Canada

The high stakes of coming to Canada

Immigrant investor funds come under fire

SHAR LEVINE August 12 1996
Canada

The high stakes of coming to Canada

Immigrant investor funds come under fire

SHAR LEVINE August 12 1996

The high stakes of coming to Canada

Immigrant investor funds come under fire

Debra Jackson, the manager of British Columbia’s Immigrant Investor Program, was looking for a private investment fund to show off as a shining example of the plan’s success. Jackson thought she had found a perfect one in the Vancouver-based Summit West Investment Fund, which had brought $3 million from a dozen Asian investors to the province. Reports filed by the fund’s managers boasted that it had invested $2.1 million in 11 B.C. companies and created 18 jobs—exactly the kind of results the government says justifies the investor program, which gives wealthy immigrants residency in Canada in return for bringing money to this country. The problem was that when Jackson looked into the Summit West fund, she found to her dismay that most of the companies that had received money did not have business licences. Worse, she suspected that 80 to 90 per cent of the original investments had been returned indirectly to the investors themselves through companies controlled by them or their close relatives. The whole fund, RCMP investigators later concluded, was “manipulated” in an elaborate shell game designed to obtain permanent residency in Canada for the investors and their dependents—a total of 50 people.

In fact, according to court documents ob-

tained by Maclean’s, the Mounties believe that the Summit West fund never had any intention of operating in a legitimate manner. In papers used to obtain a search warrant as part of his ongoing investigation based on information provided by Jackson in 1994, Const.

Calvin Bodnar of the RCMP’s Immigration and Passport Section alleges that the company was used as a way of securing Canadian residency for the investors “through misrepresentation and circumvention of the requirements of the Immigrant Investor Program.” None of the allegations have been proven, and the RCMP has yet to lay any charges. Last week, it declined to comment on the case, saying that officers are still conducting searches of company records.

As for Summit West, its offices have been closed and its phones are disconnected. Its lawyer, Jeffrey Lowe, said that he had negotiated an agreement with the province to allow the investors to put their money in companies with which they had personal connections. As a result, he said, the investors did nothing wrong because that kind of arrangement was permitted by the government. Lowe said, however, that he was not aware that most of the companies

did not operate, and added: “Looking back, the investors should have taken their role more seriously.” Whatever the outcome of the case, critics of the immigrant investor program say the pattern of behavior alleged by the RCMP is typical of the widespread abuse of the system. Launched by Ottawa in partnership with the provinces in 1986, it was designed as a way for immigrants able and willing to invest a minimum of $250,000 to $350,000 (depending on the province) for five years to obtain residency in this country. The idea was that the money would be invested in Canadian businesses and create new jobs—and in fact Ottawa says that about 25,000 jobs have resulted. But the activities alleged by the RCMP in the case of the Summit West fund suggest that in some cases, at least, the money may never have been used for those purposes and brings little or no benefit to Canada. And according to a senior official who was involved in the program, the government should not be surprised at any abuse it uncovers. “The tendency was to sit on problems in the hope that they would go away,” he said.

Summit West began in 1990 as a fund approved by British Columbia under the umbrella of the federally sponsored immigrant investor plan. Seven investors from Taiwan and five from Hong Kong participated, and the fund’s senior officers, including presidents Francis Futama and Suen-Chit Capulet Fu, agreed to comply with federal and provincial guidelines. Instead, according to the RCMP, responsibility for investing the money was shifted from the fund’s managers to the investors themselves, who then put the money in companies directly associated with themselves or with their close relatives. In a typical example, the director of one of the companies involved is the teenage daughter of investor Lin Ching Ju Hung of Taiwan. In other cases, the wives of investors act as directors or secretaries of firms that received money.

In all, the Mounties say, 10 of the investors are personally connected to companies that received money from Summit West. Eight of the 11 firms existed only on paper and were never in operation. According to the RCMP, the investors were “essentially loaning money to themselves.” The bottom line, the investigators added in their search warrant application, was that the investments “were clearly of a dubious nature, and did not provide any significant economic benefit to British Columbia.”

Nevertheless, most of the investors have

secured their positions in Canada. Ten have been given permanent residency, while two remain overseas. And most appear to be living well in Canada: property records show them owning homes worth an average of $500,000 in the Vancouver area, while one of them, Lin Ching Ju Hung, lives in a house valued at more than $4 million. And no matter what the outcome of the Summit West case, immigration experts say it would be very difficult to change their status. Once an immigrant has been granted permanent residency in Canada, it is difficult to remove him or her and any accompanying family members. While the immigration act provides for revoking permanent-residency status if a person provides false information, that section is not rigorously enforced. And even if the investigation into Summit West does result in charges, by the time all appeals are exhausted, the investors and their families will likely have spent as much as five more years in Canada.

Ottawa has already taken steps to end abuse of the investor program. On June 30, it brought in new rules that severely limit privately administered venture capital funds open to immigrant investors. Since that date, private firms have not been allowed to set up new investment funds for business immigrants, or to accept new money into existing funds. Instead, prospective immigrants may direct their money only to funds operated by participating provincial governments.

That has drawn strong protests from managers of private funds, which collect lucrative commissions on the tens of millions of dollars invested in them. Bill Boden, president of the Canadian Immigrant Investor Fund Managers’ Association, said Ottawa’s new restrictions are not fair. “Why should the responsible funds be penalized because of the bad ones?” asked Boden, who is also president of a Vancouver-based venture capital fund called Ventures West. Boden added that Summit West is not a member of his association, which groups 14 funds that have raised a total of $1.3 billion from investors. Private fund managers outside Quebec are also upset because that province’s separate immigrant investor program is not affected by the change in rules. They fear that more and more wealthy immigrants will take advantage of Quebecbased funds—with no requirement that they actually live in that province.

Summit West is not the only private immigrant investor fund the authorities are looking into. Don Myatt, acting director of business immigration programs in Ottawa, said that 20 funds have been investigated. Myatt said that it was not until 1993—seven years after the program was established— that the government brought in legislation giving the authorities the power to investigate investor funds. In some cases, at least, that may have been too late.

SHAR LEVINE