The number of affluent foreigners entering Canada through the federal immigration department’s entrepreneur program has been dropping steadily over the past decade. During the same period, however, the number of wealthy foreigners seeking status as “immigrant investors” — a much quicker but more passive way to gain access — has been growing.

The shift has generated debate over issues such as “selling” passports on one hand and hampering entrepreneurship on the other. But one thing does seem clear — Canada usually benefits when well-heeled foreigners decide to take up residence.

Excluding spouses and dependents, only 821 applicants were admitted into Canada in 2006 in the “entrepreneur” category, a designation created to encourage start-ups. This is down from 2,805 admissions in the entrepreneur category in 1997, according to Citizenship and Immigration Canada.

Critics of that program say that’s because it’s expensive for the government to monitor participants properly after they arrive to see if they go on to establish legitimate businesses that result in significant job creation. The resulting backlog has discouraged applicants.

Over the same period, there has been a gradual increase in the number of near-millionaire immigrants participating in the Canadian Immigrant Investor program. That plan allows foreign business owners or managers to obtain visas by depositing $400,000 into a government-controlled investment fund. They forgo earning interest for five years and, after fulfilling residency requirements, can apply for citizenship. The deposit is then returned to them.

Canada admitted 2,201 primary applicants, plus their families, through this program in 2006, up from 1,522 in 1997.

Both programs combined, despite their high profile, represent only slightly more than 1% of Canada’s total annual immigrant pool of about 260,000.

But critics of both programs are many. Toronto immigration lawyer Lorne Waldman says enforcement of the entrepreneur program has improved, but there is still room for fraud by those who have no plans to establish legitimate businesses.

At the same time, the system is useless to those who want to come and set up a business right away, as applications take five years to process.

As for the investor program, Waldman bluntly calls it a sham. “I question whether there’s a significant economic value in allowing people to buy visas,” he says.

The most obvious beneficiaries of the investor program, Waldman says, are the lawyers, consultants and financial institutions, who get commissions or a “finder’s fee” of $25,000 from the Canadian government, which deducts the fee from the deposit.

David Foot, an economics professor at the University of Toronto who studies federal human resources policy, including immigration, says the investor program amounts to a “fire sale” of Canadian passports. But federal immigration officials insist immigrants in both programs have to do more than just flash a bank book.

Under the entrepreneur program, applicants must have a net worth of $300,000, and prove they intend to invest $125,000-$150,000 in a legitimate Canadian business. The entrepreneur immigrant visa is granted on a conditional basis, pending vetting of the new business by the government.

LOOPHOLES ABOUND

Under the investor program, an applicant must have business experience as an owner or manager and a net worth of at least $800,000, which the applicant must prove was legally obtained.

Applicants are subject to background checks, and must meet residency requirements to maintain their permanent resident status.

There are loopholes, however. Vancouver immigration lawyer Richard Kurland, who helped Quebec develop its immigrant investor program, observes that it’s not uncommon for the primary applicant to settle only his family in Canada.

“The family gets parked here and the head of the household slips back to the country of origin,” Kurland says.

The family takes advantage of Canada’s health, social and education programs, including avoiding foreign student fees and, although the breadwinner doesn’t fulfil residency requirements, the family can “sponsor” the head of the household to return quickly. Meanwhile, the non-resident breadwinner avoids Canadian income taxes.

Kurland says many users of the immigrant investor program originate in China, Russia, the Middle East and Iran; many are seeking a safe haven, if needed. “It’s an insurance passport,” Kurland says.

On the upside, the program can foster international business networking, he adds, which can bolster growth here indirectly.

“When China wants to buy oil, it will go through Husky [Energy Inc.],” says Kurland, pointing out that Vancouver-based Chinese-Canadian billionaire businessman Li Ka-shing is the owner of Husky.

@page_break@The economic boom in Asia and India provides an “excellent pool” of entrepreneurial workers, Kurland says. And if people simply want to come to Canada to live and work and become prosperous, there is no cap on work permits, he says: “The ones that are parked in a multi-year queue [for either an investor or entrepreneurs’ visa] are really using the Canadian visa as a ‘security’ visa.”

Yet, Toronto immigration lawyer Mendel Green says, the Canadian government is creating insurmountable difficulties for legitimate business people who want to come to Canada.

“You’d be mind-boggled at the hoops they want people to jump through,” he says.

NEGLIGIBLE BENEFITS

“The Immigration Department is ignoring the economic effect that business persons can give to this country,” Green adds. “It is shocking that Canada is losing out on billions of dollars of new development we could use here.”

But Randall Hansen, a professor and the Canada research chair in immigration and governance in the department of political science at the University of Toronto, says that overall, although immigration is a net positive to the economy, it’s a negligible benefit.

Of the investor program’s benefit to Canada, Hansen says: “I’d be surprised if it’s even a blip. It’s a tiny, tiny figure. Across the whole economy, it’s absolutely trivial.”

If government wants to attract more wealthy foreigners and foreign investment, it should ensure appropriate macroeconomic policies are in place, Hansen says.

Most foreign professionals enter through visas granted through intra-corporate transfers, temporary work permits, the general agreement on trade in services, which covers 120 member countries, and other streams such as the software developer pilot project program.

Foreign students are another potential source of future high net-worth citizens, and they have a good chance of success, because they come here to obtain Canadian credentials, says assistant business professor Walid Hejazi, who studies international trade and foreign investment, and teaches MBA students at the University of Toronto’s Joseph L. Rotman School of Management. IE