Immigrant Investor Program: Newspaper Article

Immigrants' Cash Might be Diverted, Program changes could cost Quebec

An investment pipeline to Quebec worth hundreds of millions of dollars might be diverted to other provinces as Ottawa overhauls an immigration-investor program that offers citizenship for cash. The redesigned program for affluent foreign investors, which takes effect July 1, extends to the rest of Canada an investment environment that has benefited Quebec for the past decade. The result: a level playing field that will make other provinces equally attractive investment magnets for immigrant capital.

"It may spread the money out some more," David Cohen, a Montreal lawyer specializing in business-category immigration, said yesterday Under the Investor's Immigration Program, Quebec has drawn about 50 per cent of total investment, a disproportionate share, given that the province has traditionally received roughly one-quarter of the country's immigrants, Cohen said.

The differential is explained by the fact that Quebec autonomy in immigration matters has allowed the province to build a separate system based on careful regulation and fully secured investments. Elsewhere in Canada, the federal government has not allowed the same degree of secure investment, insisting on a higher degree of risk on the grounds that this brings money to needier sectors and creates more jobs.

As a result, high-risk investments have predominated in other provinces, where funds cannot be sheltered by provincial regulation - a less inviting prospect to newly minted immigrant investors, even those residing outside of Quebec.

The way the program works is that a foreigner with a net worth of at least $500,000 agrees to invest a minimum amount in an immigrant-investor fund, receives a visa to Canada and applies for permanent residency. The changes, expected to be formally announced this month by the federal government, also call for an increase in the minimum level of investment: to $450,000 from $350,000 for the more sought-after provinces (Quebec, British Columbia, Ontario and Nova Scotia); to $350,000 from $250,000 elsewhere.

In parts of Canada outside of Quebec, almost anyone has been able to set up an immigrant-investor fund; a hotel construction project would be a typical example. Many such projects have folded; fund managers have disappeared and investors left in the lurch.

By contrast, highly regulated Quebec funds have operated in a secure framework, with the province restricting involvement to licensed security-dealers. (There are some provisos: the Quebec funds can lend only to a corporation that has assets of less than $35 million.)

As of July 1, the rest of Canada will operate along the lines established in Quebec when the Mulroney government first launched the program in 1986. Responsibility for administering and monitoring the program will transferred to the provinces. Security-dealers and trust companies will be given the authority to manage the investment funds, in effect taking the capital out of high-risk, private venture-capital funds.

The high-risk character of the investment funds outside Quebec has been used to counter criticism that the program makes Canadian citizenship a commodity that can simply be purchased for the right price.

The money has added up, and much to the favor of Quebec coffers. In 1995, out of $606 million of investment in the program, $308 million or 51 percent ended up in Quebec. Total immigrant-investment funds to the province have amounted to more than $1.5 billion over the past decade. The city of Montreal received about 30 per cent of the pie.

A notable feature of the program is that immigrant investors who choose to live in another province have been able to place their money in a Quebec fund, a practice that has been encouraged by the province's more investor friendly atmosphere.

Louis Leblanc, director of Levesque Beaubien Geoffrion Inc.'s immigrant investor program in Montreal, said this year that only about 15 per cent of his clients reside in Quebec. He said that if the brokers are regulated in the rest of Canada the way they are in Quebec-which the overhaul now envisions-the province would no longer be as attractive to immigrant investors.

Cohen, however suggested that Quebec's track record will carry weight for some time.

"The Quebec funds over the years have really established themselves as being leaders in the field."

And questions remain as to how much security the new federal program will allow under the revamped program. "You have the federal government saying: "We're basically going to follow the Quebec model," Cohen said.

"What they're not telling us exactly is: Are they going to offer some level of security or are they still going to insist on some element of risk associated with it ?"