by the “investments” made by the participants does not exceed the operating costs. A proper application fee ensures that the program does not lose money; operating costs will be covered by the applicants. Requiring upfront health coverage prevents healthcare parasitism that deprives Canadian taxpayers from IIP benefits. Additionally, the need to invest in Canadian listed entities will do a lot more to promote Canadian economic growth than a five year “investment” with the government. Most importantly, these requirements create a relationship between applicants and Canadian financial institutions.

It is well known that Canada has a highly successful and stable economy. There is, however, a common misconception that Canada is a high-tax jurisdiction. This misconception keeps many wealthy immigrants from bringing their wealth along with their families. If an immigrant’s wealth is properly managed prior to their entry into Canada (for instance through immigration trusts or granny trusts), Canada becomes a highly favourable tax jurisdiction. Since an immigrant under the proposed IIP will need to conduct business with Canadian financial institutions, the transfer and maintenance of their wealth during the immigration process becomes the first step towards fostering a positive long-term relationship. The financial institutions will then be responsible for properly managing this wealth and investing it wisely. Over time an applicant’s relationship with Canadian institutions will strengthen. A strong relationship makes it more likely that an immigrant will keep their wealth in the Canadian market after becoming a citizen.

Unnecessary Physical Presence Requirements have to be modified

Unnecessary hurdles to citizenship need to be eliminated. High-net-worth families often travel. In particular, the “economic primary” of the family may not spend much time in Canada. They often have business interests outside of Canada that keep them out of the country for most of each year. What wealthy families want are a safe, secure, healthy place to park spouses, children and grand-children. With many of the current investor-immigrants, and the provincial nominee and entrepreneur classes, what happens is that the spouse and children stay and live in Canada, and then become Canadian citizens within the typical standard time required. But in many cases the economic primary will not become a citizen, and will often have trouble maintaining their Permanent Resident status because they travel so much.

The main concern regarding residence fraud is that the applicant never actually moves to Canada. Many applicants, particularly those from the Middle East and other potentially volatile places, seek a Canadian passport as an “escape hatch”.[24] Residence fraudsters pay large sums for accomplices to simulate residence for themselves and their families.[25] This is not the case with the applicants identified above, whose families permanently reside in Canada and become legitimate Canadians. They are not in the same category as residence fraudsters yet are treated as such by immigration officials.

As a result, the terms of citizenship for such “Investor Immigrants” have to be changed to reflect this reality. Rich foreigners are rich because of their foreign businesses and investments, and are not going to move their centre of economic life to Canada immediately. However, they are also not residence fraudsters. Their children will be Canadian and their world will be Canada-focused, but they will not have the same economic interests in Canada…yet.

So we propose that the rules for Permanent Residence status for families on the IIP should be that so long as the $10 million remains invested with a Canadian financial institution, the entire family—including the economic primary—get to keep their Permanent Residence status. Once their spouse and kids and/or grandkids become citizens (which will happen in the ordinary course in virtually all cases), the economic primary should be able to apply for citizenship as well on the basis of “family unity,” “humanitarian grounds” or “family reunification” if you must. The economic primary should be granted citizenship without forcing impossible, inappropriate, and completely unnecessary, day-counts on people who will not be able to maintain them.[26]


It is time for the Canadian Immigrant Investor Program to evolve. If the program does not change, it will remain an ineffective money-losing venture for Canada and a drag on the economy. It is time to treat the IIP as the citizenship-for-hire program that it is, and act accordingly. We have suggested a silent auction as a possible solution to streamline the program and maximise profit to Canada that can be used to build infrastructure or pay down the national debt.

Another option is charging an application fee so the program provides sufficient funds to cover the cost to the Canadian taxpayer and then some. Regardless of how we set the fee, we should require all IIP program applicants to place $10 million with Canadian financial institutions to invest in Canada, provide a clean security check at their own expense and pay upfront for their healthcare costs. These requirements would persist until the economic primary attains citizenship. The rich want to come to Canada, and they can afford to pay their own way. It is absolutely ridiculous and unfair that ordinary Canadians should have to subsidize wealthy immigrants as we currently do.

Finally, we suggest that so long as the investment remains with Canadian financial institutions and the other requirements for the IIP remain satisfied, the entire family, including the economic primary, should keep their Permanent Resident status. The economic primary should be able to apply for citizenship once their dependents have been granted citizenship.

This strategy makes maximum use of the funds that the wealthy are willing to commit to Canada. Right now the system tries to shoe-horn investors into programs that do not work, and force people into poor investment decisions, which often ends in tears for all concerned. It also alienates wealthy new Canadians, and results in many of them returning home. Instead, we should play to our strong suit; the Canadian financial sector is strong, vibrant and very efficient. Let’s highlight that aspect, and encourage a strong, binding relationship between wealthy families and the Canadian financial system.

Overall, we believe that our proposals will result in an Investor Immigrant Program that is much more “fair” to all concerned than the current system, and one that will benefit all Canadians in both short-term and in the long run.

Jonathan Garbutt

Barrister & Solicitor, Attorney & Counsellor-at-Law

Jonathan Crangle