Private Prisons Highlight Corruption Of Capitalism

Betsy Woodruff’s article earlier this week in the Daily Beast about the panicked efforts of the CEOs of private prisons trying to get the government to pay for the cost of lawsuits against their companies pretty much covers all the areas in which our economic and political systems have failed. It involves the privatization of government services and government-granted oligopoly power, labor exploitation and wage theft, executive greed, regulatory capture and the revolving door between industry and government, and potential securities law violations, all in one story.

GEO and CoreCivic are two of the largest private prison operators that contract with ICE for immigrant detention. As such, the companies run something called the Voluntary Work Program (VWP) that allows those detained to do basic maintenance work such as cleaning and cooking within the detention centers and get paid for that labor. ICE will compensate that labor at the slave-wage rate of $1 per day. The problems for GEO and CoreCivic is that they ran the program in such a way that is was hardly voluntary. Detainees were simply picked at random by prison officials to perform the work required and those who refused to participate were denied soap, sanitary pad, and toothpaste. In other facilities, detainees were threatened with solitary confinement or a transfer to more dangerous part of the prison if they refused to participate in the “voluntary” program.

The detention facilities paid these “volunteer” detainees differing rates, depending on the facility and state. In New Mexico and Georgia, the pay was just $0.50 per day. In Texas, it could be up to $3. But most facilities just paid the $1 per day that ICE reimbursed the private prison under the VWP program. The problem for GEO and CoreCivic is that this slave-wage compensation violated state minimum wage and forced labor/human trafficking laws. The companies now face lawsuits for wage theft and forced labor in six different states. In Colorado, 60,000 present and former detainees are part of a class action suit against GEO for wage theft and forced labor.

The cost of these cases for GEO and CoreCivic is escalating quickly, with one executive claiming that cost of the Colorado case alone had already exceeded $1.5 million. In typical fashion, these companies’ executives desperately tried to get the government to either get them off the hook or help pay for the cost of litigation. And this is where the cozy relationship between government and business came in especially handy. The former director of ICE’s division charged with detaining undocumented immigrants was now the VP of business development at GEO and he sent a letter to his former colleagues at ICE asking ICE to help defray the costs of the ongoing litigation. According to the GEO executive, “GEO cannot bear the costs of this defense on its own…The legal discovery costs could total several millions of dollars and potential damages could be in the tens of millions…To the extent that plaintiffs allege that disciplinary segregation [solitary confinement] is an unlawful threat for refusal to work, this sanction comes directly from ICE policies, which ICE should assist in defending…GEO’s contracts with ICE require that GEO administer the VWP [Voluntary Work Program] at the Aurora and Tacoma facilities, and set the reimbursable rate for that participation at $1 per detainee per day, an amount that cannot be increased without ICE’s authorization”. GEO’s CEO followed up with another letter to ICE asking the DOJ to pick up the legal costs of these cases which he claimed could reach $20 million.

Incredibly, the contracts that ICE has with GEO and CoreCivic are not public so there is no way to verify whether the claim that ICE policies allow solitary confinement as punishment for refusal to work in a “voluntary” program or whether the restriction on the $1 per day compensation is an actual ICE limitation. What we do know is that payments to detainees have varied from $0.50 to $3.00 per day, implying that the companies were already violating ICE policy, if such a policy actually exists.

At the same time GEO was telling ICE it could not handle the costs of these cases without help, GEO was also telling its shareholders that the suits were nothing to worry about, hinting that they not only did not think the company would lose these cases but that “The Company does not expect the outcome of any pending claims or legal proceedings to have a material adverse effect on its financial condition, results of operations or cash flows”. That opinion was certainly at odds with the tone of the letters GEO was sending to ICE, raising the question of whether GEO was lying to ICE or to its own shareholders. Considering that GEO reported revenue of $2.26 billion for 2017, it seems that it was crying wolf to ICE. But it is another example of corporate executives saying one thing publicly and the exact opposite to their shareholders.

ICE and the DOJ eventually rebuffed GEO’s efforts to defray the costs of these lawsuits. But an ICE employee contributed to GEO’s defense in another way. ICE’s top official in charge of contracting left the agency in April, 2018 and just three months later she was being paid by GEO to be an expert witness in the wage theft cases. As such an expert, she testified that “ICE could not expend more than $1.00 a day for detainee wages…without Congress setting a higher rate and appropriating the funds needed to pay the higher rate. In my capacity wherein I was responsible for advising and developing the budget for the [ICE] Director who then advised the DHS Secretary and, in turn, the President on appropriations requests, I relied upon the Congressional rate”. Of course, this testimony says nothing about the rate that the private prisons could pay the detainees, only that ICE could not spend more than $1 per day for work performed by a detainee. And, as noted above, GEO was paying rates both above and below that $1 rate.

But the bigger problem with the testimony was that it was in violation of the Procurement Integrity Act which prohibits agency employees from being compensated in any way for work done for a company which has been awarded more than $10 million in contracts by the agency for a full year after they leave the agency. Not only was this former ICE official in violation of that Act but ICE also concluded that she had violated agency rules by disclosing confidential information. According to a lawyer for ICE, the former official “was not authorized to speak on behalf of the agency or provide the information contained in the declaration submitted, ICE objects to the submission of the declaration to the extent that it purports to be provided on behalf of the agency or express agency views”.

There was one more group within government that was also willing to go to bat for GEO in order to get the government to pick up the costs of litigation. Unsurprisingly, it was a group of eighteen House Republicans who sent a letter to then Attorney General Jeff Sessions that claimed “Unless your agencies act to intervene in these lawsuits, immigration enforcement efforts will be thwarted”. The Republicans also argued that the litigation by detainees for wage theft and forced labor were merely “nuisance lawsuits” and that, since the detainees were not actual employees of the private prisons, they therefore had no standing to sue for payment as though they were an employee. They also cite the goals of the VWP which are to “(1) enhance detention operations and services through detainee productivity; and to (2) reduce the negative impact of confinement through decreased idleness, improved morale, and fewer disciplinary incidents”. While that might be true of a truly voluntary program, the Republicans entirely neglect the fact that the detainees who are suing are claiming there was nothing voluntary about their work.

The private prison industry exists and profits solely because of the privatization of government. Staying in each administration’s good graces and intense lobbying keep those contracts flowing to the private prison companies. In addition, the Economic Policy Institute estimates that wage theft costs American workers between $40 and $60 billion every year and pads the profits and shareholder dividends of the companies that steal that money. So it is hardly a surprise that these private prison firms would steal from non-citizen prisoners. And, with an administration running concentration camps on the border with the blessings of the Republicans in Congress, it is hardly a surprise that those same Republicans believe that forcing detainees to work for virtually no pay will be good for their morale. Where have we seen that before?

Originally published at on July 20, 2019.

Thoughtful discussions on politics and economics with some sidelights in photography and astronomy.

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