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Immigrant investor plan denounced as 'massive sham'
Program rife with fraud, auditor finds

ANDREW MITROVICA
The Globe and Mail
Wednesday, September 15, 1999

An investment program that allowed as many as 80,000 immigrants to obtain Canadian citizenship is a "massive sham" that provides little benefit to taxpayers, an accountant who played a key role in a recent federal review charged.

David Webber, a senior forensic accountant with the World Bank in Washington, said the immigrant-investor program, which is designed to promote foreign investment in small businesses in Canada, is riddled with fraud.

Mr. Webber also said that claims made by Immigration Canada about the program's success are a gross exaggeration and that rules introduced by Ottawa earlier this year to combat fraud are completely ineffective.

Mr. Webber conducted audits -- known as compliance reviews -- of 42 immigrant-investor funds for Immigration Canada from 1994 to 1998. His probes uncovered allegations of widespread corruption, bogus investment projects and little if any of the type of investment the funds were set up to encourage.

"Canadian taxpayers were hoodwinked," Mr. Webber said in his first interview about his extensive audits.

"I found that in many cases there was no investment at all or the amount of investment was grossly inflated. Canadians gave up something of real value -- a visa or a passport -- and received very little at all in return."

Mr. Webber was hired by Immigration Canada to conduct the audits while operating a forensic accounting firm in Ottawa. At least three other consultants were hired to conduct "compliance reviews" of another approximately 60 funds.

Launched in 1986 by the Progressive Conservative government of prime minister Brian Mulroney, immigrant-investor funds are a federally sponsored venture-capital program that permits the granting of Canadian visas to immigrants with money to invest.

They quickly became popular among wealthy business people in Asia. Almost 80 per cent of the 16,667 people granted permanent residency status in Canada under the program from 1986 to 1998 came from Hong Kong and Taiwan.
The original minimum investment required was $150,000. By 1992, an investment of $350,000 was required in Quebec, Ontario, Nova Scotia and British Columbia, and $250,000 in other provinces. In April of 1999, an investment of $400,000 was required before a visa was offered.

The immigrant-investor program has, in the past, attracted its share of bad press. Bogus investment schemes have been exposed and a number of fund operators have been charged with theft and fraud.

However, this is the first time damning overall findings have been made public.

Under the program, prospective investors could obtain a visa by one of two routes. They could invest directly in an eligible business venture in Canada. Or a syndicate of investors could pool their money in a fund to spread their risk.

Initially, the direct-investment route was more popular. However, because the direct-investment route required more paperwork with Ottawa, investors turned to the funds to obtain a visa.

The funds were offered for sale through an "offering memorandum," which needed the approval of both provincial and federal governments. After securing the approval to set up a fund, immigration consultants would approach as many as 40 investors, including many multimillionaires from Taiwan, South Korea, Hong Kong and China, to contribute.

A fund promoter in Canada would then be responsible for identifying and making investments. In return, investors would be eligible to obtain the much prized Canadian visa.

A moratorium was placed on new funds in 1995 after several reports of fraud and abuse.

Quebec administers its own immigrant-investor program. As a result, the funds operating there were not audited by Mr. Webber.

During his review, Mr. Webber examined 42 of 200 or so investment funds in operation outside Quebec. Some of the audited funds were chosen at random by Immigration Canada, while others were selected because the department "anticipated problems" with the funds, an Immigration Canada official said yesterday.

"This program had the best of intentions but many people found very inventive ways to get around making any investment at all in Canada," Mr. Webber said. "So the intention was good, but the end result was very bad for Canadians."

(According to Mr. Webber, as many as 80,000 immigrants -- including family members of the visa applicants -- obtained permanent residency status through the fund program.)

Mr. Webber crossed the country during his probe, unearthing countless fraudulent immigrant-investor projects. "There were many skeletons in many closets and they weren't hard to find."

Mr. Webber was loath to talk about specific cases and his individual audits remain in the hands of Immigration Canada.

One example, however, involves a phantom theatre project in Atlantic Canada. The immigrant investment-fund promoter promised to spend $750,000. But when investigators arrived for a guided tour, they found nothing.

"A lot of people made a lot of money, mostly lawyers and immigration consultants who set up these bogus investments," Mr. Webber said. "It's a massive sham. The middlemen made hundreds of millions of dollars."

Mike Bradley, a senior investment analyst with Immigration Canada, said Mr. Webber was among the best forensic accountants ever hired by the department. "He knew the rules as well as anybody, perhaps better."

But Mr. Bradley questioned Mr. Webber's conclusions, saying that while there has been some fraud, "the amount . . . was very low." He said the program has generated $4.5-billion in investment since 1986 and has created thousands of jobs.

Mr. Webber scoffs at those figures. "Claims [about] the benefits of the program in terms of job creation and investment have been widely inflated."

He found during his audits that Immigration Canada relied heavily on figures provided by the fund operators and immigration consultants to come up with their estimates of money invested and jobs created.

To clamp down on alleged fraud, Mr. Bradley said, Ottawa introduced new regulations last April that essentially made the federal government the program's middleman -- cutting out many of the immigration consultants and lawyers who helped set up the funds.

Potential investors must now write a $400,000 cheque directly to the federal government, which, in turn, forwards the money to provincial governments to invest.

Mr. Bradley said that since the new regulations were introduced, not a single investor has written the Canadian government a cheque.

FAST TRACK

Number of applicants granted permanent residency status under the investment program by country, 1986-1998.

1. Hong Kong         7,418


2. Taiwan            5,721


3. South Korea         673


4. China               550


5. Philippines         309


6. Macao               256


7. Germany             161


8. Iran                130


9. Egypt               125


10. Saudi Arabia        94


Others               1,230


TOTAL               16,667*

-*Including family members of applicants, the total number granted permanent residency is estimated at up to 80,000.
Source: Citizenship and Immigration Canada



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