The finances of the Orpea Group, Europe's largest for-profit retirement home operator, remain hidden behind missing files and undisclosed shell companies, according to a briefing note published today by the Centre for International Corporate Tax Accountability and Research (CICTAR). An internal investigation launched by Orpea itself, raises further concerns about the group's opaque financial practices and their failure to comply with protocols for the retention of internal emails and financial records.
On Friday 13 May, Orpea is expected to publish its annual financial accounts, which the group delayed for two months following allegations from journalists and whistleblowers about abuse of elderly residents and financial irregularities within the company's facilities. Preliminary financial results published on 11 March showed that Orpea's operating margin (EBITDAR) in 2021 has increased to 24.9%. The question remains as to whether these windfall profits come at the expense of the well-being of residents and the decent working conditions of its employees.
These concerns are further reinforced by the preliminary findings of the internal investigation published on April 26 and commissioned by Orpea regarding recent disclosures of insufficient "staffing levels available to care for residents". This investigation confirms that the company has an "implemented budgetary process and [a] steering of the activity...which, associated with a strong constraint on margin objectives and control of the overall wage bill of the EHPADs, lead to a level of constraint for the Establishments regularly provoking situations of understaffing."
CICTAR studies commissioned by the French trade union federations Santé Action Sociale CGT and CFDT Sociaux-Santé have shown that :
- Orpea has gradually reduced public disclosure of dozens of "offshore" companies it has set up in Luxembourg and elsewhere to make purchases and sales in its vast portfolio of property assets, valued at €7.4 billion. At least 191 subsidiaries that may be part of the group have disappeared from the group's public reports and accounts since 2015. Dozens more subsidiaries were never disclosed, despite being wholly owned subsidiaries of the Group.
- At least one of these Orpea subsidiaries in Luxembourg, initially registered with anonymous shareholders in the British Virgin Islands and Panama, held French real estate until 2020. Orpea's CEO in testimony to the French Senate Inquiry on March 30, 2022 stated that "no French buildings/establishments are housed there [in Luxembourg]. It's simply international assets, for example the assets we received in Germany, that were housed in Luxembourg."
- Surprisingly, the internal investigation commissioned by Orpea's board of directors reveals that the company did not keep backups of internal accounting databases covering operations from 2019 to 2022, the main period the investigation was supposed to cover. According to its own policies, Orpea is supposed to keep internal, backed-up data for 10 years. Missing data makes it impossible for investigators to determine whether data has been deleted. In addition, investigators were unable to access the backed-up emails of key stakeholders in the allegations until 2019 and found "unusually low volumes of certain email boxes."
The IGAS and IGF investigations have not yet addressed several issues concerning the group's financial affairs raised by the non-disclosure of the group's subsidiaries and transactions, as well as the highly unusual failures to retain internal data and communications. CICTAR's research shows that some transactions, carried out through subsidiaries and structures not disclosed in Orpea's public reports, have involved French State entities, including ICADE Santé, a listed subsidiary controlled by the Caisse des Dépôts et Consignations, and the Banque Publique d'Investissement (BPIFrance)
Moreover, Orpea's main shareholder, the CPPIB (Canada Pension Plan Investment Board)
, which advocates responsible investment and transparency, has not yet publicly responded to blatant questions about Orpea's governance failures. The Canadian government-controlled pension fund manages the retirement savings of 20 million Canadians, holds 22% of the voting rights in Orpea and has appointed two members of the group's board of directors. The Canadian government fund has been silent on the allegations against Orpea since January 2022. On March 11, the CPPIB issued new global proxy voting principles stating that it would vote against directors who "serve on the board or return to the board following a failure of oversight," while at no point commenting on the role of the two directors it appointed itself to Orpea's board.
To prove that Orpea has nothing to hide, the company must demonstrate full transparency to its stakeholders:
- The French government should demand that the management of Orpea :
Explains the decrease in transparency in the financial accounts of the group and its subsidiaries ;
Discloses the full corporate structure of the group and the ownership of all its subsidiaries in accordance with international accounting standards; and
Discloses to the public and residents the amount of public money received by each facility and the specific allocation of these expenditures.
- In addition, the Autorité de Marché Financier (AMF) should verify whether Orpea's current and previous annual accounts and universal registration document comply with the AMF rules and with European corporate disclosure laws.
- Orpea has announced open days for its French retirement homes in May. The state, residents, their families and workers should also demand at these sessions the full disclosure of public funds and their use in each establishment.
INFORMATION NOTE: FINANCIAL DISCLOSURE AND TRANSPARENCY BREACHES OF THE ORPEA GROUP, 2007 TO 2022
1. This document presents a pattern of decreasing financial transparency of the Orpea group over a period of 15 years, which the CICTAR research has revealed.
2. Orpea holds a significant part of its vast real estate portfolio - valued at 7.4 billion euros in 2021, the latest year for which figures are publicly available - through a set-up of at least 40 subsidiaries registered in Luxembourg. At least 37 of these 40 subsidiaries were never disclosed in the group's annual accounts, unusual for a listed company. They were revealed for the first time in a study published on 24 February 2022 by CICTAR, the Fédération Santé Action Sociale CGT and the Fédération CFDT Sociaux-Santé. i
3. The day before the publication, after CICTAR informed Orpea of the content of its study, Orpea announced that it was postponing the publication of its 2021 annual accounts, which were scheduled for publication in mid-March. ii
The company declined to answer questions about the purposes of these structures or their non-disclosure. iii
As indicated below, Orpea's CEO recently answered, in part, questions concerning the group's Luxembourg subsidiaries before a French parliamentary commission of inquiry.
4. CICTAR, the Fédération Santé Action Sociale CGT and the Fédération CFDT Sociaux-Santé publish this short analysis to serve as a basis for questions from shareholders, residents, workers and other stakeholders. They should demand, immediately and at the Orpea annual general meeting on 28 July 2022, that the group :
- Disclose in its annual accounts, as a minimum, the same level of information as other comparable listed companies, including in particular the disclosure of all its subsidiaries, with their full names, a description of their main corporate purpose and the place of their registration;
- Fully implement financial reporting based on the GRI [Global Reporting Initiative] tax standard, which requires the adoption of a widely used format for country-by-country public reporting of taxes paid, revenues, profits, losses, labor costs and other key financial information; iv
- Disclose, for each of its institutions, the sources and amounts of public funds it receives and how they are spent, to ensure that public funds cannot be used for other purposes, including real estate investment or financial expenditures related to real estate investments.
A CHRONOLOGY OF OPACITY
• 2007: The very first registration of a non-divulged Luxembourg subsidiary, identified by CICTAR. At the time of registration, the shares of this company were themselves held by limited companies registered in Panama and the British Virgin Islands.v This structure completely conceals the beneficiaries of a real estate buyout that Orpea made in 2011.vi
• 2015: Orpea begins a phase of rapid expansion, fuelled by debt. The group operates, on average, one more bed every hour between 2015 and 2020.vii Its turnover increased by 64% during the same period, while its external debt increased by 140%.viii 87% of the group's net debt is linked to its property portfolio.ix At the same time, the annual accounts of the Orpea group have reduced the number of subsidiaries disclosed. 107 subsidiaries disappear from its annual accounts for 2015 and subsequent years, and several subsidiaries registered since 2015 were never listed in its annual accounts.x
• 2015-17: Orpea transfers the ownership of the French and German retirement homes to 29 Luxembourg "holding" subsidiaries, named ORESC 1 to ORESC 24 and OREG 1 to OREG 5. The existence of none of these 29 companies has ever been disclosed in the group accounts, although they are wholly owned subsidiaries of the group.xi
• 2018 : Orpea's Luxembourg subsidiaries cease to file full accounts with the Luxembourg company register. In cases where they can first be identified as Orpea subsidiaries, the abbreviated accounts they have filed since 2018 do not allow stakeholders to determine either the income from rents and real estate sales in France, Germany or elsewhere that Orpea accounts for in Luxembourg, or the tax treatment of such income.
• 2020: Orpea starts to transfer the properties of the retirement homes held in Luxembourg to third party investors who become lessors to the group, generating returns for Orpea's shareholders but future rental costs financed by the costs for the good care of the residents. Among these third party investors is ICADE Santé, a branch of the Caisse des Dépôts et Consignations (CDC), which now receives rental income from 11 Orpea EHPAD in Germany and France.xii Some of the property sales to ICADE Santé and other investors are made abroad through the transfer of shares in Luxembourg holding companies. This structure can, in certain circumstances, ensure that capital gains are not taxed in France, Germany or Luxembourg.xiii In this case the tax treatment of these transfers cannot be determined, due to the weakening of Orpea's financial disclosure in Luxembourg since 2018 (see above).
• March 2021: The Office central de lutte contre la corruption et les infractions financières et fiscales (OCLCIFF) searches Orpea's headquarters and questions executives as part of an ongoing investigation into the €9 million purchase in 2008 of a facility in the Bouches-du-Rhône "which was allegedly carried out via intermediaries, holding companies abroad, with the aim of lightening the tax burden of the sellers," according to French media reports.xiv ORPEA insists that it has complied with its tax obligations, that the investigation only concerns the tax obligations of the sellers and that ORPEA is not a party to the procedure.xv
• 23 February 2022: Orpea postpones the publication of its annual accounts "until 30 April 2022 at the latest". The group states that this delay allows it to integrate in its annual report the conclusions of external investigations that its board of directors has commissioned from two independent firms on allegations of professional misconduct and misappropriation of public funds.xvi On 22 April, Orpea announced that it would further delay the publication of its annual accounts until 13 May 2022.xvii
• 30 March 2022: Philippe Charrier, CEO of the Orpea group, is questioned by a commission of inquiry of the
Senate. When asked about the function and non-disclosure of Orpea's Luxembourg subsidiaries, revealed by CICTAR, he told the Commission that "in Luxembourg...no French building/establishment is housed there. No French building/establishment is located there. That's it. That's it. It's simply international assets, for example the assets we received in Germany, which were housed in Luxembourg." xviii
Indeed, CICTAR's research showed that Orpea was using one of its Luxembourg subsidiaries precisely to hold the ownership of at least one of its French establishments for several years until 2020 (see Image 1).xix Mr Charrier also implies that the CICTAR report found no illegality and therefore cleared Orpea. This misrepresents the CICTAR report which concluded that Orpea's financial transparency was insufficient to determine the legal and tax treatment of the group's real estate operations. The CICTAR report also raised the question of the impact of Orpea's real estate speculation, and financial charges, on the quality of care. xx
• 22 April 2022: Orpea publishes the preliminary conclusions of the internal investigations commissioned from two international firms into the allegations of "Les Fossoyeurs", the book by Victor Castanet published in January 2022. The first findings reveal "erroneous declarations of employment accounts to the supervisory authorities, non-compliance in the contracting of fixed-term contracts and recourse to intermediaries, including a former prefect", but state that the investigation "does not allow us to confirm the existence of a system leading to regular shortages in the supply of protection or a rationing system for catering", nor "a system aimed at deliberately organising a situation of understaffing" in Orpea retirement homes.xxi
However, the firms' investigators report the absence of backed-up financial data and emails. They reveal that Orpea failed to keep monthly and annual backups of seven key internal financial databases, which it is supposed to keep for two and 10 years respectively, covering the period from November 2019 to February 2022. The lawyers found that
"the backup policy for the Commvault centralized tool backing up data to electronic files, in production from June 7, 2019, was not correctly applied for the Oracle databases. These were backed up, but were not kept by the Orpéa Group in accordance with the defined rotation strategy: two years for monthly backups, and ten years for annual backups.... As a result, we are not able to ensure the completeness of the data between November 2019 and December 2021 within the applications using Oracle databases. We cannot guarantee that there will be no voluntary or involuntary deletion of data from these databases. During our work, it is therefore possible that operations or transactions deleted from the information system were not brought to our attention." xxii
Similarly, the investigators attempted to access the email backups of key stakeholders in the allegations prior to 2019, and found that "the tape backup recovery system was not operational at the time of our intervention and has not been restored to date, preventing us from accessing older versions. In view of the abnormally small volumes of certain mailboxes, it is therefore not possible for us to ensure that certain data has not been destroyed, whether voluntarily or involuntarily."xxiii
These losses of data, whether accidental or deliberate, generate many serious doubts about the ability of internal or external investigators to establish the reality of Orpea's financial and management practices.
i CICTAR, CGT Santé et Action Sociale, CFDT Santé-Sociaux, Taking care of people or taking care of profits? The financial engineering and real estate investment of the Orpea Group (24 February 2022), pages 18-19, https://cictar.org/wp-content/uploads/2022/02/ORPEA_FR_LOW.pdf
ii Orpea Group, press release, 23 February 2022, https://www.orpea corp.com/images/orpeafinance/pdf/Communiques/FR/2022/CP_ORPEA_calendar_FR_VF_e1156.pdf
iii CICTAR sent a detailed list of questions to ORPEA on 17 February 2022 asking them to respond to the allegations in their report. We have received confirmation of receipt from them but they have not provided a response to date.iv www.globalreporting.orgv Samosa S.A.'s registration document accessible via the Luxembourg company register (www.lbr.lu).
vi CICTAR, CGT Santé et Action Sociale, CFDT Santé-Sociaux, Taking care of people or taking care of profits? The financial engineering and real estate investment of the Orpea Group (24 February 2022), pages 16-17, https://cictar.org/wp-content/uploads/2022/02/ORPEAFRLOW.pdf
vii ORPEA Group, Universal Registration Document 2020, 12 May 2021, https://www.orpea-
corp.com/images/orpeafinance/pdf/Documentation/FR/2021/ORPEA_DEU_FR_2020_ea58c.pdf. During the year 2020, the number of facilities owned by ORPEA increased from 1,004 to 1,114. Since 2015, the number of ORPEA beds has increased from 67,781 to 111,801
viii ORPEA Group, 2020 Universal Registration Document, May 12, 2021, https://www.orpea corp.com/images/orpeafinance/pdf/Documentation/FR/2021/ORPEA_DEU_FR_2020_ea58c.pdf
ix. ORPEA Group, 2020 Annual Results Presentation, March 17, 2021, Slide 35, https://www.orpea corp.com/images/orpeafinance/pdf/Documentation/FR/2021/Pres_ORPEA_ Results_2020_EN_0e6d1.pdf
x CICTAR, CGT Santé et Action Sociale, CFDT Santé-Sociaux, Taking care of people or taking care of profits? L'ingénierie financière et l'investissement immobilier du Groupe Orpea (24 February 2022), pages 18-19,
https://cictar.org/wp-content/uploads/2022/02/ORPEAFRLOW.pdf; Orpea Group, universal registration documents from 2014 to 2020, https://www.orpea-corp.com/documentation-invest-fr/documents-de-reference
xi CICTAR, CGT Santé et Action Sociale, CFDT Santé-Sociaux, Taking care of people or taking care of profits? The financial engineering and real estate investment of the Orpea Group (24 February 2022), pages 14-15, https://cictar.org/wp-content/uploads/2022/02/ORPEAFRLOW.pdf
xii CICTAR, CGT Santé et Action Sociale, CFDT Santé-Sociaux, Taking care of people or taking care of profits? The financial engineering and real estate investment of the Orpea Group (24 February 2022), pages 14-15, https://cictar.org/wp-content/uploads/2022/02/ORPEAFRLOW.pdf
xiii CICTAR, CGT Santé et Action Sociale, CFDT Santé-Sociaux, Taking care of people or taking care of profits? The financial engineering and real estate investment of the Orpea Group (24 February 2022), pages 14-15, https://cictar.org/wp-content/uploads/2022/02/ORPEAFRLOW.pdf
xiv Le parquet financier enquête sur le groupe de maisons de retraite ORPEA', Challenges, 5 October 2021, https://www.challenges.fr/entreprise/le-parquet-financier-enquete-sur-le-groupe-de-maisons-de-retraite ORPEA_783477
xv 'Le parquet financier enquête sur le groupe de maisons de retraite ORPEA', Challenges, 5 October 2021, https://www.challenges.fr/entreprise/le-parquet-financier-enquete-sur-le-groupe-de-maisons-de-retraite ORPEA_783477; Orpea Group, press release, 5 October 2021, https://www.orpea corp.com/images/orpeafinance/pdf/Communiques/FR/2021/CP_ORPEA_051021_8279d.pdf
xvi Orpea Group, press release, 23 February 2022, https://www.orpea corp.com/images/orpeafinance/pdf/Communiques/FR/2022/CP_ORPEA_calendar_FR_VF_e1156.pdf
xvii Orpea Group, press release, 26 April 2022, https://www.orpea corp.com/images/orpeafinance/pdf/Communiques/FR/2022/ORPEA_CP_report_FY21_and_GTAM_-_VF_75271.pdf
xviii Testimony of Mr. Philippe Charrier before the Commission of Inquiry in the Senate on March 30, 2022, www.publicsenat.fr/emission/en-seance-au-senat/sacndale-des-ehpad-le-groupe-orpea-devant-la-commission-d enquete-195730
xix CICTAR, CGT Santé et Action Sociale, CFDT Santé-Sociaux, Taking care of people or taking care of profits? L'ingénierie financière et l'investissement immobilier du Groupe Orpea (24 February 2022), pages 16-17,
https://cictar.org/wp-content/uploads/2022/02/ORPEAFRLOW.pdf; annual accounts of Samosa S.A. for the years 2016 to 2020 accessible via the Luxembourg company register (www. lbr.lu).
xx CICTAR, CGT Santé et Action Sociale, CFDT Santé-Sociaux, Taking care of people or taking care of profits? The Orpea Group's financial engineering and real estate investment (February 24, 2022), https://cictar.org/wp content/uploads/2022/02/ORPEA_FR_LOW.pdf
xxi Status of the independent assessment of the allegations made in "The Gravediggers" by Grant Thornton and Alvarez & Marsal, April 16, 2022, page 3, https://www.orpeacorp.com/images/orpeafinance/pdf/Communiques/FR/2022/220416pointetapeGTAM73cc3.pdf
xxii Status of the independent assessment of the allegations made in "The Gravediggers" by Grant Thornton and Alvarez & Marsal, April 16, 2022, page 9, https://www.orpeacorp.com/images/orpeafinance/pdf/Communiques/FR/2022/220416pointetapeGTAM73cc3.pdf
xxiii Status of the independent assessment of the allegations made in "The Gravediggers" by Grant Thornton and Alvarez & Marsal, April 16, 2022, page 10, https://www.orpeacorp.com/images/orpeafinance/pdf/Communiques/FR/2022/220416pointetapeGTAM73cc3.pdf